Volatile June for Agriculture
Jul 05, 2011
Rain continued to delay farmers planting corn and soybeans throughout June, but hard work and long hours have lead to crop progress almost entirely catching up to historical averages. As of June 20th, 97% of the U.S. corn crop had emerged while the 5-year historical average is 99%. 92% of the U.S. soybean crop had emerged by June 27th; on par with the historical average.
The big news of the months was the highly anticipated Planted Acreage Report from the USDA on June 30th, and to analysts' surprise, increased corn planted acres to 92.3 million in 2011. Corn prices were limit down as the increased acreage will produce an estimated 273 million bushels at the current USDA yield estimate. The USDA also reported quarterly stocks of corn increased due to decreased feed and residual demand.
In mid-June, the U.S. Senate passed a bill by commanding margin to remove the 45 cent ethanol tax credit. The 45 cent tax credit is set to expire on December 31, 2011 and it is unlikely that the current bill will pass into law before the set expiration. An immediate cut to the tax credit would certainly help corn balance sheets, but the cut cannot completely ease the pressure of potential yield loss and a delayed 2011 corn harvest due to the difficult planting season.
Analysts would like to see attention turned to the expansion of the newly approved E15 gasoline, rather than continuing the blender tax credit. Tax credits to help build gas station infrastructure to handle E15 gasoline would likely replace any lost gap in corn demand from the 45 cent tax credit cut as higher amounts of ethanol would be required to blend into the E15 gasoline.
Corn prices decreased by 18.8% this month and closed at $6.29 per bushel during another volatile month of trading. July corn increased as much as 4.8% in early June due to a bullish WASDE Report, but favorable weather and an extremely bearish USDA Planted Acreage Report at the end of the month drove prices lower. Corn crop conditions are rated 68% Good/Excellent as of June 27th, slightly below last year’s rating of 73%
Soybean prices decreased by 5.4% in June to $13.06 per bushel due to favorable planting and growing conditions throughout the month. The strength of the U.S. Dollar and growing debt concerns in Greece have put downward pressure on soybean prices. The planted area of the 2011 U.S. soybean crop is the smallest since 2008, according to the USDA, which may give support to weakening prices.
Wheat prices decreased this month to $5.84 per bushel, a 33.9% decrease due to the continued bearish price outlook since Russia announced its lifting of its export ban back in May. Favorable weather conditions in the U.S. have lead analysts to almost entirely write off the crop condition concerns of earlier in the year. The progress of the U.S. winter wheat harvest is also ahead of historical pace thus weakening prices.
The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report mid-month. WASDE reports in the summer are a barometer of overall world demand, forecasted production, and inventory adjustments. In June, U.S. ending stocks for 2011/12 were revised lower for corn and wheat, but increased for soybeans.
Bullish news for the U.S. corn continues midway through 2011, as the 2011/12 U.S. projection for corn production and ending stocks were decreased by 305 and 205 million bushels to 13,200 and 695 million bushels respectively due to a decrease in estimated planted area which now includes the flooded acres of the Ohio and Mississippi valleys.
Current USDA projections rank this corn crop as the largest corn crop in U.S. history, but ending stocks are the lowest since 1995. The USDA maintained its forecast for corn yields and beginning stocks, at 158.7 bushels per acre and 730 million bushels respectively.
We will look forward to the July WASDE Report which should make an adjustment for the recently increased planted acres which will likely drive production and ending stocks higher.
Planted Acreage Report
A bearish surprise for the grain markets on June 30th, as estimated acreage for planted corn and quarterly stocks for soybeans were significantly higher than consensus expectations in the USDA Planted Acreage Report. Analysts expected planted corn acreage to decrease, but instead increased along with quarterly soybean stocks.
The USDA raised estimated planted corn acres to 92.3 million, up from their March estimate of 92.2 million acres. This also represents a 5% increase in planted acres compared to 2010 and highest planted acreage in the United States since 1944, behind only the 93.5 million acres planted in 2007.
The USDA released its estimate of quarterly corn stocks of 3.67 billion bushels, significantly below 2010 estimates of 4.3 billion bushels. However, usage of 2.85 billion bushels for the three-months ending, May 31, 2011, was significantly lower than the 3.38 billion bushels consumed over the same period in 2010.
Farmland prices remain above growth neutral for the 17th straight month according to the Creighton University Rural Main Street Index, but the farmland index continued to decline to 62.0 from May’s 75.0. Bankers are concerned that a large drop in commodity prices could have a negative effect on farmland values and one-third of respondents noted that outsiders were the primary buyers for farmland.
Bankers also expressed concern regarding the impact of the Missouri River flooding on the economy. Larry Winum, president of Glenwood State Bank, noted, "The current and potential flooding problems will certainly have an adverse economic impact on sectors of agriculture, business, and on our communities along the Missouri River. A sad situation for a lot of people."
Farmland values have been continuing to rise throughout this "offseason" of buying due to the ongoing support of high grain prices. If the December 2011 corn can remain above $6.00, farmers will be confident for 2012 and continue to reinvest in farmland. We have observed impressively high cash rent offers across the Midwest within the last few weeks proving that farmer demand to add property to their operation is as strong as ever.
We still are bullish on farmland values throughout 2011 due to the constraints on the U.S. corn crop and global demand. Perfect weather conditions would yield 158.7 bushels per acre, but any unexpected weather patterns could change the yield outlook significantly over the next 12 weeks.
Visit http://farmlandforecast.colvin-co.com for daily articles on agriculture and farmland.