Illinois farmer Darrel Gingerich harvested a huge corn crop this autumn thanks to near-flawless weather. Now, he is stashing it away.
“I didn’t sell any more than we had to in order to cover our costs for this year,” the 53-year-old said.
Mr. Gingerich is one of many Midwestern farmers who decided to hold on to their crops as they watched prices languish over the summer. Their collective strategy has since paid off, helping to fan a 15% rise in corn futures and a 10% jump in soybean futures since September that is also the result of a slow U.S. harvest and gains in other agricultural markets. Corn’s gain over the roughly two-month harvest period of October and November was its largest for that span in eight years and second largest in more than three decades, while soybeans’ climb was the biggest in five years.
Farmers have also helped create losers out of investors and trading firms that had bet that record harvests of 14.4 billion bushels of corn and nearly 4 billion bushels of soybeans this year, forecast by the U.S. Department of Agriculture, would keep pressure on prices.
Agricultural-trading firms Global Ag LLC and Bharwani Asset Management LLC both suffered losses of more than 19% in certain commodity funds in October as their bets on continued price declines soured.
Because they are so flush with cash from bumper crops and robust prices in previous years, farmers are more able than ever to hold back their corn and soybeans, forcing grain processors and food makers to pay a premium to get growers to part with their crops.
“The farmers exercise greater control [over grain and oilseed prices] than they have in the past,” said David Durra, principal of AgSpread Analytics Inc., a commodity-trading firm in Chicago. “Farmers are able to create a shortage at a time of plenty just by refusing to sell.”
On Tuesday, corn for December delivery, the front-month contract, fell 7.75 cents, or 2.1%, to $3.67 ¾ a bushel at the Chicago Board of Trade, pressured by concerns about the strength of demand for U.S. grain. The seven-week-long rally for corn—the U.S.’s biggest crop by value—has cut its year-to-date price decline to roughly 13%. Last year, corn prices tumbled 40% as farmers collected a record crop.
Soybeans for January delivery, the front-month contract for that commodity, dropped 21.25 cents, or 2.1%, to $9.95¾ a bushel on Tuesday, due in part to favorable weather for crops in Brazil, the U.S.’s main rival in soybean production. The recent upswing also stems from wet weather that delayed this fall’s harvest and higher prices for related commodities such as soybean meal.
More momentum came as money managers, including hedge funds, piled into the $24.5 billion corn market as prices climbed, betting on further gains. As of Nov. 25, the number of bullish bets held by managed funds outnumbered bearish ones by about 207,000 contracts, a 63% increase from a month earlier, according to Commodity Futures Trading Commission data.
The abrupt shift surprised investors such as Global Ag, which had anticipated corn and soybean prices would decline, according to a letter to investors last month. The Tennessee-based agricultural-commodities trading firm, which has about $206 million under management, suffered a 19.1% decline in its main trading fund in October. For the year, the fund lost 10.9% through October, according to performance data posted on its website.
“While the U.S. farmer produced record crop sizes, his financial well-being and historically cheap prices kept selling to a minimum,” David Skudder, trading principal for Global Ag, wrote in the Nov. 12 letter to investors. “We anticipated that open harvest weather and a negative fundamental outlook would prompt heavier selling, a bias that did not prove correct.” A Global Ag spokesman declined further comment.
Bharwani Asset Management, a small firm in Reston, Va., lost 22.6% in its grains-focused strategy in October. Skyline Management Inc., an investment firm in Mancos, Colo., reported a 7.1% decline in October for one of its ag-futures-focused strategies.
Uttam Bharwani, president of Bharwani Asset Management, declined to comment. Representatives for Skyline didn’t respond to requests for comment.
Some other firms produced big gains in October as they wagered on a rebound in prices. A $10.5 million fund run by County Cork LLC, based in suburban Chicago, gained 22.5% that month thanks to well-timed bets on soybean markets, said Ron Anderson, the fund’s manager.
Bigger on-farm storage capacity has helped farmers exert more control over grain and oilseed markets. U.S. growers increased capacity to 13.01 billion bushels last year, a 16% increase since 2000, USDA data show.
Farmers typically store crops in weather-resistant, galvanized-steel bins. But some also have adopted more-novel storage methods that aren’t included in the USDA’s storage-capacity statistics, including huge plastic bags capable of holding up to 14,000 bushels of corn, wheat or soybeans each. Mr. Gingerich, the Illinois farmer, filled 20 of the 300-foot-long, caterpillarlike tubes with corn and soybeans this autumn, double the number he has used previously.
Farmers’ reluctance to sell poses a challenge for major grain-trading and processing firms like Archer Daniels Midland Co. , Bunge Ltd. and Cargill Inc., which buy crops from growers and turn them into animal feed and other products for buyers such as livestock companies and packaged-food makers. Withholding farmers can lead commodity firms to sweeten prices paid for crops, crimping the companies’ profit margins.
“In general, we are buying less grain at harvest than we have been in the last few years,” said Soren Schroder, chief executive of Bunge, in a recent interview. “It is a shift.”
In quarterly earnings reports this fall, Bunge, ADM and Cargill all said their grain-trading profits declined in part because of slower sales by farmers in North and South America.
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