Above average crop progress of corn, soybeans, and wheat across the U.S. has lead to a bearish outlook on new crop grain prices. The 2012 corn crop in good or excellent condition stood at a full 9% better than in 2011 and timely rains that moved across the Corn Belt at the end of the May should continue to suppress prices. The economic slowdown in the U.S., China, and the rest of the world has also pushed grain prices lower alongside the strengthening U.S. Dollar.
Farmers have been busy finishing their planting for the 2012 crop year as 76% of soybeans have already been planted as of May 29th. Soybean planting typically follows corn planting in the Corn Belt as corn has a longer growing period until reaching maturity. Fertilizer, herbicide, and pesticide application will now be farmer priorities heading into June.
Grain Prices
Corn prices closed at $5.55 per bushel and decreased by 18.9% in May due to excellent weekly crop condition reports by the USDA. Commercial profit taking by investors paired with the currently strong U.S. Dollar has caused corn prices to decrease with other commodities as well. Projected U.S. 2011/12 ending corn stocks were increased 50 million bushels to 851 million bushels due to larger than expected wheat supplies and the competitive pricing wheat has compared to corn, implying wheat will be the choice of feed this summer, according to the May USDA WASDE Report. Additionally, the average U.S. corn yield for 2012/13 was estimated at 166.0 bushels per acre by USDA which was a 2.0 bushel per acre increase from the 1990 to 2010 trend due to the early planting. Such a domestic yield would provide the U.S. with 15.7 billion bushels of corn, a 16.3% increase from previous estimates.
The rally in soybean prices ended this month with a 12.2% decrease to close at $13.40 per bushel. Prices were volatile throughout May but outside market pressure, a stronger U.S. Dollar, and commercial selling pushed soybean prices lower. The favorable weather throughout May in the Corn Belt has been hurting the majority of agricultural commodity prices. U.S. soybean production for 2012/13 was projected at 3.205 billion bushels in May's WASDE, an increase from 2011/12 due to increased yield projections of 43.9 bushels per acre in 2012/13, up 2.4 bushels per acre from previous estimates. Supplies of domestic soybeans were estimated at 3.43 billion bushels, a 4.0% increase from 2011/12.
Wheat prices declined by 0.6% this month, closing at $6.43 per bushel. Prices followed corn and soybeans downward on outside market pressure and above average crop conditions, although potentially dry conditions in the Southern U.S. Plains, Black Sea region, and eastern Australia have provided upward price support. USDA estimated 2012/13 production for U.S. wheat at 2.245 billion bushels, the highest since 2008/09. Average yields were estimated at 45.7 bushels per acre, an increase of 2.0 bushels per acre from 2011/12. Wheat supplies for 2012/13 were projected up 5.0% to 3.133 billion bushels in the May WASDE.
Farmland Values
Farmland values have been increasing across the Corn Belt in 2012. Federal Reserve Banks across the Midwest released their farmland value survey results this month and values increased by over 20% for the second straight year in the Tenth District in Kansas City and 19% year over year in the Seventh District in Chicago. Farmland values increased by 5% in the first quarter of 2012 in the Seventh District and 8% in the Tenth District. The demand for acquiring land is continuing to grow.
Farmers continue to be the support behind auction sales, driving up sales bids. Although investors were looking to purchase farmland, farmers purchased a higher share of acres sold in the past three months due to increased farmer income over the last year. Demand to purchase farmland was on the rise as 74% of bankers reported higher demand.
The Creighton University Rural Mainstreet Farmland Index decreased this month to 64.6 from 69.4 in April, although this month marks the 28th straight month the index has been above growth neutral. The farm equipment sales index increased to 65.1 from April's 62.4.
Planting Progress and Conditions
Crop conditions are well above historical averages as 72% of the U.S. corn crop is in good or excellent condition compared to 63% last year. As of the fourth week of May, 89% of U.S. soybeans have been planted, a 41% increase from a year ago. Of the 89% of planted soybeans, 61% have emerged which is an increase from 22% at the same time last year. We will continue to watch crop conditions and weather across the Midwest and gauge how realistic USDA's estimate of 166.0 bushels of corn per acre on average truly is.
Of the six primary spring wheat producing states 96% of the wheat has emerged, compared to the five year average of 68%. Spring wheat conditions are also favorable as 79% is in good or excellent condition and only 2% is in poor or very poor condition. Winter wheat continues to outperform 2011's conditions with 54% of the winter wheat crop in good or excellent condition; a 21% increase from last year. Winter wheat in very poor or poor condition is at 17%, a 27% decrease from one year prior.
Outlook
Grain markets will be heavily correlated to the weather patterns across the Corn Belt and crop conditions moving into the summer months. In late June, USDA will release an updated acreage report which grain markets will closely monitor for any changes to soybean and corn acres. Some isolated areas of the Corn Belt received significant rainfall that drowned out corn acres thus forced the field to be replanted with soybeans. Additionally, soybean prices at $15.00 per bushel in early May could have lead farmers to make a last minute switch from corn.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
