Grain Markets End March on a Bullish Note
Apr 02, 2012
One of the warmest and dry springs in recent memory, will allow farmers to plant the largest corn crop since 1937. Favorable weather across the Corn Belt has farmers already planting in some of the southern regions. In many areas of the Corn Belt, the first planting date allowed by crop insurance has been moved forward a few days. Grain prices were declining throughout March as the markets were building in a worst-case scenario for the USDA Prospective Plantings and Quarterly Stocks, but lower than expected corn supplies rallied prices on the last day of the month. The amount of 2012 planned corn acres was estimated 2% higher than consensus, but soybean acres were below analyst expectations.
Corn prices decreased by 1.9% in March and closed at $6.44 per bushel. Prices had declined for the majority of the month as favorable corn economics were incentivizing farmers to plant on of the largest corn crops on record. As the markets built a worst-case scenario for corn prices, the forward contract fell to as low as $6.04 per bushel. At the end of the month, the USDA estimated corn planted acres for 2012 at 95.9 million acres, a 4% increase from 2011's 91.9 million acres. High corn prices relative to soybeans and warm, dry weather has encouraged farmers to plant corn at the expense of soybeans. Corn stocks as of March 1, 2012 were estimated at 6.01 billion bushels, an 8% decrease from March 1, 2011 and a 150 million bushels lower than market expectations.
Soybean prices continued to increase this month by 6.9% to close at $14.03 per bushel, a six-month high. Prices steadily increased throughout March due to the continued difficulties in South America and lower planted soybean acres. Soybean acres were estimated at 73.9 million acres, a decrease of 1% from last year’s 75.0 million acres. Soybean stocks as of March 1, 2012 were estimated at 1.37 billion bushels, a 10% increase from 2011 and somewhat in line with analysts’ estimates.
Wheat prices declined by 0.6% this month, closing at $6.60 per bushel. Wheat planted acres were estimated at 55.9 million acres according to the USDA, an increase of 3% from 2011's 54.4 million acres. High global wheat supplies have provided little incentive for farmers to plant wheat in 2012.
The Creighton University Rural Mainstreet Index (RMI) increased slightly this month to 59.8, primarily due to increased exports of agriculture commodities. Farm income continued to grow as March marked the 26th straight month the index has been above growth neutral. Cash rent prices for agricultural land have been increasing alongside farmland values and farm income. The farmland price index increased to 78.7 this month from 75.0 in February. As spring approaches and farmers are focused on planting the upcoming crop, the farm equipment sales index declined to 61.5 from February's 63.4.
Bankers were asked this month, as they were also asked in May of 2010, to assess the change in cash rent prices for farmland over the past 12 months. 39.0% of bankers reported cash rents growing by more than 10.0% year-over-year whereas only 3.0% reported this type of growth in May of 2010.
China Buying U.S. Corn
China, the world’s number two consumer of corn, bought 120,000 tons of corn in March from the U.S., bringing China’s purchases of corn this year to almost 4 million tons. The purchases were by livestock feed mills in southern China for shipment in May to August and a price of $320 per ton. Domestic corn supply remain tight and more corn imports are expected over the next few months.
China, historically self-sufficient in corn, transitioned to being a net importer of corn in 2010 and is now a major importer. Strong domestic growth and higher protein consumption has left the county short of corn the last few years. Corn imports in China are expected to grow rapidly and may reach 15 billion tons by 2014.
The USDA Prospective Plantings report and Quarterly Stocks report gave investors confidence as grain prices proved to be fundamentally strong. At 2.3% less than market expectations, current corn supplies are low in the U.S. which may lead to rationing of the 2012 corn crop if yields are short of the USDA trend line expectations.
Our attention will turn to the weekly USDA Crop Progress reports staring April 2nd, along with the June 1st Plantings Report. The weather has been favorable for farmers seeking to plant early, but we will watch any changes and how the grain markets will react.
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