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Crop Price Falls May Not Hurt Ag Sector Until 2014
09:34 May 31, 2013 Crop price falls may not hurt ag sector until 2014 The US agriculture sector may yet suffer from a drop in corn prices, potentially to $4 a bushel, thanks to the prospect for a stronger harvest this year, but the impact may not be felt until 2014, Macquarie said. The bank, which two weeks ago cut its corn prices forecasts, and pegged Chicago futures falling to average $4.50 a bushel in the last quarter of 2013, said that a trip to the US Midwest had only “reinforced” its bearish outlook for prices. “We met with key industry players and came away with a sense of optimism about yield prospects for the new crop,” Macquarie analyst Chris Gadd said. “Overall, farmers were optimistic that they would reap a big, if delayed, crop later this year. If true, this could lead to corn prices falling to $4 a bushel.” ‘Concern comes a year from now’ However, many of the dents from low prices to the broader agribusiness sector – albeit not to dairy and livestock farmers, set to enjoy depressed feed bills – will not be felt until next year. In part this is down to the methodology for crop insurance which – in being set largely according to February prices, and for the next harvest guaranteeing corn farmers $5.70 a bushel – will only for the 2014 crop take a hit from the lower prices looking likely ahead. “The concern only comes one year from now,” Mr Gadd said. With the next crop insurance price potentially “in the $4-a-bushel range”, while farmers in high-yield areas “will continue to be comfortable”, growers “with high rental costs, or farms which get much lower yields such as in the marginal producer states, will fell a “more negative” impact. ‘Real concerns’ For the broader agriculture sector, conversations with fertilizer dealers suggest that a drop in corn prices below $4 a bushel would prompt a “rethink in application rates”. “Such a price would most affect those farmers with high variable costs due to high land rent costs,” Mr Gadd said. Meanwhile, for farm equipment dealers, there is the extra concern of the ending at the close of 2013 of a tax perk for farmers on depreciation of machinery. “Farmers have been buying new equipment not just for the strong income/cash positions they are in, but also because of tax reasons,” he said. “Many we spoke with indicated if bonus depreciation goes away there would be no need to buy new equipment for an extend period of time. “As a result, there are real concerns that equipment sales could suffer in 2014 – and particularly so should corn prices fall off.” Market debate The comments come amid a reassessment of the prosperity of the agriculture sector, in the US and elsewhere, with the prospect of strong world harvests this year of many crops – potentially depressing prices below cost of production for many growers. Some US machinery groups, such as Deere & Co and Titan Machinery, have revealed disappointing results, although it is difficult at the moment to distinguish pressure from the prospect of weaker crop prospects from that caused by a historically late sowing season. US farmers had planted 86% of their corn as of Sunday, below the average of 90% by then, while soybean seeding were 44% completed, behind the typical 61% and the slowest since 1996. Meanwhile, the US farmland market has also shown some signs of slowdown, with prices reported to be declining in Wisconsin and Wyoming. agrimoney Continue reading
Palm Oil Declines as Drop in Crude Reduces Appeal of Biofuels
By Ranjeetha Pakiam May 30, 2013 Palm oil declined from a seven-week high as crude oil traded near the lowest price in four weeks, cutting the appeal of vegetable oils as biofuel feedstock. The contract for August delivery fell 1.1 percent to close at 2,372 ringgit ($772) a metric ton on the Bursa Malaysia Derivatives, the biggest decline for the most active futures since April 29. Futures ended at 2,399 ringgit yesterday, the highest level at close since April 8. West Texas Intermediate crude fell to $92.59 a barrel after an industry report showed U.S. stockpiles rose the most in a month. The contract closed at $93.13 yesterday, the lowest since May 1. A record 5.6 million tons of palm was used for fuel in 2012, according to Oil World, a Hamburg-based research company. “The drop in crude prices makes biodiesel less desirable and therefore there’ll be selling pressure on crude palm oil,” said Sim Han Qiang, an analyst at Phillip Futures Pte. Palm oil for physical delivery in June was at 2,350 ringgit today, according to data compiled by Bloomberg. Futures are up 3.8 percent in May, heading for the first monthly gain in four. The decline in soybean oil prices may also damp demand for palm, Sim said. Soybean oil’s premium over palm oil was $297.56 a ton today, compared with an average of $322.89 this year, according to data compiled by Bloomberg. The vegetable oils are substitutes in food and fuel. Soybean oil for July delivery lost 0.3 percent to 48.51 cents a pound on the Chicago Board of Trade, extending a 1.8 percent decline yesterday. Soybeans dropped 0.3 percent to $14.9775 a bushel. Refined palm oil for September delivery fell 0.9 percent to close at 6,144 yuan ($1,002) a ton on the Dalian Commodity Exchange, while soybean oil lost 0.7 percent to 7,484 yuan. To contact the reporter on this story: Ranjeetha Pakiam in Kuala Lumpur at rpakiam@bloomberg.net To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net Continue reading
Farm Belt’s Boom Shows Signs of Slowing
The Wall Street Journal Menu By Mark Peters The rise in prices for agricultural land slowed somewhat to start the year in parts of the U.S. Farm Belt, new reports showed, signaling a boom in land values might be moderating as commodity prices cool and incomes for farmers are expected to weaken. The Kansas City Federal Reserve Bank said in a report Wednesday that prices for nonirrigated farmland in its region rose 3.4% in the first quarter from the fourth quarter of 2012. That was much slower than the 7.7% quarter-to-quarter increase recorded for the same region a year earlier. A separate report from the St. Louis Federal Reserve Bank also released Wednesday showed that land values in parts of the Midwest and Southeast regions fell by an average of 2.3% in the first quarter compared with the previous quarter. Analysts cautioned against making too much of a single quarter. And even with those slower rates, values for nonirrigated farmland in the Kansas City district, which stretches from western Missouri to Wyoming, have soared a total of 19.3% over the past year to record levels, the bank said. More information will come on Thursday in a report expected from the Federal Reserve Bank of Chicago, whose region includes several of the biggest corn-growing states in the upper Midwest. Economists have been watching farmland values closely, with some voicing concern about a possible bubble, as farmers have plowed the money from a record run-up in commodity prices back into the land. A low interest-rate environment has exacerbated the situation, making the rising farmland more attractive for farmers seeking better returns on their money. But signs of a slowdown are emerging. The benchmark corn contract has fallen more than 20% from records set last summer as federal forecasters predict a record corn crop this autumn. Farmers’ costs also are increasing, especially for key goods such as seed and fertilizer, the Kansas City Fed said. On Wednesday, tractor maker Deere & Co. forecast net cash income for U.S. farmers will fall 9.5% to $122.7 billion in 2013. But executives added that farmers should be able to withstand lower incomes because debt levels aren’t rising, even after big investments in land and equipment in recent years. “You see in the U.S. very strong farmer balance sheets, despite what’s been happening with land prices,” said Deputy Financial Officer Marie Ziegler. Nathan Kauffman, an economist with Kansas City Fed, said it will take a few quarters to determine whether the first quarter’s “modest” slowdown marks a fundamental shift in the farmland market or a short-term ebb. Bill Davis, chief credit officer at Farm Credit Services of America, said the agricultural lender saw a flurry of sales at the end of 2012 as farmers sold land ahead of tax increases that took effect this year. And while sales continue in farm states such as Iowa and Nebraska, the surge in prices hasn’t. “We have seen things level off in the first quarter,” he said. Bankers surveyed by for the Kansas City Fed’s latest report said debt levels for farmers generally remain manageable. But they noted that young farmers and those who are expanding operations face rising debt levels. The Fed bank has warned that farmers historically have increasingly turned to debt to continue capital investments even as incomes decline, which can magnify problems in a downturn. –Bob Tita contributed to this article. Continue reading
