September marks the beginning of harvest and has been a slow start for the Corn Belt, due to the slow progress of corn maturity. The lack of heat this summer across much of the Midwest has resulted in a slower growing process and higher moisture content in the corn. Farmers have delayed harvesting in hopes of drying the corn in the field rather than paying to have it dried.
Grain prices continued to decline through the month of September due in large part to the estimated record domestic production for corn and soybeans and global production for wheat. Fear of frost impacting yields has subdued as we move into October.
Immature Corn Causes Harvest Delays
Harvest results as of September 29th are behind the five-year average. Corn and soybean harvests are 11% and 7% behind their respective five-year averages, up from 8% and 5% the week before. Most farmers are blaming the delayed harvest on the wet spring, which caused many farmers to postpone planting or replant earlier planted crops. The delay this spring coupled with below average temperatures this summer, that hindered the crops maturation process, has left farmers waiting to harvest what is expected to be a record setting crop.
Record Crop Expectations Weighs Heavily on Grain Prices
December corn prices decreased 11.6% throughout September to close at $3.20 per bushel. Expectations of a record breaking harvest and multiple reports of excellent corn conditions weighed on prices throughout the month. The few price increases seen during September were due mainly to weather concerns; wet weather and the potential for frost were present but never materialized into anything harmful.
The average corn yield or bushel per acre (bpa) estimate was increased by 2.6% percent from August, to 171.7 bpa, according to the September WASDE. The yield increase caused total production estimates for 2014 to increase to 14.395 billion bushels, a record if realized. Ending stocks for 2014/15 were increased as a result of the record production estimate to 2.002 billion bushels from 1.808 billion bushels in August.
November soybean prices decreased 10.8% throughout September to close at $9.13 per bushel. Similar to corn prices, soybean prices could not escape the pressure caused by the USDA’s record breaking production estimates for them. Soybean conditions also remained well above-average throughout the month, causing further downward pressure. The few increases that soybean prices did see in September were due to weather related risk. Weather forecasts early in the month suggested the potential for localized frost in the northern Midwest. Some frost was reported but it caused little to no damage.
The September WASDE report increased both soybean ending stocks and average yield estimates from the August report. The average yield estimate increased 2.6% to 46.6 bpa, increasing the U.S. production estimate to 3.913 billion bushels, a record if realized. The expected rise in production increased ending stock estimates for 2014/15 to 452 million bushels from 430 million bushels in August.
December wheat prices decreased 15.3% throughout September to close at $4.77 per bushel. The record breaking global supply estimates of 906.39 million tons was due to record breaking global production estimates of 719.95 million tons. Increased production from Russia and Ukraine offset decreases in the Canada, France, and the U.S. Expected global use is elevated at 710.01 million tons, but the large amount of wheat coupled with the above average ending stocks from last year did not allow any relief for wheat prices.
Falling Grain Prices Force Farmland Values Down
The Creighton University farmland price index contracted for the third consecutive month moving from 41.4 to 33.7, its lowest level since February. Ernie Goss, Ph.D, Economics Professor at Creighton University, explained the reason for the decline, "Much weaker crop prices are taking the air out of agriculture land prices."
Bankers surveyed for the index were also asked the number of farmland transactions that have been cash sales as opposed to financed sales over the last three months. The majority of respondents reported roughly 25% of sales had been cash sales down from 29% a year ago and 26% last month. "The percent of farmland sales that are financed is growing, but at a very slow pace, according to our surveys. Plummeting grain prices have yet to push farmers into boosting borrowing to support farmland purchases," said Goss.
The fall in grain prices may have a short term effect on land values, but cash rents have not been similarly impacted. The USDA’s National Agricultural Statistics Service (NASS) released its annual cash rent survey results in September. Of the nine counties across the U.S. that averaged $300 per acre cash, eight of them were in the Corn Belt.
U.S. Soybean Stocks at Record Low
The USDA Grain Stocks report estimated old crop corn stocks at 1.24 billion bushels a 50% increase from last year. Old crop soybeans were reported at 92 million bushels a 35% decrease from last year. Wheat stocks were reported at 1.91 billion bushels a 2% increase from last year. The decrease in soybean stocks was significant and well below what analysts were expecting. The decline in soybean stocks decreased the stock-to-use ratio to 2.6%, a record low.
Farmers seem anxious to begin harvest to see if what the USDA has estimated is really true. The 30-day forecast looks to be favorable for farmers to close the gap between current harvest progress and the five-year average. The largest threat in the short-term will be the transportation of this mountain of grain. The railways and waterways, that are used to transport grain out of the Midwest, are already stressed and as harvest continues that stress will only compound.
Farmers with the ability to store their grain should be advised to do so and wait for these low prices to improve. Those who can will fare much better than those who will be subjected to long lines at elevators, high basis levels, and low cash prices for their grain during harvest. We will continue to monitor corn harvest throughout October and are anxious for early soybean yield data as well.
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