For the second straight year, ideal weather continued in the month of August supporting strong corn and soybeans yield expectations in the U.S. Other than farmers in the eastern Corn Belt who experienced damaging rainfall in spring, many farmers are pleased with the ample and consistent amounts of rainfall and sunshine bringing crops to maturity. The 2015 U.S. corn crop is maturing evenly with the five-year historical average.
Monsanto No Longer Targeting Syngenta Acquisition
In spring of this year, Monsanto Company (NYSE:MON) submitted an unsolicited bid of $45 billion for the seed and chemical company, Syngenta (NYSE:SYT). Robert Fraley, Chief Technology Officer for Monsanto, visited with a number of farm advocacy groups in an effort to ensure that the merger would provide increased innovation to further aid farmers in their attempts to feed the world.
In late August, Bloomberg reported that Monsanto had upped their bid to $46.2 billion in attempts to sweeten the deal and entice Syngenta to open their books to further analyze a possible merger of the two companies. Anti-trust concerns were again raised over the potential deal and Syngenta rejected the bid, believing that the cost-cutting program that they are currently undertaking would greatly improve the company’s efficacy and profitability. The very next day Monsanto reported that they were pulling the deal after Syngenta refused Monsanto's increased offer.
Monsanto said they will continue to pursue growth opportunities domestically and abroad to grow their brand.
Expected Net Farm Income to Decrease
For the second straight year, U.S. farm income is expected to decrease due to suppressed crop prices and decreased livestock prices. For the 2015 crop, farmers were less likely to have forward sold back in 2013 when 2015 future prices were relatively high. Farm income for 2015 is expected to be $58.3 billion, down from $91.1 billion in 2014, and down 21% from the 15-year average.
Rural bankers are also aware of the expected decline in farm income. Farm Credit reports from the Federal Reserve in Chicago, Kansas City, and St. Louis conveyed a further weakening of the farm credit condition in their respective districts. Non-real estate loan demand has steadily increased over the past six quarters, while loan repayment rates have slightly declined. This widening gap has forced banks to begin increasing their lending and collateral requirements on operating loans, although on average, farmer's current debt to assets ratios are still at 40-year lows.
John Deere Reports Slumping Profits
John Deere (NYSE:DE) reported a 40% decline in profits following their fiscal close in July, 2015. The decline in 2014 farm income forced farmers to cut costs from their 2015 operations, and for most farmers, the first area cut was farm equipment and machinery upgrades. Farmers are likely to continue to put off equipment and machinery upgrades again for the next crop year. Deere is also battling the large volume of used equipment in the marketplace due to the aggressive trade-in program implemented in the mid-1990s.
Farmland Values
Farmland value reports showed mixed results in August. The Federal Reserve Banks of Chicago, Kansas City, and St. Louis released their second quarter 2015 Farmland Credit reports this month. The reports suggested that farmland values in the northern Corn Belt declined 1% during the second quarter, while the eastern and western Corn Belt reported increases of less than 1%.
The regional disparity in farmland values is primarily due to the difference in crop dependencies across the two regions. Farmers in the northern Corn Belt, parts of Illinois, Iowa, and Minnesota rely most heavily on corn and soybeans. The larger ranching presence in the eastern and western Corn Belt provided a diversification of income for farmers and supported farmland values in those areas as crop prices declined.
Annual farmland values declined by an average of 3.3% across the entire Corn Belt due to corn and soybean prices falling 21% and 33% respectively, over the period. The outlook for the third quarter of 2015 is stable, according to bankers.
Crop Progress
Crop conditions and growth progress throughout August were average to above average as warm humid weather provided excellent growing conditions for both corn and soybeans. August is a crucial month for soybean development when pods are set and begin to fill. Timely rains that were not over bearing provided much of the Corn Belt with ample precipitation, supplying corn and soybeans with enough moisture for proper grain filling.
A number of crop tours were performed in August and crop scouts canvassed the Corn Belt picking ears of corn and counting soybean pods to get an idea of the health of the localized crop. Those surveying the eastern Corn Belt, areas of Illinois, Indiana, and Ohio, raised concern over the corn crop in the region, which showed signs of significant nitrogen leachage due to the heavy rainfall early in the growing season. Despite the lackluster corn, soybeans in the eastern corn belt appeared better than expected which will make up for the poor soybean crop expected in the southwestern Corn Belt. The corn crop improved as scouts moved further west, with areas of Iowa and Minnesota sampling at well over 200 bushels per acre.
Farmers were less confident about their crop's potential than the crop tours reported. Farmers in western Minnesota explained that walking through fields they have seen a significant amount of corn tip back. Corn tip back is kernel abortion near the top 1 to 1.5 inches of the cob caused by weather related stress, disease or lack of crop nutrients in the soil. Farmers in central Illinois and northern Iowa have noticed an increase in soybean northern leaf blight, a disease often caused by hail ripping the leaves, leaving them vulnerable to disease and infection.
Grain Prices
September corn prices decreased 1.89% in August and closed at $3.63 per bushel. Prices traded sideways early in the month as reports of old crop corn sales cancellations were offset by less than ideal weather conditions. Immediately prior to the release of the August World Agriculture Supply and Demand Estimates (WASDE), corn prices increased nearly 5% as analyst predicted that the USDA would decrease the 2015/16 production estimate due to several negative reports about corn in the eastern Corn Belt. After the release of the WASDE on August 12th, prices fell over 5% to their lowest level in two months due to an increase in estimated corn production by 2.76% more than pre-report expectations.
The September soybean contract decreased 5.68% in price throughout August to close at $8.97 per bushel. Similar to corn, soybean prices ramped up as analysts predicted a decrease in the USDA 2015/16 production estimate. Instead, the USDA increased the 2015/16 soybean production estimate by 5.3% over pre-report expectations. Soybean prices fell 6.4%, their lowest point since October 2014. The U.S. dollar has also been a significant headwind for U.S. soybeans on the global market.
September wheat prices decreased 3.02% throughout July to close at $4.82 per bushel. Wheat prices experienced gains in early September due to positive export and sales data. Those gains were lost as wheat prices traded alongside corn and soybeans following the WASDE report. Wheat prices traded sideways until the end of the month when positive harvesting data about the spring wheat crop pushed prices down further.
Outlook
Crop development is nearly complete as August comes to a close. Soybean harvest will begin in the main growing areas within the next few weeks and farmers will be hoping for warm dry weather to help finish the crop and dry it down to help decrease drying costs. The corn crop is on pace to harvest in early to mid-October.
The only obstacles facing either corn or soybeans at this point are heavy persistent rainfall or a hard frost. Farmers experienced the persistent rain last year with some not being able to finish their harvest until December. The rain prevents farmers from accessing their fields and also cuts into their profit by increasing drying costs. A hard frost can hurt yields and damage the crop, making it unsuitable for delivery at local buyers.