Exciting June for Agriculture
Crops across the Midwest are in need of dry weather as areas across the Midwest have received up to four times the average amount of rainfall during the month of June. Farmers have had a hard time finding a dry day to do their post emerge spraying on soybeans. Dry weather will be important in the upcoming weeks to assist with corn pollination and may make up for some lost yield.
If fields do not dry out soon, crops will start to lose significant yield potential. When crops remain in standing water for an extended period of time, their roots become deprived of oxygen. In comparison, if fields dry out and remain dry for too long, then their shallow root systems will become even weaker. A best case scenario for crops would call for a drying out phase, followed by average, steady rains.
Acreage Report
On June 30, the USDA’s National Agricultural Statics Service released their Acreage Report. The amount of planted corn acres was surprisingly decreased by 930,000 acres, or roughly 1%, from the prior March 31 report. The decrease in acres may be conservative according to Jerry Gulke of the Gulke Group, “The report didn’t show any recognition of prevented-planting acres. South Dakota should be down at least 30%.”
Iowa, Nebraska, South Dakota, and Ohio reported the largest setbacks in planted corn acres, which could jeopardize a bumper crop in terms of average yields because these states include three of the top five corn yielding areas, according to 2009 USDA corn yield data. Corn traded much higher following the Acreage Report, limiting up 30 cents for a portion of the day on June 30th. Growing season weather, along with foreign demand, will be primary factors having an effect on corn prices throughout the rest of the growing season.
Soybean planted acres increased by 770,000 acres as the wet planting conditions prohibited the planting of crops that require a longer growing season than soybeans. The increase in planted acres may be overestimated as a portion of the acres may be prevent planted by farmers who felt their fields were inaccessible in spring.
Commodity Prices
Grain prices performed well in the beginning of June, but declined by roughly 10% in the second half of the month due to concerns that economic growth in China will slow, high expectations for the 2010 production numbers, and a stronger U.S. dollar. Grain prices made a remarkable turnaround on the last day of trading for the month after the surprising USDA Acreage Report was released. Corn, soybeans, and wheat all traded positively following the report.
The weekly USDA Crop Progress reports have been reflecting a deteriorating condition of crops each week, but crop conditions are still above historical averages which could lead to strong yields. July corn closed on May 30th at $3.54 per bushel, soybeans at $9.48 per bushel, and wheat at $4.64 per bushel. During the month of June, corn prices decreased by 1.36%, soybeans increased 1.23%, and wheat increased 1.70%.
Yuan Revaluation
In a surprise announcement in June, China’s central bank announced it would remove the two-year-old peg to the U.S. dollar and to allow for a more flexible yuan, although it is not a free float and monetary authorities will keep the yuan in a tight trading band. The Chinese central bank also noted there will not be a dramatic revaluation, but rather a gradual adjustment.
The announcement of a stronger Chinese currency is excellent news for U.S. exports, especially the grain complex, as U.S. grains are now more attractive to Chinese buyers. China has an insatiable appetite for grains and we see this move by the central bank as a long-term strategy to feed the growing nation.
In the short-term, China has been increasing their imports of corn from the U.S. The U.S. Grains Council expects China to buy over 1 million tons over the next 18 months. China has already purchased at least 715,000 tons of corn for delivery by Aug. 31, according to the USDA. China is now a net importer of corn, even though they are the world’s second largest producer of corn.
China purchased the U.S. corn in order to relieve their domestic corn prices, which were roughly 74 cents per bushel more than U.S. China’s corn production decreased by 13% to a four-year low because of drought.
China had only 13 million tons of corn on hand in May and is selling their current inventories of corn, creating a situation where they need to purchase large quantities to replenish their shortage. We expect these additional purchases will have a big impact on the global demand balance for corn.
Farmland
In the second quarter, farmland values have continued to perform well despite a limited amount of sales. According to the Chicago Fed, farmland values across the Corn Belt rose 4% over the last 12 months. The Fed also noted that in Iowa, average farmland prices increased 8% since March 2009. The Kansas City Fed reported that district farmland values rose 2.8% for non-irrigated and 2.5% for irrigated.
Creighton University publishes a monthly farmland index, which has increased to 54.7 in June from its March 2009 low of 33.1.
We believe that the amount of land sold in the last quarter was muted due to the late harvest and early planting. The traditional selling season of post and pre harvest was delayed as farmers tried to get their crops out of the ground and focus on an early planting for 2010.
Outlook
We expect farmland values to continue to perform well in 2010, despite the global economic concerns.
Due to the late harvest season last year and early planting this spring, we expect a large amount of buying this fall, as the traditional buying season continues to be delayed.
We believe grain prices will rally into the end of the year as exports increase and yields concerns continue to weight on supplies. Given the uncertainties now surrounding the 2010 corn crop, the market will start to contemplate the possibility of ending corn stocks falling below the critical 1 billion bushels level.
We still remain somewhat cautious though in 2010 as sovereign concerns could derail the global economic recovery. Investor’s attentions are now focused on a potential double dip recession, which is reflected by the largest quarterly decline in the S&P 500 since the fourth quarter of 2008. Unemployment at 9.7% is also sending a deflationary chill though the economy. The economic uncertainty will postpone any tightening of the fed and could lead to potential stimulus packages.
Overall, the fundamentals are improving for agriculture and we expect it to continue to outperform. Even in a downturn, the world still needs to eat.
- Colvin
If fields do not dry out soon, crops will start to lose significant yield potential. When crops remain in standing water for an extended period of time, their roots become deprived of oxygen. In comparison, if fields dry out and remain dry for too long, then their shallow root systems will become even weaker. A best case scenario for crops would call for a drying out phase, followed by average, steady rains.
Acreage Report
On June 30, the USDA’s National Agricultural Statics Service released their Acreage Report. The amount of planted corn acres was surprisingly decreased by 930,000 acres, or roughly 1%, from the prior March 31 report. The decrease in acres may be conservative according to Jerry Gulke of the Gulke Group, “The report didn’t show any recognition of prevented-planting acres. South Dakota should be down at least 30%.”
Iowa, Nebraska, South Dakota, and Ohio reported the largest setbacks in planted corn acres, which could jeopardize a bumper crop in terms of average yields because these states include three of the top five corn yielding areas, according to 2009 USDA corn yield data. Corn traded much higher following the Acreage Report, limiting up 30 cents for a portion of the day on June 30th. Growing season weather, along with foreign demand, will be primary factors having an effect on corn prices throughout the rest of the growing season.
Soybean planted acres increased by 770,000 acres as the wet planting conditions prohibited the planting of crops that require a longer growing season than soybeans. The increase in planted acres may be overestimated as a portion of the acres may be prevent planted by farmers who felt their fields were inaccessible in spring.
Commodity Prices
Grain prices performed well in the beginning of June, but declined by roughly 10% in the second half of the month due to concerns that economic growth in China will slow, high expectations for the 2010 production numbers, and a stronger U.S. dollar. Grain prices made a remarkable turnaround on the last day of trading for the month after the surprising USDA Acreage Report was released. Corn, soybeans, and wheat all traded positively following the report.
The weekly USDA Crop Progress reports have been reflecting a deteriorating condition of crops each week, but crop conditions are still above historical averages which could lead to strong yields. July corn closed on May 30th at $3.54 per bushel, soybeans at $9.48 per bushel, and wheat at $4.64 per bushel. During the month of June, corn prices decreased by 1.36%, soybeans increased 1.23%, and wheat increased 1.70%.
Yuan Revaluation
In a surprise announcement in June, China’s central bank announced it would remove the two-year-old peg to the U.S. dollar and to allow for a more flexible yuan, although it is not a free float and monetary authorities will keep the yuan in a tight trading band. The Chinese central bank also noted there will not be a dramatic revaluation, but rather a gradual adjustment.
The announcement of a stronger Chinese currency is excellent news for U.S. exports, especially the grain complex, as U.S. grains are now more attractive to Chinese buyers. China has an insatiable appetite for grains and we see this move by the central bank as a long-term strategy to feed the growing nation.
In the short-term, China has been increasing their imports of corn from the U.S. The U.S. Grains Council expects China to buy over 1 million tons over the next 18 months. China has already purchased at least 715,000 tons of corn for delivery by Aug. 31, according to the USDA. China is now a net importer of corn, even though they are the world’s second largest producer of corn.
China purchased the U.S. corn in order to relieve their domestic corn prices, which were roughly 74 cents per bushel more than U.S. China’s corn production decreased by 13% to a four-year low because of drought.
China had only 13 million tons of corn on hand in May and is selling their current inventories of corn, creating a situation where they need to purchase large quantities to replenish their shortage. We expect these additional purchases will have a big impact on the global demand balance for corn.
Farmland
In the second quarter, farmland values have continued to perform well despite a limited amount of sales. According to the Chicago Fed, farmland values across the Corn Belt rose 4% over the last 12 months. The Fed also noted that in Iowa, average farmland prices increased 8% since March 2009. The Kansas City Fed reported that district farmland values rose 2.8% for non-irrigated and 2.5% for irrigated.
Creighton University publishes a monthly farmland index, which has increased to 54.7 in June from its March 2009 low of 33.1.
We believe that the amount of land sold in the last quarter was muted due to the late harvest and early planting. The traditional selling season of post and pre harvest was delayed as farmers tried to get their crops out of the ground and focus on an early planting for 2010.
Outlook
We expect farmland values to continue to perform well in 2010, despite the global economic concerns.
Due to the late harvest season last year and early planting this spring, we expect a large amount of buying this fall, as the traditional buying season continues to be delayed.
We believe grain prices will rally into the end of the year as exports increase and yields concerns continue to weight on supplies. Given the uncertainties now surrounding the 2010 corn crop, the market will start to contemplate the possibility of ending corn stocks falling below the critical 1 billion bushels level.
We still remain somewhat cautious though in 2010 as sovereign concerns could derail the global economic recovery. Investor’s attentions are now focused on a potential double dip recession, which is reflected by the largest quarterly decline in the S&P 500 since the fourth quarter of 2008. Unemployment at 9.7% is also sending a deflationary chill though the economy. The economic uncertainty will postpone any tightening of the fed and could lead to potential stimulus packages.
Overall, the fundamentals are improving for agriculture and we expect it to continue to outperform. Even in a downturn, the world still needs to eat.
- Colvin
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