Grain Price Volatility In Soggy June
Jul 01, 2013
The Corn Belt continued to experience record setting rainfall totals throughout June, resulting in the worst planting season in over 20 years. Areas of southern Minnesota, Iowa, Wisconsin, and Illinois have monthly rainfall totals in excess of double the respective averages, with single day rainfall totals over seven inches. The U.S. corn crop was officially fully planted as of the fourth week of the month and the U.S. soybean crop was nearly finished as of the end of the month, according to the USDA.
On June 28th, the USDA surprised analysts with an increase in corn acreage in their annual acreage report. Corn planted acres for 2013 were estimated at 97.4 million acres, more than 2.0 million acres higher than analyst expectations. We have seen many farmers who were unable to plant corn due to the very wet weather and in turn, elected to plant soybeans or filed a prevent plant insurance claim. Soybean planted acres were estimated at 77.7 million acres, the highest planted acreage on record and an increase of 1% from last year.
Front month corn prices increased by 2.6% this month, closing at $6.79 per bushel on the July contract. The new crop December corn contract decreased this month to $5.11 per bushel due to the bearish USDA acreage report. Throughout June, corn prices were volatile and paralleled weather patterns across the Corn Belt during planting. In the June WASDE Report, the USDA estimated U.S. corn production 135.0 million bushels less than the previous month at 14.0 billion bushels, due to delayed planting. Increased world corn production will help offset the decreased U.S. production, with the primary increase coming from Brazil.
Soybean prices increased by 3.6% this month to close at $15.64 per bushel. New crop soybeans are currently at $13.03 per bushel due to the record amount of acres planted in the U.S. this year. In early June, soybean prices increased due to the severely delayed pace of planting. USDA held U.S. ending soybean stocks constant from last month at 265 million bushels in the June WASDE Report. As with corn, soybean prices were volatile throughout June, trending with moisture patterns in the Corn Belt.
Wheat prices decreased by 8.1% this month, closing at $6.48 per bushel. Winter wheat production was estimated slightly higher in this month's WASDE at 1.486 billion bushels, although total U.S. wheat production was estimated 8.3% lower than last year at 2.08 billion bushels, due to a decrease of 1.7 bushels per acre on average yield. Additionally, the U.S. Dollar strengthened in June, hurting the competitiveness of U.S. wheat versus other production areas in the world.
The Creighton University farmland price index decreased in June for the sixth time in the last seven months, but remains above growth neutral at 58.4. There are concerns from bankers that farmland prices could be tapering. Ernie Goss, Chair in Regional Economics at Creighton University, commented, "Our farmland price index has been above growth neutral since February 2010. However, we are tracking a clear downward trend in farmland price growth."
The summer months are the typical lull in the farmland buying season and thus comparable sales greatly diminish. We have still seen a fair amount of farmland sales throughout June and feel that the farmland market is still in an upward trend. Additionally, the amount of outlier sales on the high end have been slowing.
As of June 23, 2013 corn that has emerged was at 96%, down 3% from the five year average and down 4% from the previous year, according to the USDA, with 65% of the corn crop being classified as in good or excellent condition compared to only 56% at this point in 2012. Soybeans planted were at 92%, behind the five year average of 95%. Last year at this time, 98% of soybeans had emerged, but only 81% have emerged as of the fourth week in June.
Having traveled in the Dakotas, Minnesota, Iowa, Wisconsin, Illinois, and Indiana throughout June, we do not understand how the USDA is classifying 65% of the current corn crop in good or excellent condition. Many corn fields show severe flood damage of the corn that has survived the enormous amount of rainfall thus far this spring. The maturity of the U.S. corn crop is at least two to three weeks behind on average, according to our first hand experience.
Old crop corn prices increased by 12 cents on June 28th, due to the USDA acreage and stocks reports, which will continue to support farmers who have been patient enough to hold 2012 corn this long. Many local elevators have been paying well over $1.00 for old crop corn due to the severely low supply. Although 2013 is the opposite weather phenomena compared to the drought of 2012, corn supplies may become dangerously low again. The U.S. corn crop is in below average condition, according to the farmers we work with on a daily basis. We will continue to monitor the weather and amount of heat units the current corn crop is now finally absorbing. Our key concern of the late maturing corn crop is a late pollination period. Hot and stressful weather can cause major yield damage if present during pollination.
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