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BRIAN HOOPS

By Staff | Jan 10, 2014

(Reuters) Rents on prime U.S. crop land are expected to stay high in 2014 despite a sharp drop in grain prices, raising financial pressure on farmers who rent most of their land and risk big losses in the coming year, analysts and bankers say.

More than half the 250 million acres of corn, soybean and wheat land in the United States, the world’s biggest grain exporter, are rented.

Negotiations on 2014 farm land leases are going on in the Corn Belt and Great Plains, with farmers, absentee owners and their farm managers, and farm lenders all penciling out projected grain growing profits and losses.

“With the recent drop in crop prices and the stickiness of land rents not falling as quickly as crop prices, many farmers are feeling the squeeze once again between revenue, costs and rent,” said Kent Olson, an economist at the University of Minnesota.

That is a marked difference from five years of record or near-record farm income driven by record demand for biofuels and exports, capped with record grain prices in 2012 during the worst U.S. drought in 50 years.

Now things have changed. The record large U.S. harvest in 2013 bins has dropped grain prices 30 percent in six months. Bottom-line estimates for growing corn in 2013 in northern Illinois, for instance, now project a loss of $81 an acre compared to net gains of $188 an acre in 2012 and $251 in 2011, according to farm economist Gary Schnitkey, of the University of Illinois.

For 2014, projections based on current costs and prices pencil out to a loss of $53 an acre for corn, he said.

The outlook is similar in Iowa and Minnesota, which with Illinois produce more than a third of all U.S. corn and soybeans.

“Iowa remains the bellwether farm state with more land under cultivation than any other state,” said Michael Duffy, an Iowa State University economist and author of the state’s annual farm land survey, a benchmark for bankers and farm economists.

Average cash rents in Iowa and Illinois run about $260 an acre to $300 an acre, but there are some who have paid $500 an acre to $700 an acre in recent years to ensure a big land base and grain market supplies.

CORN ANALYSIS

Corn closed the week 4 cents lower.

Last week, private exporters did not report any private sales of corn.

Weekly export sales of corn showed a total of 6.1 million bushels, below the 10.8 mb needed each week to reach the USDA forecast.

Total annual exports total of 1.084 billion bushels represent 75 percent of the USDA’s export of 1.450 bb.

Corn is uncovering better demand as prices weaken into technical support, however with a huge supply of corn, there is no reason for exporters to chase prices higher.

Today’s supply and demand 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 again. A best case scenario for corn looks to be 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 percent sold of 2013/14 crop. Producers are 10 percent sold of the 2014/15 crop.

SOYBEANS

ANALYSIS

Soybeans closed the week 42.5 cents lower from last week.

Last week, private exporters reported 35,000 metric tons of bean oil has been sold to an unknown destination.

Weekly export sales of soybeans showed a total of 34.7 mb. Total export sales of 1.472 bb are 97 percent of the USDA’s new annual forecast of 1.475 bb.

Favorable weather so far in South America has pressured soybean values and broken the daily uptrend line.

The market is concerned that with a monster crop in South America, the USDA will increase 2013 production this week and 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 next summer due to the big crop that is expected from South

America.

Strategy and outlook: Producers are 100 percent sold of the 2013/14 crop. 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. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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