Excess Moisture Delaying Harvest

The 2013 corn and soybean harvest is behind historical pace due to the late planting across the Corn Belt this spring, but also in part by the wet and abnormally cool temperatures. Cool temperatures are little help in naturally drying down both corn and soybeans in farm fields. Throughout late October, many areas of the Corn Belt accumulated large amounts of rainfall in excess of two inches and even multiple inches of snowfall in the Dakotas and western Minnesota. The precipitation has greatly delayed the second half of many farmer's harvest, although farmers have been reporting higher than anticipated crop yields. Local grain storage facilities and offtakes increased price basis due to the amount of the record corn crop making its way into the supply chain.

A South Minneapolis gas station became the first gas station in Minnesota to start carrying the EPA approved E15 gasoline. E15 is priced 15 cents cheaper than standard E10 gasoline. Besides being cheaper per gallon, E15 is higher in engine thriving octane. The Minnesota Corn Growers Association is helping gas stations make the switch to E15 by providing additional funding for the necessary infrastructural upgrades at the pump.

Grain Prices

December corn prices decreased slightly by 3% throughout the month to close at $4.28 per bushel. Due to the U.S. Government shutdown, USDA reports and historical research were unavailable. The monthly World Agricultural Supply and Demand Estimates Report (WASDE) was also cancelled. Farmers reported higher than anticipated corn yields throughout the Corn Belt which combated any price rally in October. Local elevators have been slowly nearing capacity as well. The Chinese were active buyers of U.S. corn in October with one purchase of over 400,000 mmt for 2014 delivery due to attractive U.S. prices comparative to Chinese prices. Conab also estimated Brazil's upcoming corn crop between 78.4 mmt and 79.6 mmt, well below last year's 81.3 mmt.

December soybean prices were nearly unchanged this month, closing at $12.80 per bushel. Delayed maturity risk in early October led to higher prices, but the weather outlook improved mid month and the U.S. Dollar strengthened. Domestic demand remains very strong and tight short-term supplies are still a major concern in the marketplace.

The December wheat declined by 2% in October, closing at $6.67 per bushel. Globally, wheat prices have upside support as Russian farmers have continued to be reluctant to sell at current prices which has created supply woes throughout the world market. Argentina's wheat crop was in serious risk of multiple frost warnings, but no severe damage was reported yet. U.S. winter wheat was 70% emerged as of October 27, 2013 compared to the historical average of 79%.

Harvest Update

As of October 27, 2013, 59% of the U.S. corn crop had been harvested, although the five-year historical average is 62%. During the fourth week in October, farmers capitalized on favorable weather harvesting 20% of the entire corn crop. Soybean harvest had been trailing the historical average, but is now caught up at 77% harvested.

Despite the rapid advancement of the harvest in October, farmers have been dealing with very wet grain. Ideally, corn should be stored at near 15% moisture content. Throughout the Corn Belt, farmers have been reporting moisture as high as 20% to 25% which calls for LP gas drying. Typically, drying requires 0.02 gallons of LP to dry corn 1%, according to South Dakota State research. If LP costs $1.50 per gallon, drying corn down 5% would cost $0.15 per bushel in a typical year. LP costs have been reported nearing $4.00 per gallon in supply stricken areas of the Corn Belt resulting in very high drying costs.

Farmland Values

The Creighton University farmland price index decreased for the 10th time in the last 11 months, but remains above growth neutral at 50.9. Professor Ernie Goss said, “Weaker agriculture commodity prices and poor weather conditions in some parts of the region lowered the farmland price index. Clearly, farmland price growth and cash rent expansions in the months ahead will not be as healthy as has been experienced in the past couple of years."

Bankers were asked this month by Creighton University how much they expect cash rents to increase over the next year. On average, bankers believe rents will increase 2.5%, far from six months ago when bankers estimated rents would increase 9.3%.

The typical farmland buying season commences once crops have been harvested. Although commodity prices have declined throughout the summer months, the limited amount of farmland sales have still been at strong prices. We expect the upcoming few months to offer many attractively priced properties with continued high demand. Farmland buyers monitor future corn and soybean prices, not simply the upcoming December contract, because farmland values are a function of future cash flows.

Outlook

Once harvest is complete, we expect a high amount of farmland sales that will provide an accurate interpretation of farmland values. If harvest further delays, farmland sales may not occur in high numbers for a few more weeks or months.