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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