Bitterly cold winter temperatures have been present throughout December in the Corn Belt creating havoc for late fall farm tasks to be completed. Many tile projects were cut short this year due to the early hard frost. The deep frost that occurs in the U.S. Corn Belt is welcomed by farmers in winter because the frost helps kill unwanted fungus, pests, and weeds in the soil. Additionally, frost naturally helps battle soil compaction by expanding and contracting from fall to spring helping add oxygen to the soil.
The Chinese have been continually rejecting U.S. cargos of corn and DDGs since mid-November due to the presence of a currently unapproved GMO trait, MIR 162. The Syngenta developed GMO trait has been in the process of being approved by China for years and most recently was resubmitted for Chinese approval in November 2013. MIR 162 is currently permitted in the U.S., Japan, and Europe. To date, China has rejected 665,000 metric tons of U.S. based corn shipments, according to the Wall Street Journal. The USDA projected China to imported seven million metric tons of corn in the current marketing year that began on October 1, 2013.
March corn prices were nearly unchanged in December and closed at $4.22 per bushel. Despite concern regarding Chinese demand for U.S. corn due to rejected cargos throughout the month, foreign and domestic corn demand are strong. Margins as high as $0.50 per gallon are incentivizing ethanol producers to ramp up production. The USDA estimated U.S. ending corn stocks 95 million bushels lower to 1.792 billion bushels in the December WASDE Report, due to increased demand around the globe. 1.792 billion bushels would be the highest U.S. ending corn stocks since 2005/06.
January soybean prices decreased by 1.8% this month, closing at $13.12 per bushel. The USDA estimated U.S. ending soybean stocks 20 million bushels lower at an alarming 150 million bushels, due to an increased pace of exports this month. Due to very low supplies, soybean demand has been rationed. Additionally, the South American crop was planted without major weather concerns.
March wheat prices steadily declined throughout December by 10.4% and closed at a 19-month low $6.05 per bushel. Ample global supplies derived from increased production in Australia and Canada has been a key factor in dragging wheat prices lower. Recent Russian estimates marked the Russia wheat crop nearly 5% higher than the USDA at 54 million metric tons. The USDA estimated U.S. ending wheat stocks 10 million bushels higher this month, due to weak exports and larger than expected imports.
South American Crop Condition
The majority of the South American soybean crop finished being planted in early December throughout favorable weather conditions. Weather concerns quickly elevated as extremely hot and dry temperatures were present in Argentina and areas of Brazil mid-month before easing with timely rains last weekend. Brazil will plant 73.9 million acres of soybeans and Argentina will plant 50.1 million acres of soybeans this year, according to World Oil.
The maturity of corn in Argentina and Brazil is variable. Any time throughout December, January, and March, corn will be pollinating and any hot or dry weather could damage yields. Persistent extreme weather would cause even greater yield loss. We will be closely monitoring the weather in South America throughout the growing season ahead.
Farmland in the state of Iowa increased 5.1% year over year to $8,716 per acre, according to Iowa State University's annual Farmland Value Survey released this month. The 5.1% increase marks only the second time an annual value increase was less than double digits since 2003. The overwhelming majority of Iowa farmland buyers, 80%, were farmers this past year.
The Creighton University farmland price index contracted to 47.0, the lowest level since December 2009. Professor Ernie Goss noted, "This is the first time in four years that the farmland-price index has moved below growth neutral. As agriculture commodity prices have moved lower, so have farmland prices."
We have still been sourcing attractively prices properties for sale across the Corn Belt throughout December. Farmland prices that have decreased are the irrational, outlier, sales. Less and less irrational prices are being paid for farmland, but fair market values are still as strong as ever.
U.S. farmers are already planning out their 2014 crops and if the soybean/corn spread widens, farmers may switch corn acres to soybean acres. Typically, if soybean prices are 2.5 times higher than corn, farmers can justify the switch. Currently the ratio is at 2.54 for new crop prices in 2014. If soybean acres absorb such a shift, watch to see how corn prices react to a decrease in supply.
We will be watching the Chinese MIR 162 approval closely and the weather in South America throughout January. The world is depending on and the markets have priced in above average corn and soybean crops in both Argentina and Brazil. Any weather changes will affect prices.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.