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BRIAN HOOPS

By Staff | Mar 4, 2016

Ag credit

As the U.S. farming sector enters the third year of a downturn caused by a global glut of grains and slumping commodity prices, bankers across the Midwest are starting to tighten lending conditions and even cutting some clients off. Many corn and soybean farmers already are trying to adjust by selling off grain stockpiles, begging landlords to reduce rents and pleading with bankers to restructure debt and give them more time to pay it back.

But bankers are worried about the potential of loan defaults as incomes fall, prompting farmers to take on more debt. U.S. farm debt, adjusted for inflation, is now at the highest levels since the nation’s agricultural crisis in the 1980s, when scores of rural banks failed.

Tightening credit sends a clear message: the hard times are here to stay, and sacrifices are in order to avoid a future of forced land sales, farm equipment repossession and bankruptcies.

Farm numbers fall

According to USDA, the number of farms in the U.S. last year dropped to 2.07 million. That’s down 18,000 farms from 2014.

The size of the average farm is 441 acres. Minnesota has 73,600 farms, down 400 farms from the previous year. The average Minnesota farm is 352 acres.

North Dakota has 30,000 farms, down 300 from 2014. For North Dakota, the average farm is 1,307 acres.

South Dakota has 31,300 farms, a loss of 400 farms from the previous year. South Dakota has an average farm size of 1,383 acres.

Cold storage

In the monthly cold storage report, total red meat supplies in freezers were up 9 percent from the previous month and up 7 percent from last year.

Total pounds of beef in freezers were up 1 percent from the previous month and up 5 percent from last year.

Total beef is a record high for the month of January, since the data was first recorded in 1915.

Frozen pork supplies were up 17 percent from the previous month and up 7 percent from last year. Total pork is a record high for the month of January, since the data was first recorded in 1915.

Stocks of pork bellies were up 14 percent from last month and up 13 percent from last year.

CORN ANALYSIS

Corn closed the week 10.75 cents lower.

Last week, private exporters reported sales of 210,000 metric tons of corn to Columbia.

Corn export sales were disappointing at 36.8 million bushels, below what is needed to reach the USDA forecast.

Annual sales are 1,048 mb, or 23.5 percent slower than last year’s pace.

In the February outlook forum, initial USDA corn acreage ideas were put at 90 million acres versus 87.99 million last year and compared to the 90.5 million acres the USDA showed in its baseline projections released last week.

This was in line with pre-conference market expectations as reported by a wire service survey at 89.64 million.

The forum predicts U.S. corn yield at 168 bushels per acre versus 2015’s 168.4; 2016 production is predicted at 13.82 billion bushels, versus 13.6 bb in 2015, which projects 2016/17 U.S. corn ending stocks at 1.97 bb.

No year is the same, but last year, prices ground lower into early June until weather issues rallied prices. Without a weather problem, prices look to search for a price level which will stimulate usage.

Additional downside should be expected until a weather problem develops this spring or summer as supplies remain large.

Strategy and outlook: Producers should use rallies to make additional sales or buy protection if storing the crop until a weather scare develops in the summer months.

SOYBEANS ANALYSIS

Soybeans closed the week 20 cents lower.

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

Weekly soybean sales came in at 12.1 mb. The export pace of the 2015/16 marketing year now stands at 1.54 bb, or down 10.6 percent mb from last year’s pace.

At the annual USDA Outlook Forum, the USDA looks for soybean acreage at 82.5 million acres versus 82.65 million last year, and compares to the 82 million it penciled in for the baseline projections.

This was less than market expectations of around 83.3 million acres. The forum forecast soybean production at 46.7 bpa versus 48 bpa last year with production at 3.81 bb versus 3.93 bb in 2015.

This would produce U.S. soybeans stocks at 440 mb. However, my outlook for 2015 ending stocks is to swell to 500 mb on slow exports and poor crush.

This would create a larger-than-expected carry at the start of the marketing year and keep 2016/17 stocks near 500 mb.

As with corn, unless a weather problem develops in the U.S., it will be difficult to rally the soybean market.

In 2015, prices eroded into late May before a weather rally finally lifted prices. With stocks 259 mb larger than a year ago, a significant weather issue will be needed.

Strategy and outlook: Producers should use rallies to make additional sales or buy downside protection if storing until the summer.

Do not store unprotected soybeans.

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.

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

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