Grain Markets Volatile per USDA Report
Feb 01, 2012
U.S. grain markets began 2012 on a strong note, but the January USDA WASDE Report quickly brought volatility back to the markets. La Niña has continued to cause problems for South American farmers with expected yields decreasing by the month and providing support to the global grain market. A strengthening U.S. dollar has slowed the grain rally in late January alongside renewed European debt concern.
Corn prices decreased by 1.25% in January and closed at $6.39 per bushel. Prices moved sideways in the beginning of the month as investors anticipated the January WASDE Report. The bearish WASDE Report sent corn futures limit down mid-month to below $6.00 per bushel for the first time since mid-December. USDA estimated U.S. corn production 48 million bushels higher with a 0.5 bushel increase in yield per acre and a 45,000 acre increase in harvested acreage. Additionally, U.S. corn exports were projected 50 million bushels higher due to strong sales to date and reduced forecast for Argentina. The La Niña weather pattern is still damaging crop expectations in South America as Rabobank International estimated 2011/12 global corn production would decrease by 1.2 million metric tons from the December estimate of 854.6 mmt.
Soybean prices increased by $0.01 this month to close at $11.99 per bushel on the Chicago Board of Trade. The January WASDE Report estimated U.S. soybean production to be at 3.056 billion bushels, a 10 million bushel increase based on improved yields. The soybean yield estimate is up 0.2 bushels per acre to 41.5 bushels per acre. Again, the La Niña weather has caused more stress in the soybean markets as Rabobank International recently estimated that global soybean production will be down 3.5% to 249 mmt in 2011/12 from December estimates.
Wheat prices were sent 2.0% higher during January to $6.66 per bushel. Prices started the month down due to the bearish WASDE Report for corn and soybeans although wheat data wasn't as bearish. U.S. wheat ending stocks were projected 8 million bushels lower in the WASDE Report to 870 million bushels due to an increase in seed usage and exports. Feed and residual use is projected 15 million bushels lower due to a decrease in expected disappearance during September through November. Wheat prices have rallied since Russia may impose an export tax on wheat to help support domestic supplies. We will watch Russian wheat exports closely as any government action to constrain Russian exports may drive a U.S. wheat rally.
The Creighton University farmland price index fell to 74.3 this month from its record high 84.1 in December. This marks the 24th straight month the index has been above growth neutral. The farm equipment sales index decreased to 72.3 from 73.8 in December. Only 9% of bankers expect the ending of the blender's tax credit for corn-based ethanol to have a significant negative impact on the Rural Mainstreet economy. The majority, 51%, thought it would have a modest negative impact.
Fred Bauer, president of Farmers Bank in Ault, Colorado, responded to the bankers reporting, "Oil and ag income continue to push our area economy up."
South American farmers are worrying about a significant decrease in soybean and corn yields this season. According to our Argentinean network, the Pampas region of Argentina where soybean yields average 4,000 kg/hectare, yields are expected to be close to 2,600 kg/hectare, while corn could be off over 50% at 3,500 kg/hectare compared to an average yield of 8,000 kg/hectare.
The second drought in just as many years has left the sub surface soil moisture levels very low in Argentina which are leading to more severe damage in crops compared to a first year drought. We will continue to keep monitor on La Niña in South America throughout this spring.
U.S. farmers have been in awe at the small amount of snow that has accumulated thus far this mild winter. The frost depth across much of the Corn Belt is shallower than average at about 30" for southern Minnesota according to the Minnesota Department of Transportation. The average maximum frost depth in southern Minnesota occurs in early February at approximately 65" to 70" in depth. The 2012 winter frost depth is on pace to be significantly less which could lead to a drier, earlier, and favorable 2012 planting season.
The lack of snowfall across the Midwest has kept planting season on farmer's minds as corn planting will be full on within three months. Farmland values have continued to showcase very high sales across the Corn Belt as farmers still are looking to expand their operations through land acquisitions. We remain bullish on farmland values and see any short-term grain market woes as great buying opportunity for investors.
We will continue to monitor the weather in South America, but so far the lack of snowfall in the Corn Belt looks to be making way for an ideal 2012 planting season for U.S. farmers.
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