Grains Rally In Cold Weather

Includes: CORN, SOYB, WEET
by: T. Marc Schober

Extremely frigid temperatures were present throughout the Corn Belt for much of February causing major regional logistic problems. Farmers were reporting equipment failures due to the low temperatures which caused delays in delivering physical grain. Problems and delays are a concern for spring barge traffic on the Mississippi River due to a record pace of freezing on the river and a separate barge crash that spilled oil over a 65-mile portion of the river this month. As a result, local basis prices have been strengthening across the Corn Belt.

Political tension and fighting has risen throughout the month in Ukraine due to a controversial government bailout funded by Russia. Ukraine, the world's third largest corn exporter, may experience export issues if the political unrest continues. Additionally, Export-Import Bank of China recently sued Ukraine for $3 billion for breaching a loan-for-grain contract signed in 2012. China has only received $153 million worth of grain, according to Russian media.

Grain Prices

March corn prices increased this month by 5.3% and closed at $4.57 per bushel, its second consecutive monthly gain. U.S. ending stocks were decreased in this month's WASDE Report by 10.1% to 1.481 billion bushels due to increased exports. U.S. corn is very attractive on the global market at current prices. Strong ethanol production margins have helped support strong regional cash pricing as well. At the USDA Outlook Forum this month, the USDA projected that U.S. farmers will plant 92.0 million acres of corn in 2014, slightly below analyst expectations. The political unrest in Ukraine could significantly boost U.S. exports moving forward, which the markets have started to price in.

The Chinese have continued to reject shipments of U.S. corn containing the unapproved GMO trait MIR162. This month, major grain handlers in the U.S., including ADM, have banned the purchase of MIR162 corn within the U.S. until China approves the trait.

The March soybean contract significantly increased this month by 10.1% and closed at an eight-month high of $14.14. The USDA held ending soybean stocks unchanged in the February WASDE Report, but exports were increased by 15 million bushels, although decreased residual use offset the loss in supply. Fundamentally, soybean pricing is strong with extremely low stocks and high global demand. The USDA estimated 79.5 million acres of soybeans will be planted in 2014 by U.S. farmers at the USDA Outlook Forum. U.S. soybean prices also rallied upon heavy rainfall delaying the South American harvest and logistical delays throughout Brazil.

March wheat prices broke a downward trend this month and increase by 7.9%, closing at $5.99 per bushel. Ending stocks were estimated 50 million bushels lower by USDA in the WASDE Report, due to increased food use and exports. Concern is growing in the U.S. Plains and in the Black Sea region of winter kill risk due to the drawn out winter temperatures. Winter kill does not typically occur until the winter wheat plant starts growing again from winter dormancy in early spring. Lastly, the Ukraine political issues have sent wheat prices higher due to the potential void in the global wheat market if Ukraine exports slow.

South American Crop Condition

Brazil's record soybean production was decreased 2.5% to 88.0mt, according to the International Grain Council (IGC) due to hot and dry weather throughout the late growing season. IGC also cut the Argentina soybean crop outlook by 1.8% to 53.5mt. Conab estimated Brazilian corn production 4.6% lower this month to 75.47mt due to continued dry weather. In other areas of Brazil, where soybean harvest is occurring, heavy rainfall has led to logistical delays on rural dirt roads. Additionally, the Brazilian ports are reporting a 40 to 45 day wait time for vessels to be loaded with grain due to insufficient port infrastructure.

Farmland Values

The Chicago Federal Reserve Bank reported that farmland values increased 5% year-over-year in the Seventh District encompassing Iowa, Wisconsin, Illinois, Indiana, and Michigan. Illinois and Indiana led all state value increases with 14% and 10% year-over-year, respectively. Throughout the fourth quarter of 2013, farmland values increased by 3% in the Seventh District.

In the Tenth Federal Reserve District, non-irrigated farmland values increased 9.2% over the past 12 months, irrigated farmland values increased 7.4%, and ranchland values increased 9.7%. The Kansas City Fed cited limited farmland sales and continued strong demand for the supported increase in farmland values throughout 2013. The Tenth District includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, a portion of New Mexico, and Missouri.

The Creighton University farmland price index decreased by 2.4 points in this month's survey to 41.7. This marks the third month in a row that the index has been below growth neutral. Professor Ernie Goss noted,

Farm Income

The USDA Farm Sector Income Report forecasted a net farm income of $95.8 billion, 8.35% above the 10-year average. The forecast did decline from the record breaking $131.03 billion recorded in 2013. Large increases expected in production and decreases in crop prices are likely to undermine farmer income in 2014. Farmer production expenses are expected to fall for the first time since 2009, interrupting what had been a rapid upward movement in expenses. Seeds, fertilizer, and pesticides, are expected to fall a combined 4.7% in 2014.


Continued strong exports of corn and soybeans could continue to fuel the domestic grain markets until spring planting estimates are released. The corn market will also closely monitor ethanol blending margins as RBOB gasoline prices have increased faster than corn prices, allowing for even stronger margins for ethanol producers.

We are starting to watch frost and snow levels across the Corn Belt during this drawn out winter. If extremely cold weather persists throughout the Corn Belt in March, farmers will have to prepare for a wet and delayed planting season again. Many areas in the Midwest are consistently experiencing temperatures 30 to 40 degrees below historical averages.

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.