WASHINGTON, Jan. 13, 2016 - Barring any major weather
disasters, 2016 is going to look a lot like 2015 when it comes to depressed
prices for corn, soybeans and wheat, according to market analysts and
agronomists. That’s despite some market rallies for wheat, corn and soybeans on
Tuesday, following the release of USDA reports.
“Sideways” will be the key word for grain and oilseed
prices, said Jack Scoville, vice president of the Chicago-based Price Futures
Group.
Without significant planting or growing disruptions, the
record-setting amount of stocks hanging over the market will likely keep prices
depressingly low for farmers, Scoville said. Mike North, president of the
Wisconsin-based Commodity Risk Management Group, agrees.
“The reality is we’re looking at the largest inventories on
record,” North said. “The inventories that we’re carrying right now are not
only large domestically, but globally.”
Farmers are holding on to their corn, waiting for a jump in
prices, Scoville said, but there’s little likelihood that’s going to happen.
“Corn prices aren’t
going to go anywhere for them for a while, so they’re all trying to figure out
what to do,” he said.
Corn ending stocks are estimated at a record 1.8 billion bushels
and soybean stocks at 440 million bushels, more than double what they were a
year ago and more than four times the 92-million bushels at the end of the
2013-14 marketing year, according to USDA’s World
Agricultural Supply and Demand Estimates released Tuesday. Wheat stocks
are also projected at a record 941 million bushels.
Argentina, meanwhile, is playing a major role in keeping
world supplies strong and prices low, Scoville said. USDA is predicting the
South American country will export 6 million metric tons of wheat in the
2015-16 marketing year, but Scoville said that may increase. The USDA
prediction for Argentina is just over the previous year, but almost three times
the 2.25 million tons the country sold in 2013-14.
On top of that, Scoville is expecting continued strong wheat
exports from Europe and Russia.
Bob Young, chief economist for the American Farm Bureau
Federation, agreed that without weather problems, a near-term end to the slump
in corn, soybean and wheat prices isn’t likely.
“We’re very much in a stagnant mode,” Young said. “Almost
every price projection I’ve seen for the next two, three or four years is
pretty much sideways.”
That’s not to say corn prices couldn’t jump, though, he
said. In fact, there’s a much higher chance of volatility in corn because of
the favorable stocks-to-use ratio.
“Corn stocks are large, but they’re not excessively large
relative to demand,” Young stressed. “So if you had a short crop situation – a
problem putting the crop in the ground or drought in a particular area – you
could see prices move, and move pretty quickly.”
As with so many commodities, China will play an important
role in the soybean market. There has been speculation that recent economic
woes in the world’s most populous nation – and the largest foreign market for
U.S. soybeans -- will cut into its imports of the oilseed.
But Drew Klein, a senior consultant for the U.S. Soybean
Export Council, isn’t buying it.
The Chinese government has been building up its pork
production sector for the past three years and shows no sign of slowing, Klein
said. “Are they going to cut back on that?” he said about the national drive to
become more self-sufficient in pork production. “I doubt it.”
AFBF’s Young agrees, to a point.
As China shifts to a consumer-driven economy, as opposed to
an export and investment-driven economy, that would suggest a higher domestic
consumption of [pork] and you’re going to have to get the beans to feed those
hogs from someplace,” he said. But that just means a status quo for prices, he
said.
According to Gary Schnitkey, professor of agriculture and
consumer economics at the University of Illinois, without significant increases
for prices or reduction in input costs, farm income will likely stay at the low
levels that marked 2015.
Average income for an Illinois farm in 2014 was about
$104,000, Schnitkey said. That fell to just $20,000 in 2015, according to
preliminary estimates, he said.
“Grain prices have come down substantially since the fall of
2014 and cost has not … so we’re in a cost-price squeeze right now,” he said.
“In 2013 we were above $5 per bushel on corn. Now we’re not hitting $4.”
Nationwide, the latest USDA
estimates released in November put net farm income at $55.9 billion
for 2015, down from $90.4 billion in 2014 and $123.3 billion in 2013.
The sharp declines, however, are being compared to the boom
years of 2010-2013, so the situation may not be as dire as it seems, Nathan
Kauffman, with the Federal Reserve Bank of Kansas City, told American Farm
Bureau Federation members in Orlando, Florida, earlier this week. Still, Kauffman said, USDA data shows
that farm
income is projected to drop about 55 percent this year from 2013-2014.
“This is where you could come at it from a cup half-full,
cup half-empty perspective,” Kauffman said. “Over the course of history, it’s
maybe not all that far away, and I think this tells a lot about the way we see
things right now. It’s a period of adjustment for the sector. It doesn’t mean
that things have gotten so bad that we seem to see the sky fall.”
Kauffman doesn’t see a repeat of the 1980s farm crisis –
producers are better leveraged and interest rates are more favorable, he said. But
he said this period is “a gradual intensification” of pressure on farm income. He
said he isn’t aware of widespread loan defaults or bankruptcies in the farm
economy.
The value of farmland,
he added, has continued to increase during this downturn primarily because very
little of it has gone on the market.
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