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BRIAN HOOPS

By Staff | Dec 27, 2013

As commodity values have soared since 2011, farmers bought more acres and upgraded their harvesters to produce a record corn crop of almost 14 billion bushels in 2013.

Nothing better shows the fertile times than investment in farm equipment.

Sales of self-propelled combines, including an $850,000 John Deere (DE) model with iPod system, navigational equipment and heated seats and an attachment that harvests the corn, jumped 40 percent in November.

Now, as corn prices start to decline, bankers and agricultural economists are predicting a slowdown in farmland prices that could turn into a bust.

“I can see the fear in farmers’ eyes when they think of all the moving pieces around the world gutting the value of next year’s crop,” said David Kohl, an agricultural economist and president of consulting firm AgriVisions, who last week spoke at several farming conferences in northern Nebraska.

“Most of them know the boom in corn prices and farmland prices is coming to a screeching halt,” he said.

U.S. farmers, whose earnings grew an average 6 percent in 2013, face several challenges – a likely reduction in corn exports to China after a record year; greater competition from other nations; moves in the U.S. and the European Union to limit the use of ethanol,and a possible record in production of the crop in 2014.

Kohl said a plunge in land prices would strip value from farms and put over-leveraged farmers out of business. Farmland prices are up 72 percent to about $8,000 an acre in the last three years, according to data from the U.S. Department of Agriculture.

In Iowa, the largest producer of corn, the gain was 90 percent, according to Iowa State University. The value of the nation’s $2.5 trillion of farmland may tumble by as much as 30 percent in the next three years as the corn rush ends, according to Gary Ash, chief executive officer for 1st Farm Credit Services in Normal, Ill.

“The increase in land prices was caused by the increase in corn prices,” Ash said. “The reverse is going to be true. The drop in corn is going to result in a drop in land value.”

As the corn era winds down, the top one-third of farmers will continue to do well, the economist Kohl said. “Those that used their cash to buy helicopters and lake houses will suffer the most.

“We’re seeing an end of a corn super-cycle that brought wealth and prosperity to much of rural America.”

CORN ANALYSIS

Corn closed the week $.07 3/4 higher. Last week, private exporters reported several sales of corn including 127,536 metric tons of corn to an unknown destination; 130,000 mt of corn to South Korea and 458,000 mt of corn to Japan.

Weekly export sales of corn showed a total of 32.6 mb. Total annual exports total of 1.084 billion bushels represent 75 percent of the USDA’s estimated export of 1.45 bb.

Corn is uncovering better demand as prices weaken into technical support, however news that China has canceled at least 11 cargos of U.S. corn purchases looks to keep corn rallies in check.

Also, the upcoming January report could be bearish as the USDA will issue its final production figure of the 2013 crop, which is expected to be larger than the November estimate.

A larger production figure could push ending stocks near 2 billion bushels. The lack of farmers selling in December looks to at least mildly support corn as basis levels should remain firm without much country movement.

Corn looks to be locked into a trading range with the downside supported by strong demand and the upside limited until springtime, when the possibility exists for a weather-related rally.

Strategy and outlook: Producers are 100 percnet sold of 2013/14 crop. Producers are 10 percent sold of the 2014/15 crop.

SOYBEANS ANALYSIS

Soybeans closed the week $.16 higher from last week. Last week, private exporters did not report any private sales.

Weekly export sales of soybeans showed a total of 15.3 mb, the lowest of the marketing year so far.

Total export sales of 1.437 bb are 97 percent of the USDA’s new annual forecast of 1.475 bb.

November soybean crush by NOPA members was reported at 160.145 mb versus average trade estimate of 162.3 million (158-170

mb range) and up from October crush of 157.063 mb and year ago November crush of 159.308 mb.

This was the second largest November crush on record. September-November total U.S. crush implied at around 447 mb versus 452 mb last year.

If weather in South America is favorable into January, the trade will become concerned the USDA will increase production at the same time China may start to cancel U.S. soybean purchases.

Basis levels in South America are soft and with a large crop coming on, it is more than likely China will switch U.S. purchases to South American origin.

There remains no incentive to storing soybeans this year with the market signaling prices are better now than expected next summer.

Strategy and outlook: Producers are 90 percent sold of the 2013/14 crop. Sell 10 percent at $13.74.

Producers are 10 percent sold of 2014/15 production. Sell 10 percent at $12.10.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Brian Hoops can be reached at (605) 660-1155.

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