Grain markets were range bound in April as the markets digested the implications of last month's planting report. Soybeans have continued their rally and now stand at a three-year high after the USDA announced that U.S. farmers will plant the largest corn crop since World War II at the expense of soybean acreage. China shocked the market at the end of the month by buying 1.5 million tons of U.S. corn, the largest one-day sale since 1991. Optimal weather has farmers planting at a record pace across the Corn Belt as 53% of the entire corn crop has already been planted compared to the five-year historical average of only 27% by the end of April.
Corn prices closed at $6.60 per bushel and increased by 2.5% in April due to an end of month rally after the Chinese were majority buyers in the single largest corn sale in the past 21 years. Prices declined throughout the majority of the month as speculators sold off positions to take profits and were concerned about the estimated 95.9 planted acres for 2012. Favorable planting conditions have some analysts expecting a bumper crop for 2012, although the last few years have shown the weather can be unpredictable.
Soybean prices continued to increased this month by 7.1% to close at $15.03 per bushel, a three-year high. Prices increased due to commercial and speculative buying throughout the month of April on the fear of decreased production in the South American crop. The USDA's April WASDE Report revealed a decrease in Brazilian soybean production of 2.5 million tons as warm temperatures and insufficient amounts of rainfall continued to decrease yields. Additionally, the highly accelerated corn planting season should lead farmers to maximize corn acres at soybean acre's expense.
Wheat prices declined by 2.0% this month, closing at $6.47 per bushel. Prices again remained stable throughout the month as the USDA estimated U.S. wheat ending stocks for 2011/12 at 32 million bushels lower in April as feed and residual usage was increased. Excellent wheat conditions have also put pressure on wheat prices along with an increased planting pace of spring wheat across the U.S. The Wheat Belt has been experiencing excellent planting conditions compared to recent years.
Chinese Record Imports
Over the past few months, we have been suggesting that China will be providing a hypothetical price floor for U.S. corn by purchasing corn at opportunistic times. On April 27th, a reported 1.56 million tons of U.S. corn was sold, with 1.44 million tons to be rumored to have been purchased by the Chinese, giving support to new crop corn in the U.S. The USDA estimated only four million tons of corn would be purchased by the Chinese throughout the 2012 marketing year.
The International Grains Council recently estimated that Chinese imports of corn may increase 50% to six million tons in the new marketing year starting July 1, 2012. Such an increase will continue to drive corn fundamentals even more bullishly.
The National Council of Real Estate Investment Fiduciaries' ((NCREIF)) Farmland Index had a total return for the first quarter of 3.78%, comprised of 2.77% appreciation and 1.00% income return. The 3.78% return is the strongest first quarter since 2006 and the second highest ever for the first quarter going back to 1991. The Mountain region was the strongest performer with a 10.08% total return, followed by the Corn Belt at 6.31%. Stephen Kenney, Chairman of the NCREIF Farmland Committee and Vice President with the Hancock Agricultural Investment Group, noted that "Even with strong appreciation numbers in many of the NCREIF regions, the farmland asset class continues to garner interest from institutional investors as a conservative investment that historically has provided stable cash flow."
The Creighton University Rural Mainstreet Index (RMI) decreased slightly this month to 57.1, but remained well above growth neutral. The farmland price index declined in April, indicating slower growth in values, but remained above growth neutral for the 27th continuous month. The farm equipment sales index increased to 62.4 from March's 61.5.
Bankers were asked this month what percentage of sales were purchased by non-farmers. Bankers indicated that 20% of sales were purchased by non-farmers. DeWayne Streyle, CEO of United Community Bank of North Dakota reported, "Nonfarmer and recreation investors are driving the farm land valuations (higher)." We find this statement inconsistent with the data we have observed. In fact, we believe farmers are the primary reason farmland values have increased.
The amount of farmland sales have been decreasing recently due to the majority of purchasers being preoccupied by planting the 2012 crop. Farmers make up 74% of all farmland purchasers, according to Iowa State University, thus the amount of potential buyers for land is much lower. Landowners who are considering selling their land are aware that it is not an ideal time to sell when farmer income is tied up in crop production and farmers are busy with field work. Once farmers have their 2012 crop planted and a portion of their crop presold, there may be more farmland sales when farmers are able to have time to focus on expanding their operation through buying additional acreage.
Planting Progress and Conditions
U.S. corn farmers have been planting at a record pace as 53% of the entire corn crop has already been planted as of April 29th, compared to only 12% in 2011 and the five-year historical average of 27%. 25% of the U.S. corn crop was planted from April 22 to 29th alone. The USDA estimated that 15% of the corn crop has already emerged as of the end of April, compared to the five-year historical average of only 6%.
Farmers have also been ahead of schedule planting soybeans while 12% of the U.S. crop has already been planted as of April 29th, compared to the five-year historical average of 5%. Winter wheat is in considerably healthier condition than in 2011 as 64% of the U.S. crop is currently in good or excellent condition compared to only 34% in 2011.
Regions in the upper and western Corn Belt have been experiencing nightly frosts which have actually put a delay to planting corn in isolated areas. If corn planting continues at its accelerated pace, soybean acres could dwindle, thus building soybean prices even more bullish on lower acres. The current price of soybeans is near the point where farmers could return more profits in beans compared to corn, but switching acres this late in the season is very difficult as seed is typically purchased well in advance to planting.
The record sale of U.S. corn at the end of April will set the bullish tone for grain prices throughout the summer and into the new crop marketing year. We expect China will be opportunistically buying over the remainder of the year. Planting has been steadily progressing at a very fast pace, but expect weather conditions to dictate short-term crop prices after planting is complete. Soybean planting will start after farmers finish planting corn in late May across the Corn Belt.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.