Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.
Favorable Conditions for May Planting
Jun 02, 2014
Spring planting was delayed due to wet conditions and cooler than average temperatures throughout early May, but favorable weather conditions across the Corn Belt helped U.S. farmers catch up to historical averages. The successful planting season thus far has put downward pressure on grain prices with an outlook for bumper corn and soybean crops. The northern Corn Belt has been unable to fully recover from high amounts of precipitation in May, which may lead farmers to switch corn acres to shorter maturing soybeans.
The demand for food is growing each day as the world's population expands and diets evolve to a higher protein base, and so is the demand for protein producers. In late May, food producers JBS's Pilgrim's Pride and Tyson Foods made respectively unsolicited offers of $5.6 billion and $6.1 billion to acquire Hillshire Brands. The potential acquisition comes one year after Shuanghui International Holdings purchased U.S. based pork producer, Smithfield Foods for $7.0 billion.
Corn prices declined by 10.4% throughout May and the July contract closed at $4.65 per bushel. The USDA estimated 2013/14 ending corn stocks 185 million bushels lower to 1.146 billion bushels. The average U.S. corn yield was estimated at a record breaking 165.3 bushels per acre by USDA. Ideal planting conditions throughout mid to late May helped farmers make up for early planting delays and the outlook is now very strong for the U.S. corn crop.
Soybeans traded sideways in May, closing down 1.3% at $14.93 per bushel. The USDA decreased the 2013/14 ending soybean stocks by 3.7% to 130 million bushels due to higher than expected exports, which have now already surpassed the USDA marketing year estimates. The current stocks-to-use ratio is at a record low 3.8%.
Fundamentally, the soybean market is very tight, fueled by strong demand. Chinese domestic soybean prices are at their highest premium compared to imports, which could spark new purchases. The delayed planting in the northern Corn Belt could also force farmers to switch some of their delayed acres from corn to soybeans which could subside any immediate rally.
Wheat prices decreased by 13.0% this month to $6.27 per bushel. Throughout late winter and early spring, the U.S. winter wheat crop condition continued to worsen, but the spring wheat planting has been timely and the global supply of wheat is high. Russia's 2014/15 wheat crop was estimated up 3.7% this year to between 53 million tons and 55 million tons, according to R.J. O'Brien. Exports are expected to rise 13.7% by the Russians as well. The USDA estimated 2013/14 U.S. ending wheat stocks at 583 million bushels, unchanged from the April WASDE, but the 2014/15 U.S. ending stocks were estimated at 540 million bushels, the lowest since 2007/08.
A slow start to the planting season meant farmers were already well behind to start May, and for some areas, fear over whether farmers would get their crops in at all was apparent. At the start of May, 29% of corn had been planted, opposed to the five-year average of 42%. Despite continued cold and wet weather across many areas, farmers were given enough favorable weather to get their corn planted. As of the last week in May, corn planting progress had reached 88%, even with the five-year average.
Soybean planting was not as affected by the cold and wet weather in early spring due to its later planting season. As of the last USDA Crop Progress report, soybean planting and emergence were on schedule with the five-year average.
Winter wheat continues to be downgraded following a harsh winter that severely impacted the crop. 44% of the U.S. winter wheat crop is in poor or very poor condition, which is equal to in 2013. Only 58% of the crop is headed, compared to 69% at this time last year.
Farmland values increased moderately over the last twelve months in the Seventh and Tenth Federal Districts, which make up the majority of the Midwest. In the Tenth District, non-irrigated farmland values increased 4.4% and irrigated farmland values increased 6.4% over the last year. In the Seventh District, farmland values increased by 1.0% over the past 12 months, although quarterly valuations declined by 1% in the first quarter of 2014.
Despite the quarter-to-quarter decline, the majority of bankers and analysts are confident that farmland values will increase or remain stable in 2014. Ernie Goss, Economics Professor at Creighton University, commented, "Recent gains in agriculture commodity prices are boosting the farm/rural economy. Stronger farm commodity and grain prices over the last several months should put a floor under farmland prices in the months ahead. I expect the index to move above growth neutral before Labor Day."
The weather outlook is favorable for U.S. farmers to finish up planting their corn and soybean crops on time and focus on post emergence spraying in the upcoming weeks. We will closely monitor the weather in the northern Corn Belt and wait to analyze USDA estimates for planted acreages in the June 30th report. We will continue to monitor the unrest in Ukraine. Any changes in port control could greatly affect the world's corn and wheat supplies coming out of eastern Europe.
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