2014 markets in review

by Ron Sterk
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Affecting all markets to varying degrees this year was poor rail performance last winter, which has since improved.

KANSAS CITY — While it’s possible to cite major events affecting any given market during the past year, a few stand out: record high corn and soybean production, a trade rift settled just last week that will limit Mexican sugar exports to the United States, and seemingly nonstop declines in prices for many dry dairy products while cheese and butter prices hit record highs. But the overriding story that affected all markets to varying degrees was horrific rail performance last winter, which has been well documented in this publication and at this writing was greatly improved.

Prospects for record large corn and soybean crops and a record large world wheat crop pressured futures prices from 2014 highs in April and May to multi-year lows in late September and early October. Nearby futures prices in Chicago fell about 40% for corn and soybeans during that time, while Chicago, Kansas City and Minneapolis wheat futures lost about 35%. The tally of 2014 U.S. corn production was estimated at 14,407 million bus by the U.S. Department of Agriculture, with soybean outturn at 3,958 million bus, both record highs. While U.S. 2014 wheat production at 2,026 million bus was down from 2013, world production at 722.18 million tonnes also was record high. U.S. durum, and to a lesser extent, hard red spring wheat and soft red winter wheat, also faced quality issues that have supported prices for limited supplies of milling quality wheat.

Despite the large production numbers, corn, soybean and wheat futures prices have rallied from their fall lows. Corn was supported in part by news that China had approved importing of previously banned strains of bioengineered corn, while soybeans were supported by ongoing strong foreign demand, again from China, with the U.S.D.A. forecasting 2014-15 U.S. soybean exports record high. Prices for U.S. wheat, which have been too high to compete on the world stage, posted the largest rally first on rumors then on news that Russia would limit grain exports in an effort to control domestic inflation. In late December nearby wheat futures prices had rallied as much as 40% from fall lows, while corn had gained about 30% and soybeans close to 15%. As the year ended, corn futures prices were down about 3% from a year ago, wheat prices were up 3% and soybean values were down about 20%. The key ingredient of note was semolina values, up more than 80% on the year.

Bulk refined sugar prices, meanwhile, ended the year around 36c a lb f.o.b., up 33% from near five-year lows in 2013, mainly due to trade turmoil between the United States and Mexico. U.S. sugar producers filed antidumping and countervailing duty petitions against Mexico in late March. Rulings from the U.S. Department of Commerce consistently were in favor of U.S. producers with preliminary duties on sugar imports from Mexico of about 50% to 56% imposed in late October. Late Dec. 19 the D.O.C. said it had reached an agreement with Mexico to limit exports and impose minimum export prices among numerous other controls, while suspending duties. The decision was seen as a major win for U.S. sugar producers but was soundly criticized by sugar users as the limits are expected to support sugar prices in the United States.

On the opposite end of the price spectrum were dry dairy prices, which saw values for nonfat dry milk, typically the market leader, tumble about 40% from a year ago amid increased domestic supplies and imports due to low prices on the global market. Dairy products that experienced record highs in 2014 — butter and cheese — saw sharp declines late in the year with pressure also mostly from increased imports.

Plenty could be written about other markets as well, including record high beef prices (up about 20% on the year), record high dried egg white prices (down 25% from their peak but still up 37% for the year) and major changes in cocoa that saw the world’s third largest processor — Archer Daniels Midland — exit the industry. Pinto bean prices tumbled over 30%, with most other varieties also lower as production soared.

But an ominous cloud hangs over the markets — transportation. Traders clearly remember the rail delivery delays of weeks to months in some cases during the worst parts of last winter. Those delays cost the agricultural industry hundreds of millions of dollars, adding more than $1 a bu to grain prices in some areas. While the markets have enjoyed relatively good rail shipping conditions the past several weeks, market participants are wary that a return of harsh winter weather could quickly slow logistics to a crawl.

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