In its September Crop Production report, the U.S. Department of Agriculture forecast 2014 corn production at 14,395 million bus, up 3% from last year’s record outturn, and soybean production at 3,913 million bus, up 19% from 2013 and 16% above the prior record set in 2009. Many, but not all, in the trade expect the 2014 numbers will increase by the time the final estimates are released in January.
A study reported recently in the University of Illinois’ farmdocDAILY challenged the longtime market “truism,” “big crops get bigger,” meaning crop production estimates tend to grow progressively in the period heading to the harvest. Researchers noted that the study’s results did not imply that final yields won’t be higher, “only that such an outcome would be highly unique given the nature of the 2014 growing season,” based largely on weather conditions in July and August. The study did note that when yields are raised from August to September, which they were for corn and soybeans, the correlation to larger final estimates increases.
While farmers love big crops, they typically don’t relish the low prices that accompany them, although many concede be just as profitable as smaller crops at high prices.
The December corn futures contract last week was trading around $3.40 a bu and the November soybean contract was near $9.85 a bu, both about 25% below year-earlier levels and at multi-year lows. November soybeans fell below $10 a bu on Sept. 9 for the first time in five years.
In its September World Agricultural Supply and Demand Estimates, the U.S.D.A. projected the average price of corn paid to farmers to range between $3.20 and $3.80 a bu in 2014-15 (September-August), compared with $4.45 a bu in 2013-14 and $6.89 a bu in 2012-13. The average soybean price was forecast to range between $9 and $11 a bu, down from $13 a bu in 2013-14 and $14.40 a bu in 2012-13.
The trouble with transportation
What’s especially worrisome to grain producers is that a repeat of last year’s poor rail performance could take prices even lower. Last fall the railroads publicly proclaimed they were ready, in fact eager, to move a larger harvest after the prior year’s smaller crops and reduced demand for rail shipping. Then harvest came and agriculture — farmers, elevators, exporters, mills, sugar beet processors and others — found itself competing (and losing by the opinion of many) for rail services, especially locomotives and crews, with the oil industry and other segments. That stumble was followed by one of the harshest winters in years, which coupled with the sheer demand for rail services, resulted in what many call the worst rail shipping season ever for agriculture. Even now, with another harvest at hand, railroads are not completely caught up, although performance is far better than during the winter.
In some cases rail delivery of grains, oilseeds, sugar and other commodities was as much as two months behind schedule, with the Dakotas especially hard hit because of their distance from water transportation that stresses dependence on rail and because North Dakota is the heart of the booming oil shale industry. Agribusiness giants, including Cargill, Archer Daniels Midland Co. and others cited significant costs incurred by the delays.
While analysts note the rail delays affect prices all along the food chain, the greatest cost is ultimately incurred by farmers. A North Dakota State University study indicated farmers in the state lost about $67 million in revenue between January and April due to rail problems. The Minnesota Department of Agriculture said farmers in that state lost nearly $100 million in revenue.
Grain-storage capacity will be tight
For several years farmers have been adding on-farm grain storage capacity largely to mitigate price declines related to high production years and for tax purposes. On-farm grain storage capacity totaled 13,010 million bus on Dec. 1, 2013, up 18% from a decade earlier, according to U.S.D.A. data. On-farm storage capacity has increased annually since 2002, but was down 2% from 1988, which was the oldest U.S.D.A. data available.
Off-farm grain storage capacity totaled 10,430 million bus on Dec. 1, 2013, up 23% from 2003, and up 9% from 1988. There were 8,783 off-farm grain storage facilities in 2013, down 10% from 2003 and down 36% from 1988, the U.S.D.A. data showed.
Sixty per cent of the on-farm grain storage capacity is in six Corn Belt states (in order): Iowa, Illinois, Minnesota, Nebraska, North Dakota and Indiana. Fifty-eight per cent of off-farm storage is in six states (in order): Illinois, Iowa, Kansas, Nebraska, Minnesota and Texas.
But that storage won’t be enough to hold the 2014 harvest, and the trade expects the most grain ever will be “stored” in piles on the ground, subject to deterioration by weather. That is the grain that farmers and elevators hope to move first, assuming rail transportation is available, of which many have grave doubts despite railroads’ massive spending on improvements this year.
Meanwhile, the weather has remained mostly favorable for late-season crop development. Crop conditions remain exceptionally high although there remains concern about maturity, especially with frost and freezes already reported in some northern states. The corn crop in the 18 major states was rated 74% good to excellent, well above 53% at the same time last year. Corn mature was at 27%, ahead of last year’s 20% but well behind the five-year average of 39%, with progress in northern states especially concerning. Corn harvest was just under way in the Corn Belt and also was behind average.
The soybean crop was rated 72% good to excellent as of Sept. 14 compared with 50% a year ago. Twenty-four per cent of the crop was dropping leaves (mature), even with a year ago but behind 32% as the five-year average. Development was well behind average in several key states.
The fall crops aren’t “in the bin” yet, and they may or may not get bigger, but there appears little if anything standing in the way of record supplies and low prices for the foreseeable future.