×
×
homepage logo

BRIAN HOOPS

By Staff | Feb 20, 2015

Eroding incomes

The squeeze on U.S. farmers is getting worse as low crop prices and rising costs erode incomes that not long ago were the highest ever.

Farm income in the U.S., the world’s top agricultural producer and exporter, is poised to drop for a third straight year in 2015.

While raising livestock remains profitable, as tight meat supplies keep prices high, growers of corn, soybeans and wheat saw crop and land values fall faster than many of their costs.

That’s pinching sales for equipment maker Deere and Co. and seed and chemical producers including DuPont Co.

“The budget picture for corn and soybeans is as negative as we’ve seen in a long time,” said Brent Gloy, an agricultural economist at Purdue University in West Lafayette,

Indiana. “You will see some farmers not able to cover their production costs.”

Ethanol exports

U.S. ethanol exports reached near-record levels last year, 836 million gallons worth $2.1 billion.

The Renewable Fuels Association said U.S. ethanol made its way to all inhabited continents of the world, reaching more than 50 countries. The top five markets included Canada, Brazil, the United Arab Emirates, the Philippines, and India.

Renewable Fuels Association President Bob Dinneen said U.S. ethanol producers produced 14.3 billion gallons of ethanol last year and nearly six percent of it was exported.

CORN ANALYSIS

Corn closed the week 2 cents higher.

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

Weekly export sales showed corn sales at 39.5 million bushels. Annual corn sales now have reached 1.306 billion bushels and are now 51 mb below a year ago.

Demand isn’t strong, ethanol production is slowing and cattle supplies are the second lowest since 1952, but the market is still worried that usage is better than what has been factored in.

In the February report, the USDA lowered feed usage by 25 mb, but increased ethanol usage by 75 mb, thereby lowering ending stocks by 50 mb to 182.7 mb.

Total demand was forecast at 13.595 bb, record large. It is expected U.S. corn producers will seed 2 to 3 million less acres this spring compared to a year ago.

Weather this spring will be so important to the growing season. It won’t matter how many acres are planted if it doesn’t rain.

Producers should look to buy the weakness in the month of February for a rally into the spring and possibly the summer if weather conditions remain dry.

In the USDA baseline report, the report suggested U.S. planted acres for 2015/16 at 88 million, production at 13.445 bb and ending stocks at 1.733 bb.

Strategy and outlook: Producers are 100 percent sold of the 2014/15 crop . They sold 10 percent of 2015 production. They should consider selling another 15 percent at $4.65 December. They bought calls to re-own 50 percent of previous sales.

SOYBEANS ANALYSIS

Soybeans closed the week 15.75 cents higher.

Last week, private exporters reported sales totaling 230,000 metric tons of U.S. soybeans to China.

Weekly export sales of soybeans were 27.4 mb. Annual sales have now reached 1.696 bb, up 115 mb from a year ago.

Normally, February looks to bring the addition of slower U.S. export sales as early planted beans in Northern Brazil begin to come to harvest and hit the world market at a price lower than any U.S. posted price.

However, China continues to be a strong buyer of U.S. soybeans as they prefer our higher quality soybeans to the cheaper South American product.

In the February supply/demand report, the USDA increased imports by 10 mb, raised crush by 15 mb and increased exports 20 mb, thereby providing a positive report as they lowered the carryout to 385 mb.

Brazilian soybean production was decreased by 1 mt; increased by same amount is Argentina, resulting in a net of zero.

World ending stocks are at 89.26 mb, on the very low end of the range.

Producers should buy pullbacks in the market. A spring rally is forecast as demand remains strong and the soybean markets main job is to not lose acres to other crops this spring.

Therefore, if corn rallies, soybeans should as well. U.S. producers are expected to plant an additional 1 to 2 million acres this spring.

USDA’s baseline acre report suggests U.S. 2015-16 planted soybean acres at 84 million, total production at 3.82 bb and ending stocks at 519 mb.

Strategy and outlook: Producers are 100 percent sold of 2014/15 production. They sold 10 percent of 2015 production. They should consider selling another 15 percent at $10.95 November. They bought calls on 50 percent of 2014/15 crop to re-own previous sales.

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.

Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page