Surprisingly High Corn Yields

2013 has been a very unusual year thus far. Coming off of the worst drought in 55 years, the Corn Belt experienced extremely wet planting conditions which led to 8.213 million acres of U.S. farmland to be unplanted, according to the Farm Service Agency update on September 17. Most recently, corn is abnormally being harvested before soybeans due to the lag in soybean maturity from the late planting. Many farmers are also reporting higher than expected corn yields thus far on the outer Corn Belt regions that have begun harvest.

China recently announced that Chinese owned Xinjiang Production and Construction Corp (XPCC) agreed with Ukrainian owned KSG Agro to acquire 7.5 million acres of Ukrainian farmland over the next 50 years for $2.3 billion. The land, located in eastern Dnipropetrovsk, will be used to raise crops and pigs to sell at preferential prices to Chinese state-owned companies. XPCC will start farming 250,000 acres at first.

Grain Prices

December corn prices decreased by 8.7% throughout September to close at $4.41 per bushel. Corn prices rallied in early September on very hot and dry weather conditions alongside frost risk, but the weather improved and prices retreated. In the September WASDE report, the USDA increased the 2013 average yield per acre by 0.9 bushels per acre to 155.3 bushels per acre, pushing record production to 13.8 billion bushels. The USDA also reported a very high amount of corn stocks on hand as of September 1st with 824 million bushels in all positions, although 165 million bushels lower than one year ago.

December soybean prices decreased by 5.5% this month to close at $12.82 per bushel. Improving weather conditions throughout September and speculative selling led to lower prices this month, although the USDA reported a 1.4 bushel per acre reduction in average U.S. yields due to poor growing conditions. In addition, the USDA estimated only 141 million bushels of soybeans were in current stocks as of September 1st, which is 17% lower year-over-year.

The December wheat contract increased by 5.4% this month, closing at $6.78 per bushel. The USDA did not make any changes to U.S. wheat production this month, although ending stocks were increased by 10 million bushels due to increased export competition from Canada's bumper crop. Wheat stocks in all positions were estimated at 1.85 billion bushels, down 12% from 2012. Strong export demand supported wheat prices throughout September as well as reports of frost in Argentina and slow winter wheat planting in Ukraine and Russia.

Harvest Update

As of September 29, 2013, 63% of the U.S. corn crop was mature compared to the five-year historical average of 70%. Corn harvest has already fallen behind with only 12% of the corn crop harvested thus far compared to the historical average of 23%. Soybean harvest is also behind schedule with only 11% harvested thus far compared to the historical average of 20% by the end of September.

Farmland Values

The Creighton University farmland price index contracted again and has decreased nine of the last ten months, but remains above growth neutral at 54.0 for the 44th month in a row. Professor Ernie Goss noted, “Our farmland-price index has been above growth neutral since February 2010. However, lower farm commodity prices are slowing growth in farmland prices. The Federal Reserve’s decision to make no changes to their expansionary monetary policy is definitely bullish for agriculture. Most economists, including me, expected the Fed to begin tapering QE3. Thus, the Fed’s lack of action in September will be supportive of agriculture commodity prices, farm income and farmland prices in the weeks and months ahead." Bankers also reported, on average, cash rents increased 9.9% from last year.

Farmland values have been steady through the summer months despite the reduction in commodity prices. Moving forward into the typical selling season post harvest, we will closely monitor sale prices due to the increase in sales across the entire Corn Belt. Even at current future commodity prices, farmland values are still fairly assessed.

Outlook

Harvest is an exciting time of year for farmers because they can finally start to see their hard earned yields come in. Our network of farmers have been pointing out that corn yields thus far have been higher than previously anticipated with favorable moisture levels. We will continue to monitor corn harvest throughout October and are anxious for early soybean yield data as well.