Market Outlook

 
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By Sara Schafer

Record Avian Flu Outbreak Slams Poultry, Bruises Grain

More than 48 million U.S. birds, including turkeys, chickens and other poultry, died in connection with avian flu from December 2014 through June this year. It marked the worst outbreak in history and continues to have lingering effects on corn demand.  

“With respect to feed use of corn, conservative estimates of ‘1 bu. per bird’ imply that the bird flu could result in feed and residual use of corn being 50 million bushels less than projected for the current marketing year,” notes a farmdoc Daily report by economists John Newton and Todd Kuethe, University of Illinois. 

Yet poultry only represents 34% of grain-consuming units, and USDA has yet to note major 
revisions to overall feed and residual use of corn. Although the full impact on corn demand has yet to be determined, U.S. egg production has dropped, causing price spikes in retail eggs. 

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By Chip Flory

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Let the Debate Over Crop Yields Begin

Unplanted acres and eroding yield potential sparked rallies from mid-June price lows. Yet prices moved to mid-July highs on short-covering by trading funds that moved from a net-short position in corn and soybean futures to a net long. 

It might sound like a cop-out to say price action depends on late July and early August weather and its impact on yield potential, but the truth isn’t a cop-out.

Let’s assume too much water scrubbed 2% from the national average corn yield. That’s conservative, right? That pulls the yield down to 163.5 bu. per acre, dropping the crop to about 13.26 billion bushels, or 270 million bushels below USDA’s July crop projection. Assuming about 20% of the crop shortfall is offset by less demand, 2015/16 corn carryover would be cut to about 1.38 billion bushels. That would be low enough to support $4.50 corn and an even better bid in December 2016 corn futures based on lower supply-side security for the 2016/17 marketing year.

A 3% yield loss from the 166.8 bu. national average trendline corn yield would drop the yield to 161.8 bu. per acre, suggesting a crop of about 13.12 billion bushels and, perhaps, $4.75 December futures. Alternately, a 4% cut suggests a yield of 160.1 bu. per acre, a crop of 12.98 billion bushels and the possibility of $5 December futures. 

Listen to Market Rally weekdays at 2 p.m. CST by visiting www.AgWeb.com/Market-Rally


By Nate Birt

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Interest rates skyrocketed upward of 18% with little warning in the 1980s.

With Higher Interest Rates on Horizon, Here’s How to Plan

Producers should expect interest rates to rise by 2017, bringing lower land values, farm profits and agricultural exports, says Jason Henderson, director of Purdue Extension and a professor of agricultural economics.

“It has a direct effect on your income,” Henderson told farmers at the 2015 Top Farmer Conference at Purdue University. “It has a direct effect on your collateral.”

This new era will be different than the 1980s, when interest rates skyrocketed upward of 18% with little warning. This time, the Federal Reserve has spent time informing people of its plans well in advance of enacting them. 

Henderson does not think interest rates will go as high as in the 1980s. Yet he advises producers to prepare for higher interest rates than they’ve seen in recent memory by revisiting management strategies and their books.

“Make sure you have working capital,” Henderson stresses. “Make sure you have some cash.”

Equipped producers will survive seesaw interest rates as the Fed course corrects.


By Nate Birt

Farm Bill Outlook Suggests Payments Likely Ahead for 2014 and 2015 Crops

Farm bill program elections are over for producers, but new developments continue to emerge as the agriculture industry and policymakers adapt to the new legislation.

“Key things I’ve seen on dealing with probably hundreds or thousands of farmers over the last year on the farm bill are most of the farmers I’ve seen have leaned toward ARC-County,” says Top Producer columnist Paul Neiffer, a CPA and partner with CliftonLarsonAllen. 

“Some have gone the PLC route, but really for especially those growers in what I call the northern Corn Belt, they’re looking at a maximum payment this year [for] the ’14 crop that was harvested last year. We’re almost coming up to the end of the marketing year,” he says. “Unless prices really rally, they’re looking at a full payment. For a lot of these farmers, it’s $70 to $80 per acre. That’s the difference between losing some money and making money.”

As for the 2015 crop, many producers should expect another maximum payment. Although the Congressional Budget Office estimated farmers would elect PLC on up to 75% of acres, signups  from USDA—Farm Service Agency (FSA) show more than 90% of corn and soybean farms chose ARC-CO.  

Commodity prices are lower now than when the farm bill won approval, so it’s likely the government will spend more on programs than anticipated. Congress might review whether to tweak crop insurance payments, Neiffer says. 


By Nate Birt

Crop Conditions Reveal Differences From 2014 Ratings

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Although rain has battered crops in the eastern Corn Belt, healthy stands have emerged throughout the western Corn Belt. Here’s a look at corn and soybean conditions during the week that ended July 12, as compared to conditions a year ago. 

 

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