Grain Prices Finish 2014 at Five-Month High

By Colvin

After a record corn harvest, farmers are now planning their 2015 crop year while trucking grain to market throughout winter. The $0.05 to $0.10 carry in both the soybean and corn markets from harvest to early spring have encouraged farmers to store grain as long as possible. Farmers are closely watching the ratio of soybean to corn prices throughout the winter months; currently at approximately 2.4. As the ratio widens above 2.5, the more likely soybean acres will increase at the expense of corn acres in the U.S.

Russia, the fourth largest wheat exporter in the world, will reportedly enact a number of informal export controls to restrict the amount of wheat leaving the country in 2015. Beginning in February 2015, the Russian Government will impose increased quality measures, do away with railway loading programs, and levy a duty of no less than $43 per ton on all wheat exports. The recent decline in the value of the Russian Ruble caused an extreme outflow of wheat as sellers search for stability in foreign currencies. The Russian Government hopes the duty will curb exports of wheat and decrease the domestic price, allowing Russia to replenish domestic stocks.

On December 22, 2014, Chinese officials announced an agreement to begin accepting the MIR-162 corn trait, commonly known as Syngenta’s Viptera corn. The MIR-162 trait has been the cause of much dispute; China canceled many barge loads of U.S. corn in 2014 due to detection of the previously unapproved MIR-162 trait in the shipments. The cancelations prompted companies including ADM, Bunge, and Cargill, as well as a significant number of farmers, to file a lawsuit against Syngenta, claiming negligence and false claims of the trait's imminent approval.

Grain Prices

March corn prices increased 2.85% throughout December to close at $3.98 per bushel. Prices were supported in early December by strong domestic consumption led by purchases for ethanol production and livestock feed. News in mid December of Ukraine defaulting on corn contracts to China and strong export reports from the USDA caused further price increases. The bullish news more than offset reports of above average growing conditions in South America.

The average U.S. corn yield estimate was unchanged in the December USDA WASDE Report, remaining at 173.4 bushels per acre (bpa). Ending U.S. corn stocks were decreased by 10 million bushels to 1.998 billion bushels due to an increase in corn used for sweeteners. Global corn production was increased by 1.26 million metric tons (MT) to 991.58 million MT due to higher corn production in China and the EU.

January soybean prices increased 0.89% throughout December to close at $10.19 per bushel. Very strong export report data from the USDA showed consistent and growing Chinese demand. Weekly U.S. soybean exports exceeded 2.0 million MT seven times within the past two months for only the fourth time on record.

USDA did not change the average U.S. soybean yield estimate of 47.5 bpa. Ending U.S. soybean stocks were projected at 410 million bushels in the December WASDE Report, a decrease of 40 million bushels from November, entirely due to the torrid pace of exports. Although soybean ending stocks were reduced, stocks are still the highest since the 2006/07 marketing year.

March wheat prices increased 1.90% throughout December to close at $5.89 per bushel. Prices increased early in the month behind lower production estimates from Ukraine and Russia. The USDA estimated a 10 million bushel increase in U.S. imports from Canada in the December WASDE Report, exemplifying the increase in domestic demand for Durum in particular.

Wheat prices were further supported when Russia declared the addition of an export duty on domestic wheat in effort to curb exports in the wake of their currency issues. In late December, prices decreased as the U.S. Dollar strengthened, making U.S. wheat less competitive on the global market.

South American Crop Conditions

The maturity of corn in Argentina and Brazil has been quite variable. Throughout the next few months, the primary corn crop will pollinate and be greatly subject to weather conditions. The safrina corn crop will be planted post soybean harvest in areas where double cropping is available. The post U.S. harvest rally in corn prices paired with a falling Real have helped improve production margins in Brazil, according to Societe Generale.

After one of the worst planting periods in the last few decades, weather in South America has greatly improved. Despite localized areas of excessive wet weather, soybean crop expectations in both Argentina and Brazil are very strong. We will be closely monitoring the weather in South America throughout the growing season ahead.

Farmland Values

The Creighton University farmland price index improved in December to 38.6 from 30.0 in November. Sale prices have settled relative to some irrational prices being paid in early 2014, but bankers have reported high quality farmland is still selling for $10,000 per acre or more in some areas. This month bankers were asked how they expect farmers to adjust their expenses to the likelihood of lower revenues. 64% of the respondents believe that farmers will cut back on equipment purchases in 2015.

Iowa farmland decreased 8.9% in 2014 to $7,743 per acre, according to Iowa State University's annual Farmland Value Survey released in December, which marks the first decrease in average values since 2008. Despite decreased farmer income in 2014, the vast majority of Iowa farmland buyers, 78%, were farmers this past year. The ratio of farmer to investor buyers has been widening since 2005.