The fundamentals of the commodity market have changed dramatically in one year. As everybody knows, we had a correction in the grains market around July 1, 2014. We harvested a near record crop in 2014. It does appear that a similar crop is on its way. Protein producers’ No. 1 cost is feed ingredients. If you follow a five-year trend, grain-based feed ingredients including corn, wheat and soybean prices travel within a pricing range of one another.
Their price also correlates to the price of oil. Estimating and gaining some control over that cost is always an important factor in a successful or unsuccessful year for good companies in the protein business. Ethanol production continues to get more efficient, maximizing the energy extracted from every bushel of corn. Ethanol is now the No. 1 consumer of corn, with animal feed ingredients closely behind. Corn demand has temporarily flattened for several reasons, including cheap energy. The dollar is very strong, which limits attractiveness to the export markets. Oil prices will remain relatively low for the short term, but my prediction is, long-term, OPEC will moderate production and push the crude oil market back into the $80-per-barrel range.
Unless the current abundance of moisture in the farm belt stops, the 2015 harvest will likely be somewhere near the pace of 2014. I have seen years, like 2012, where it just stopped raining in July and we had a major drought. But if things continue with the current conditions, we will have another good crop in the U.S.
The USDA report published June 30, 2015, estimated corn acres planted at 88.9 million acres, down 2 percent from 2014. This represents the lowest planted acreage in the in the United States since 2010. Soybean acres are estimated at a record high, 85.1 million acres, up 2 percent from 2014. Area for harvest, at 84.4 million acres, is also up 2 percent from 2014 and will be record high if realized. Record high planted acreage is estimated in Kentucky, Minnesota, Ohio, Pennsylvania and Wisconsin. All wheat planted area for 2015 is estimated at 56.1 million acres, down 1 percent from 2014. The 2015 winter wheat planted area, at 40.6 million acres, is down 4 percent from last year and down less than 1 percent from the previous estimate.
Because of buyer-friendly early pricing, more than 30 percent of the corn crop is already committed, whereas 70 percent of the soybean crop and 85 percent of the wheat crop are committed. The biggest risk factor that we are currently tracking is the excess moisture/flooding in some states, including Indiana and Ohio. A lot can happen between now and harvest. If national corn yields fall below 160 BPA and beans below 43 BPA nationally, that will moderate carryover. In the last three weeks of June, the markets made a dramatic turn but could still be undervalued in the long run. The value of the 2015 crop has appreciated by $15 billion in the last three weeks of June. Corn stocks are up 15 percent from June 2014. Soybean stocks are up 54 percent, and all wheat stocks are up 28 percent from 12 months ago.
If protein producers can moderate supply, it will be a great opportunity for everyone, including the farmer, to make money in 2015. I prefer those years when everyone makes money; it’s just good for business. NP
