Tag Archives: hurt

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 →