Published by Colvin & Co, LLP (April 1, 2015)
Farmers in the Corn Belt are welcoming dry spring weather conditions, which have not been seen in three years. The beginning of March was warm, allowing fields to warm up for spring planting. The last week of March brought colder temperatures but farmers are optimistic planting will commence in early April. The first crop insurance planting date for corn in central Illinois is April 5th; northern Illinois, southern Minnesota, and northern Iowa is April 10th.
Soybean prices decreased this month due to record setting exports of the last five months slowing throughout March. At the end of March, the USDA came out with their Prospective Plantings Report and estimated that soybean planting acres, if realized, will be the largest on record. Estimated corn planting acres decreased for the third straight year, but analysts were expecting a larger decline. The USDA Grain Stocks Report indicated corn stocks were on the high side of analyst expectations resulting in an 18 cent drop in corn prices on the last day of March.
On March 25th, H.J. Heinz Co. and The Kraft Foods Group announced a merger to create the fifth largest global food company and the third largest in the U.S. The new company will be called, The Kraft Heinz Company. The deal was reportedly put together by two of the largest shareholders of Heinz, 3G Capital and Berkshire Hathaway. The merger has been valued at $45 billion and the new company is estimated to have annual revenue of $28 billion.
May corn prices decreased 3.8% in March and closed at $3.77 per bushel. Early in the month, prices traded sideways at $3.90 due to a lack of fresh news. As the month continued, prices began to slip moderately due to global pressure. China reportedly purchased 600,000 metric tons (MT) of corn from Ukraine, further reinforcing the fear that the strong U.S. dollar will send global buyers elsewhere. Later in the month, prices increased as planting in the southern corn growing states began and warmer weather in the central and western Corn Belt melted the remaining snow. Prices finally declined at the end of the month when estimated corn acres in the USDA Prospective Plantings Report were on the high side of analyst expectations and the Grain Stocks Report estimated stocks higher than expected. Corn planted acres for 2015 were estimated at 89.2 million acres, a 2% decrease from last year. USDA also reported 7.74 billion bushels of corn on hand as of March 1, 2015, an 11% increase from the same time last year
The May soybean contract decreased 6.0% throughout March to close at $9.68 per bushel. Soybean prices decreased in early March as exports dropped from record setting levels. Ideal harvest conditions and improved logistics in Brazil put additional downward pressure on U.S. soybean prices. Prices increased on the final day of March when the USDA estimated planted soybean acres in 2015, though a record, on the low side of analyst expectations. Soybean planted acres were estimated at 84.6 million, a 1% increase from last year. The USDA also estimated soybean stocks have increased 34% compared to last year with 1.33 billion bushels as of March 1, 2015.
May wheat prices decreased 0.4% in March to close at $5.13 per bushel. Early in the month, wheat prices were hampered by poor sales and export performance. The strong U.S. dollar made domestic wheat unattractive on the global market, sending buyers elsewhere. Through the middle and end of March wheat prices increased modestly as the U.S. dollar weakened, but those increases were offset by poor weather reports of areas being either too wet or too dry for proper growth. The USDA estimated wheat planted acres at 55.4 million, a 3% decrease from last year. The Grain Stocks Report estimated wheat stored in all positions March 1, 2015 at 1.12 billion bushels, a 6% increase from last year.
The Creighton University farmland price index remained at 39.4 for the third consecutive month. “Even though crop prices have stabilized, demand for farmland remains weak pulling agricultural land prices down again. This is the 16th straight month the index has moved below growth neutral,” said Professor Ernie Goss. Farmers reported a significantly different story with auctions being well attended and the number of “No Sales” declining significantly from a few months ago.
This month bankers were asked, “What percentage of agriculture land sales in your area over the past year have been made to nonfarmer investors?” The average response was 17.5%, a 3.1% increase from what was reported in June 2014. The stabilization of farm prices over the past six to eight months has increased investor interest in the sector. Farmers needing to inject capital into their operation have been more willing to separate with some of their owned acres, and rather than sell it to another farmer many have turned to investors allowing them to continue to operate the land.
The typical farmland buying season is nearing an end as the primary buyers of farmland, farmers themselves, are turning their attention and capital to planting the 2015 crop. Throughout March, farmland sale prices have remained strong across the Corn Belt with a slight increase in farmer leaseback sales which allow farmers to free up capital without decreasing their acres under operation.
SOUTH AMERICAN CROP CONDITION
Harvest through the beginning of March was slow in Brazil. Farmers were delayed by wet weather and continued transportation issues caused by truck drivers striking in response to increases in the cost of diesel fuel, which began in February. Harvest and logistics improved throughout March with drier weather and an agreement at mediation was reached with the striking truck drivers. Approximately 61% of soybean acres were harvested, 4% less than this time last year, according to the CONAB report released on March 25. The largest soybean producing state, Mato Grosso, was near 90% complete, just below last year’s pace.
Civil unrest in both Argentina and Brazil caused concern for the region’s agricultural sector over the past month. Brazilian farmers partook in a national day of protest on March 15. The protests were in response to government corruption claims of the Brazilian President, Dilma Rouseff, as well as rising inflation that weakened the Brazilian Real. Farmers have threatened to halt the sale of their grain if measures are not taken to get the inflation under control.
Similarly, Argentinean farmers have been battling inflation throughout the past six months as well as their own president, Cristina Fernandez de Kirchner, being under investigation for covering up Iran’s role in the 1994 bombing in Buenos Aires. Farmers in Argentina protested against a 35% export tax levied on soybeans by refusing to sell soybeans for three straight days.
Following Brazil’s transportation quandary caused by striking truck drivers and delayed soybean harvest, Brazilian ports have become increasingly backlogged. According to Reuters, there are 123 barges lined up to load soybeans and another 18 barges are expected over the next month. World buyers will favor soybeans from Brazil due to the increasing strength of the U.S. dollar and devaluation of the Brazilian real, but with the lack of advances in port infrastructure and a growing line of barges, the backlog at Brazilian ports will only worsen.
In discussions with operators from Illinois, Iowa, and Minnesota they indicated they are ready to start planting in the next few weeks and have already started field work. As the southern states have begun planting we look forward to the upcoming Crop Progress Report due out on April 6th, showcasing winter wheat condition, and rice, sorghum and cotton planting progress.