Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.
Soybeans Rally to Five-Month High
Mar 01, 2012
Farmers are anxiously waiting to start the 2012 planting season which typically commences the second week of April, but may arrive early this year. Mild temperatures and lack of moisture will lead to early field access for farmers across the Corn Belt. Grain markets performed well this month as global demand for grains continues to increase as proven by strong export data and a weaker U.S. Dollar. Farmland values also continued to increase according to District Federal Reserve Reports.
Corn prices increased by 2.7% in February and closed at $6.56 per bushel. Prices follow the upward trend of soybeans, even though a record amount of corn is set to be planted this year. The U.S. export market strengthened as Vietnam rejected corn shipments from India, Asia’s largest corn exporter, due to pests. In this month's WASDE Report, the USDA projected U.S. corn exports at 50 million bushels higher due to an increase in sales and shipments and a decrease in Argentina's supplies. Ending U.S corn stocks were also decreased by 45 million bushels to 801 million bushels, leaving the stocks-to-use ratio at 6.3% compared to the 5-year historical average of 12%.
Soybean prices increased substantially by 9.5% this month to close at $13.13 per bushel, a five-month high. Perspective purchasers drove prices higher by increased buying. World soybean production was forecasted 7.2% lower for 2012/13, according to World Oil, which would mark the largest year over year decrease in history due to poor South American weather conditions. This month's USDA WASDE Report left soybean ending stocks and exports unchanged in the U.S. from the January report. Expect soybean prices to react to the March 30th USDA Perspective Plantings Report if planted acres deviates from 75 million acres.
Wheat prices were nearly unchanged this month, loosing $0.02 on the front month contract closing at $6.64 per bushel this month. Ample global wheat supplies have kept the wheat markets calm throughout February. U.S. wheat ending stocks for 2011/12 were projected 25 million bushels lower to 845 million bushels in the February WASDE Report. Exports were increased by 25 million bushels due to strong sales, strong shipments, and competitively priced feed.
From January 1, 2011 to January 1, 2012, farmland values in the 7th Federal Reserve District in Chicago rose 22%, the largest annual increase since 1976 according to the Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Credit Conditions Report. The Kansas City Fed reported a similar 25% increase year-over-year. Farmland values soared to record highs due to strong farmer demand.
According to the USDA's most recent forecasts, 2011 net farm income is anticipated to be $98.1 billion in 2011, a 24% increase from 2010 levels. The key drivers of net farm income in 2011 were rising corn and soybean prices. Corn prices averaged 57% higher compared to 2010, while soybeans averaged a 26% increase over last year.
The farmland price index increased to 75.0 this month from 74.3 in January, according to the Creighton University Rural Mainstreet Index. This marks the 25th straight month the index has been above growth neutral. The farm equipment sales index declined to 63.4 from 72.3 in January. Bankers were asked what their forecast was for farmland prices in the coming year. Almost half, 46%, forecast prices to grow between 1% and 5% while only 8% of bankers expect prices to decline.
Heavy precipitation fell across much of the Midwest via a major storm system at the end of the month. Portions of southern Minnesota received over two inches of rain in less than 24 hours. Heavy snow blanketed much of the upper Midwest, but a delayed planting season is not a concern as the Corn Belt has had minimal moisture thus far this winter.
USDA Chief Economist, Joe Glauber, stated this month that U.S. farmers are expected to plant 94 million acres of corn and 75 million acres of soybeans this upcoming crop year. 94 million acres of corn would be the highest amount planted since 1944 and a 2.3% increase from 2011/12, although this month's USDA estimates are perfectly in line with the USDA baseline forecasts. Grain prices reacted mildly to the news as traders didn't expect much deviation from the baseline projections. Expect grain markets to react to any sort of variation from 94 million corn acres and 75 million soybeans acres once the USDA Perspective Plantings Report is released on March 30th.
Often the amount of excess moisture had been the problem delaying planting for farmers across the Midwest in recent years, but this year the lack of moisture has been causing concern. The recent burst of precipitation across the Corn Belt will have hopefully been the first of welcomed change in weather patterns that will produce more moisture than over the previous six months. Farmers will need ample moisture for proper seed germination after planting.
Our attention will be turned to the March 30th Perspective Plantings Report from the USDA which will dictate grain prices into planting this year. Any forecast less than 94 million acres for U.S. corn plantings will be bullish for corn prices.
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