KANSAS CITY — New crop wheat, corn and soybean prices are expected to decline over the next three to six months, barring a major weather problem, due mostly to ample domestic and global supplies, according to analysts interviewed by Milling & Baking News. Though still early in the season, the 2015 crop picture is coming into focus with expected record high soybean plantings, lower but more-than-adequate corn and wheat acreage than in 2014 and continued strength in the dollar that casts a dark cloud over U.S. exports, especially wheat.
While the first 2015 winter wheat production estimate won’t come from the U.S. Department of Agriculture until May, the first spring wheat estimate until July and the first corn and soybean estimates until August, the groundwork for the season was laid March 31 in the department’s Prospective Plantings and Grain Stocks reports, which were seen as bearish for corn, bullish for soybeans and neutral to bearish for wheat, with lower corn prices also contributing pressure to wheat prices.
“I expect corn, soybean and wheat prices to move lower as we get through planting,” said Paul Meyers, chief agricultural economist, Foresight Commodity Services.
Most other analysts had similar ideas for new crop futures prices (December corn, November soybeans and September wheat), although some also agreed it was too early to make a good call on corn. Most also expect forecast record soybean area to grow even larger when planting is completed later in the spring. And all agree, as would be expected, weather is the key to getting the crops planted and determining yields as the season progresses.
A number of weather concerns are “nagging,” but few at this point portend a severe problem that may have a major impact on production or prices. California remains by far the greatest trouble spot for weather, but it’s not the focus of corn, soybean or wheat markets.
“There won’t be much early planting,” said David Salmon, president of Weather Derivatives, a Belton, Mo., energy and agricultural weather consultant, referring to recent wetter conditions across parts of the Corn Belt. “It’s wet but it’s still early.”
Overall, though still early, long-range models suggest good weather for the growing season across the Corn Belt, only slightly less favorable than last year when corn and soybean yields were record high, Mr. Salmon said.
Don Roose, president of U.S. Commodities, Inc., Des Moines, Iowa, noted the bearish implications of favorable growing conditions. He said world weather appeared benign and “a weak El Niño” was developing that will feature moderate summer heat and adequate rainfall across the Corn Belt, and if the weather turns out to be disappointing, ample world supplies, especially of soybeans and wheat, will provide a buffer against steep price gains.
But there is less certainty about the winter wheat crop.
The U.S. Drought Monitor shows various levels of moisture shortages, from abnormally dry to small areas of exceptional drought extending from Texas to North Dakota, embracing much of the hard red winter wheat belt and some of the Upper Midwest spring wheat and durum region.
“Kansas is in terrible shape,” Mr. Salmon said, noting there are pockets in the state where the soil moisture profile is 5 inches short that likely won’t “catch up” this season. But Texas, which was extremely dry a year ago, is in good shape, he said.
At the opposite end of the spectrum is excessive moisture across southern portions of the Central states — Missouri, Illinois, Indiana and Ohio — all of Kentucky and several states in the deeper south, all soft winter wheat areas.
In its first aggregate winter wheat condition report of the season, the U.S.D.A. rated the crop 44% good to excellent, 40% fair and 16% poor to very poor as of April 5. Those ratings were considerably lower than the final ratings last November as the crop entered dormancy, but also were considerably better than at this time last year for the crop harvested in 2014.
All wheat area seen down 3%
The U.S.D.A. in its Prospective Plantings report forecast all wheat planted for harvest in 2015 at 55,367,000 acres down 3% from 56,822,000 acres seeded for harvest in 2014.
Winter wheat area seeded in 2014 for harvest in 2015 was estimated at 40,751,000 acres, down 4% from 42,399,000 acres last year but up slightly from the January seedings estimate of 40,452,000 acres. The winter wheat estimate included 29.6 million acres of hard red, down 3% from 30.5 million acres a year earlier, 7.75 million acres of soft red, down 9% from 8.5 million, and 3.43 million acres of white wheat.
Farmers intend to plant 12,969,000 acres of spring wheat other than durum this year, down slightly from 13,025,000 acres in 2014. The spring wheat area includes 12.1 million acres of hard red spring, down 1% from 12.2 million acres in 2014.
Farmers intend to plant 1,647,000 acres of durum in 2015, up 18% from last year. Although up sharply, the 2015 forecast is compared with unusually low numbers in 2014. Plantings in 2014 at 1,398,000 acres and in 2013 at 1,400,000 acres were the lowest since 1,337,000 acres in 2011, which in turn was the lowest since 1,217,000 acres planted in 1959. In data going back to 1919, record high durum plantings of 6,855,000 acres occurred in 1928, but have never been over 6 million acres since and only topped 5 million acres three times.
The U.S.D.A. all wheat planting number was below the average of trade expectations of 55.61 million acres, with winter wheat above the average trade estimate of 40.58 million acres, the other spring wheat number below the average of 13.24 million acres and durum also below the average of 1.73 million acres.
“Wheat was a minor surprise,” Mr. Meyers said. “I thought there would be more durum acreage because of low stocks in the United States and Canada.”
Quality problems with the 2014 durum crop have been well documented by millers, which has tended to support prices for milling quality supply. The quality issues in the Upper Midwest and Canadian crops may have been a factor in sharply higher “desert durum” plantings in California and Arizona this season, a durum miller noted. Area in the two states totaled 185,000 acres, up 71% from a year earlier. Growers tend not to increase area unless they have production contracted before planting, the miller said. The desert crop typically is exported with excess supply used locally for livestock feed, which draws a lower price.
Although all wheat planted area is expected to be down about 1.5 million acres from 2014, a record large crop globally in 2014, ample global supplies and limited export potential due to the strong dollar likely will pressure wheat prices, which also tend to follow corn.
Mr. Meyers said he expects September Kansas City wheat futures to fall below $5 a bu this summer, assuming normal rainfall and a “decent” hard red winter crop. Chicago September soft red winter wheat prices could fall into the $4.60 to $4.70 a bu range during the same period. Kansas City September wheat was trading near $5.75 a bu and Chicago September near $5.30 a bu last week.
Steve Freed, vice-president of research, ADM Investor Services, Inc., Chicago, said he expects wheat prices to remain near current levels unless there is a problem with the U.S. hard winter or hard spring crops, despite the bearish export scenario.
“U.S. wheat exports are slow due to competition from the E.U. and Black Sea,” Mr. Freed said. “North Africa and Middle East demand has been slow due to lower energy prices and revenues.”
A “wrinkle” in the global wheat trade picture is a $35-per-tonne (about $1 a bu) tax on Russian wheat exports imposed earlier in the year in an effort to control inflation in that country’s troubled economy. Russia has given mixed signals about when it plans to lift the tax. Mr. Meyers said a decision to lift the export tax July 1 could have a significant impact on the wheat market. Exports from Russia could surge this summer if the tax is lifted, he said, which would be negative for U.S. wheat exports that already were struggling in world markets because of the strong dollar. Although it briefly rallied futures prices, the tax never gave U.S. exports the boost some had hoped.
Mr. Freed also noted farmer selling of wheat has been slow. Grain merchandisers have said for some time that farmers would hold the remainder of the 2014 hard red winter crop until they have a better idea of how their 2015 crop will fair. Spring wheat growers, meanwhile, have tended to hang on to a larger percentage of their crop because spring wheat prices have not been to their liking.
Wheat stored in all positions on March 1 totaled 1,124 million bus, up 6% from 1,057 million bus on March 1, 2014, the U.S.D.A. said in its Grain Stocks report. On-farm stocks of wheat were 278.7 million bus, up 17% from 237.5 million bus a year ago, while off-farm stocks were 845.7 million bus, up 3% from 819.4 million bus in 2014. Indicated disappearance of all wheat during the December 2014-February 2015 period was 405 million bus, down 3% from the same period a year earlier.
The U.S.D.A. all wheat stocks number was below pre-report trade expectations that averaged about 1,143 million bus.
Durum stocks on March 1 were 37.6 million bus, down 1% from 38.1 million bus a year ago. On-farm durum stocks were 16.2 million bus, down 22% from a year earlier, while off-farm stocks were 21.4 million bus, up 23%. Indicated disappearance during the December-February period was 6.43 million bus, down 59% from a year earlier.
Corn plantings down; soybeans up
The U.S.D.A. in its Prospective Plantings report indicated farmers intend to plant 89.2 million acres of corn in 2015, the least since 2010 and 1.4 million acres less than was planted in 2014. The U.S.D.A. forecast was about 470,000 acres less than the average trade estimate. The U.S.D.A. also reported farmers’ intentions to plant a record 84.6 million acres of soybeans, close to a million more acres than the record planted in 2014, but still almost 1.3 million acres less than average of trade expectations.
The U.S.D.A. said increases in soybean area of 200,000 acres or more were anticipated in Arkansas, Iowa and Ohio, with the largest declines expected in Kansas (200,000 acres) and Nebraska (300,000 acres).
“The U.S.D.A. understated total acres planted to corn and soybeans by one to three million acres in the March 31 Prospective Plantings report,” Mr. Roose said. “Corn acres are close to accurate but soybeans are likely to pick up one to three million acres. This may correct the fact that soybean acres in the March 31 report were less than the trade expected.”
Mr. Meyers said that leading up to the report, the trade had expected 3 million to 4 million fewer corn acres and 3 million to 4 million more soybean acres, and that the surprise in the report was how small the changes were. He said growers still could plant 2 million to 3 million more acres of soybeans than indicated by the U.S.D.A. without significant switching from corn because total planted area indicated in the Prospective Plantings report was down more than 2 million acres from a year ago.
Steve Nicholson, vice-president, Food & Agriculture Research & Advisory, Grains & Oilseeds, Rabo AgriFinance, said he wasn’t surprised by the small changes in corn and soybean planted area reflected in the Prospective Plantings report. The big swings already had occurred last year, he said, although “we might see some significant changes when we see the June (Acreage report) numbers,” also noting the lower total planted area this year.
Mr. Nicholson said roughly 75% of growers had made their planting decisions when the Prospective Plantings survey was done in early March, leaving a “significant number yet to decide.” But he suggests there may be more of a move back to corn, especially if the “corn/soybean” ratio begins to favor corn. When the ratio (the price of soybeans divided by the price of corn) is around 2.25 to 2.3, it’s neutral, he said. A ratio over 2.3 tends to favor soybeans. Last week the ratio was around 2.37, still in favor of soybeans but much smaller than earlier in the year.
After corn planting winds down in late May, December corn futures are likely to fall to the range of $3 to $3.20 a bu, Mr. Roose said. Second-quarter prices that low haven’t been seen since 2006 when corn futures were trading below $3 a bu. November soybeans were likely to trade in a range of $8 to $8.25 a bu after planting ends in June, he added. Those futures prices indicate cash market values may drop below the break-even levels of $3.75 to $4.25 a bu for corn and $8.50 to $9 a bu for soybeans, Mr. Roose said. December corn futures last week were trading near $4.05 a bu and November soybeans near $9.60 a bu.
Mr. Meyers said he expects December corn futures to fall to around $3.50 a bu and November soybeans to around $8.50 a bu, if the additional acreage materializes.
Mr. Nicholson suggested new crop corn prices could “see lows seen last fall” if there is a good crop, with new crop soybeans in the $8.50 to $8.75 a bu range.
Mr. Roose sees expanded acreage as a key bearish fundamental, noting that 80% of the time, corn acres increase by June compared with March estimates. Increased estimated 2015 corn, soybean and all-wheat carryout was yet another bearish indicator, he said.
But not everyone agrees that corn prices will automatically decline, especially if predictions come true that producers in Southern states may switch additional acres from corn to soybeans or even sorghum after March 1, as they grapple with sodden fields and a fast-closing planting window ending in April in parts of the South (compared with the third week of May in more northern areas of the Corn Belt).
“Given current wet-weather patterns in the Delta and Mid-South, the trade will start to knock down the 89.2 million corn acres forecast in the March 31 Prospective Plantings report,” said Mike Zuzolo, president of Global Commodity Analytics in Atchison, Kas. He said some of the very wet acres in the Mississippi Delta could end up in the prevent-plant category.
Corn planting in early April in states such as Louisiana, Texas and Arkansas was well behind average, with little time available to catch up, Mr. Zuzolo said. Further north, soil temperatures remained too low in some areas for much planting progress as of early April. He said 2015 soybean acreage could expand by 1.5 million acres because of last-minute changes in planting decisions that will require finding a substitute for corn.
Nevertheless, Mr. Zuzolo acknowledged that farmers’ planting decisions often tend to favor the best-yielding crop and that continues to be corn. He predicted new-crop December corn futures will trade from $3.75 to $3.90 a bu after planting is finished in May. He sees November soybeans trading at about $9.30 a bu after planting ends.
Strong dollar an export factor
Mr. Zuzolo said the dollar could make a peak in mid-June as the Federal Reserve is forced to indicate if it has concrete plans to start raising U.S. interest rates in 2015. But, until then, the dollar may continue to gain strength, weakening U.S. agricultural commodity prices, because of quantitative easing in Europe that has the effect of weakening the Euro, which makes European grain cheaper for foreign buyers.
Mr. Meyers said the strong dollar has made the E.U. an “aggressive exporter of wheat,” with sales still above those of the United States, which was unusual for this time of year.
On the supportive side, less expensive crude oil was seen stimulating domestic gasoline use and contributing to additional corn ethanol consumption, even if ethanol prices fall to break-even, some of the analysts said. Shipping costs were likely to trend lower on improved railroad performance and less-expensive fuel, negating the need to build a freight premium into commodity prices.
In its quarterly Grain Stocks report the U.S.D.A. estimated an 11% hike in domestic corn inventories as of March 1 compared with March 1, 2014, and a 34% increase in domestic soybean inventories.
The corn stocks number at 115 million bus above the average trade guess was the biggest surprise in the Grain Stocks report, Mr. Meyers said. It suggests the U.S.D.A. may have to reduce the feed and residual use number in the April World Agricultural Supply and Demand Estimates report. The March 1 soybean stocks number was lower than what the U.S.D.A. 2014 soybean production estimate would indicate, he said, suggesting last year’s soybean production may have been overstated.
In addition to weather, the analysts suggested the value of the dollar would be key for grain markets in coming months. Most thought the dollar had not yet peaked.
But first spring wheat and the row crops need to be planted in major growing areas, with corn the first major concern. Despite recent wet weather, Mr. Nicholson noted: “It always gets planted.”