Monday, March 3, 2014
Argentina, the largest shipper of soy-based animal feed & cooking oil, will have its second-biggest harvest ever, Brazil supplanted the US as the top exporter
CHICAGO — Corn is no longer king on Todd Wachtel’s 5,500-acre farm in Illinois. After prices fell to a three-year low in January, he will cut planting by 20 percent in 2014 and devote half his land to soybeans, which are cheaper to grow and just as profitable for the first time in four years.
Across the Corn Belt, growing the biggest US crop had been an easy choice for farmers since 2009. Annual revenue was US$150 per acre more than soybeans on average for Wachtel, who sowed 3,450 acres of corn in 2013, or 63 percent of his land. This year, lower prices mean both crops will earn US$10 to US$20 an acre, so Wachtel is reducing his risk by sowing more soybeans, which cost US$220 less per acre to grow than corn.
“You are putting less money at risk for the same profit,” Wachtel, 42, said by telephone from Altamont, about 220 miles south of Chicago.
US farmers to plant 5% more
Farmers in the United States, the world’s second-largest soybean grower, will boost planting by 5 percent to a record 80.391 million acres, a Bloomberg survey of 22 analysts showed. With the biggest crops ever being harvested now in Argentina and Brazil, the top producer and exporter, Goldman Sachs and Jefferies Bache predicted last month that prices will slump 29 percent to US$9.50 a bushel in Chicago within a year.
Soybean futures on the Chicago Board of Trade are down 5.4 percent in the past 12 months to US$13.33. Corn tumbled 37 percent over the same period, the biggest drop among 24 commodities tracked by the Standard & Poor’s GSCI Spot Index, which slid 6.1 percent. The MSCI All-Country World Index of equities is up 13 percent in the past year, while the Bloomberg US Treasury Bond Index fell 1.2 percent.
Cheaper soybeans, used to make animal feed, cooking oil and biodiesel, will boost profit margins for processors including Archer-Daniels-Midland Co. Oil World, a Hamburg-based researcher, said record supplies of vegetable oil will help reduce global food costs that already are down 15 percent from a record in February 2011. A United Nations gauge of food oils has dropped 35 percent over the same period.
World output growing strongly
Global production in the year that began October 1 will rise 7.2 percent to an all-time high of 287.7 million metric tons from a year earlier, led by record harvests in Brazil, Canada, Uruguay and Ukraine, the US Department of Agriculture said on February 10. Brazil supplanted the US as the top exporter last year and will be the biggest grower in 2014. Argentina, the largest shipper of soy-based animal feed and cooking oil, will have its second-biggest harvest ever.
US soybean output will jump 5.8 percent to 3.48 billion bushels (94.7 million tons) this year, based on the average estimate in the Bloomberg survey. Domestic stockpiles before the 2015 harvest will reach an eight-year high of 276 million bushels, up 84 percent from a year earlier, the survey showed.
“I’m watching every penny because we are so close to break-even,” said Chad Blindauer, 42, who plans to cut corn acreage by 10 percent and add soybeans and wheat on his farm near Mitchell, South Dakota. “The cost of renting land is the biggest variable between those farmers looking at losses and those that will make a profit.”
Low prices are a boon to processors. ADM’s operating profit from crushing oilseeds rose 16 percent in the fourth quarter to US$478 million, the Decatur, Illinois-based company said on February 4.
“Strong export and domestic demand drove excellent soybean-crushing capacity utilization and good margins” in North America, Chief Executive Officer Juan Ricardo Luciano said on a conference call with analysts. The company is anticipating “a big soybean crop in Brazil,” and is “very optimistic about our crushing going forward,” he said.
Sanderson Farms Inc., the third-largest US chicken producer, said on December 17 that cash costs for corn used to feed its birds during its fiscal fourth quarter ended October 31 fell 33 percent from a year earlier, while spending on soybean meal slid 1.6 percent. The Laurel, Mississippi-based company said it will boost processing by 2.5 percent in fiscal 2014 to 3.13 billion pounds of chicken.
The main corn-planting season in the Midwest is still two months away, and good weather may encourage farmers to sow more corn than forecast because the grain offers bigger potential yield gains than soybeans, which means higher output can more than make up for lower prices, said Michael Swanson, an agricultural economist for Wells Fargo & Co. in Minneapolis.
“Soybean acreage is going to increase, but farmers who own their farmland and have high proven yields are going to plant corn because they have lower costs,” Swanson said. “When weather is good, corn is an income home run.”
Demand has been strong for US soybeans, especially from China, the world’s largest importer, which boosted purchases by 32 percent since September 1, compared with a year earlier, USDA data show. Total sales for delivery before August 31 are up 26 percent to 43.02 million tons as of January 30, compared with a year earlier. Export prices at terminals near New Orleans were US$14.16 on average since the marketing year began September 1.
Hedge funds and other large speculators remain bullish. Their net-long position is up 7.2 percent this year at 146,533 futures and options contracts, the highest since the end of December and the most for this time of year since 2011, US Commodity Futures Trading Commission data show.
South american boom
Even before this year’s US harvest, global production will exceed demand by 18.356 million tons in the year ending August 31, the biggest output surplus since 2010, USDA data show.
Over the past decade, supplies have surged with the development of new seed technology and increased planting in South America, where Brazil and Argentina supply 49 percent of the world’s soybeans, up from 35 percent in 2000. Production in Brazil, Argentina, Paraguay and Uruguay will rise 8.9 percent to 156.4 million tons, up 76 percent from 2004, the USDA said.
Brazil’s harvest was 13 percent complete the week before last, compared with 10 percent for this time of year in 20013, according to researcher Safras & Mercado. Argentine grain exporters and farmers agreed to sell US$2 billion of stockpiled soybeans this month to boost central bank reserves, Cabinet Chief Jorge Capitanich said Feb. 6.
“With benign weather conditions in South America so far and the potential for a sharp deterioration in yield prospects increasingly unlikely, we expect that soybean prices will decline in coming months,” Goldman Sachs analysts led by Jeffrey Currie, head of commodities research, said in a January 12 report.
There is no shortage of US land that can be planted to all crops this year after more than 8.3 million acres were abandoned in 2013 because of flooding, compared with 1.2 million 2012, said Christopher Gadd, an analyst for Macquarie Group Ltd. in London. Gadd estimates farmers will boost planting of field crops, including corn, soybeans, cotton, wheat and others, to 328.4 million acres from 324.6 million.
“It would be very difficult for the 2014-2015 season to be bullish, unless we see a significant underperformance in US yields,” Gadd said in a January 23 report.
While farmers probably will reduce corn planting by 2 percent to 93.477 million acres this season, stockpiles before the 2015 harvest would still be bigger than they are expected to be this year, up 35 percent at 2.001 billion bushels, the Bloomberg survey showed.
Net income from agriculture in the US will drop to US$95.8 billion this year, from US$130.5 billion last year, the USDA said. Income for major crops including corn, soybeans and wheat will drop 12 percent to US$189.4 billion, while expenses including feed and chemicals slip 11 percent to US$348.2 billion.
Farmers may not see a return to record profit for several years, which probably means lower farmland values that reached an all-time high last year, said Bill Christ, 53, who farms 1,400 acres of corn and soybeans and breeds 250 beef cows in Metamora, Illinois.
Christ said he will cut corn planting by 5 percent and raise soybeans by 5 percent, making acreage the same for both crops. Two years ago, he planted about 65 percent corn.
“This year is going to be a challenge and next year could be very difficult because farmers will try to produce 20 percent more corn than their five-year average yield and try to get 10 percent more soybeans to make up for the low prices.”
See original article: http://www.buenosairesherald.com/articles/noticia.aspx?ix=153445
Source: Buenos Aires Herald.