Cash rents down
Surveys conducted by the Chicago Fed and the Illinois Society of Professional Farm Managers and Rural Appraisers indicate that 2015 cash rents have decreased between $20 and $25 per acre from 2014 levels.
If these reductions occur, the majority of farmers still will have negative returns from cash rent farmland given current corn and soybean price levels. At a $3.75 per bushel corn price and a $9.50 soybean price, cash rents need to decrease from 2014 averages by around $70 per acre before farmer return is zero.
Even given mid-$4 prices for corn, farmers will not have positive returns given cash rents at 2014 averages. Given current price levels, avenge cash rents levels need to decrease by more than $70 per acre for farmers to have returns near zero.
Continued pressures on cash rents will occur in 2016 unless significant increases in prices occur from their current levels. Unless non-land costs decrease, prices must be in the high $4 range before downward pressures are not placed on average cash rents.
Farmland values drop
The Kansas City Federal Reserve and the St. Louis Federal Reserve banks say land prices continued to slide during the first quarter of 2015.
Land values in the Kansas City Fed district fell 2.1 percent,while cropland in the St. Louis Fed district fell 2.5 percent.
Deere income losses
Deere & Co said that its earnings would not fall as far as previously expected this year, despite the weak conditions in the farm machinery sector, marked by continuing deterioration in hopes for South America’s market.
Sales are now seen falling 17 percent over the year rather than the 19 percent decline previously expected.
Corn closed the week 4.75 cents lower.
Last week, private exporters announced sale of 203,000 metric tons of corn to an unknown destination.
Weekly export sales showed corn sales at 32 million bushels. Annual corn sales now have reached 1.652 billion bushels and sales are now down 154 mb compared to a year ago.
The weekly crop progress report from the USDA showed corn planting 85 percent complete compared to the five-year average of 75 percent complete.
U.S. corn is 56 percent emerged compared to 51 percent on average.
The COT report is bullish for corn futures and weekly charts show prices are near a potential double bottom. Weekly charts show $3.73 as a chart breakout point the market will need to rally above to start a bullish trend.
The heart of the growing season is upon us and all it would take to spark a massive rally is a drought, some extended heat or both. A ridge is setting up in the Southeastern U.S. A bend in the jet stream allowing that ridge to move into the key growing states would certainly be the bullish catalyst needed for a rally.
If such a rally develops, producers need to be using the rally to hedge/sell old inventories and new crop prospects.
Strategy and outlook: Producers are 100 percent sold of the 2014/15 crop, re-owned 50 percent with July options and 50 percent with September calls.
They sold 10 percent of 2015 production. Sell 15 percent at $4.65 December.
Soybeans closed the week 27.5 cents lower.
Last week, private exporters reported sales 132,000 mt of soybeans to China and 109,400 mt of meal to Thailand.
Weekly export sales of soybeans were 6 mb. Annual sales are still record large at 1.827 bb and already above the USDA’s May forecast.
The weekly crop progress report showed U.S. soybean planting is 45 percent complete compared to the five-year average of 36 percent complete. Emergence is at 13 percent.
The market has fallen to major support levels as the market has anticipated good growing conditions to start the year, would lead to increased ending stocks.
Currently, the USDA is forecasting ending stocks at 500 mb, which, if realized, would be the third largest in the last 45 years.
No doubt, that is bearish and prices will get worse unless the growing crop is threatened.
Adverse weather will be needed to threaten the crop and curtail ending stocks. If a rally does develop this summer due to adverse weather, producers will need to market old and new crop supplies and pass risk off risk to someone else through the options market.
Strategy and outlook: Producers are sold 100 percent of 2014/15 production. They bought calls on 50 percent of 2014/15 production to re-own previous sales.
They sold 10 percent of 2015/16 production. Sell 15 percent at $10.95 November.
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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