U.S. Planting Season Days Away

In just a few days, planter wheels will start turning in the U.S. Corn Belt as temperatures are slowly climbing and moisture levels increasing. Some regions of the U.S. are even concerned with major flooding this spring, including the Red River Valley of eastern North Dakota and northwestern Minnesota. Overall, the Corn Belt welcomed above-average amounts of snow and rainfall throughout March to help alleviate low subsurface soil moisture levels.

Ethanol received a great deal of media attention this month as RIN prices increased substantially to near $1 due to the potential blend wall implications. Producers of ethanol are preparing for a situation where the Renewable Fuel Standard (RFS) may require more ethanol to be produced than domestic demand calls for. Corn stocks remain tight which has been keeping old crop corn prices near $7 and local basis strong for farmers.

Grain Prices
Corn prices decreased by 3.3% this month, closing at $6.95 per bushel on the May 2013 contract. The USDA did not make any changes to the U.S. ending corn stocks in the March WASDE Report, but decreased exports by 75 million bushels due to a slowed shipping pace. South America has been the driving competition for the U.S. pertaining to corn exports. Corn prices decreased in early March due to increased precipitation seen across the Corn Belt, but very low supplies of old crop corn had kept front month prices above $7. The USDA estimated 97.3 million acres of corn will be planted in 2013 in the U.S. which will mark the crop as the largest since 1936, up 100,000 acres from 2012. Additionally, the USDA Quarterly Stocks Report estimated a total of 5.399 billion bushels of corn on hand in the U.S., 8% higher than analyst expectations, yet 10% lower than in March of 2012. Corn traded limit down on the last trading day of the month.

Soybean prices decreased by 4.8% this month to close at $14.04 per bushel. South American new crop soybeans have entered the global market creating strong competition against the U.S. The USDA did not change U.S. ending soybean stocks in this month's WASDE, but estimated exports to decrease due to South American competition. The Chinese have already threatened to cancel Brazilian soybean orders due to logistical delays at Brazilian ports positioning the U.S. as a better source. 77.1 million acres of soybeans are to be planted in 2013 in the U.S., marking the fourth largest soybean crop in history, according to the latest Prospective Planting Report from the USDA. U.S. Soybeans stocked in all positions were estimated at 999 million bushels, according to the USDA Quarterly Stocks Report. Analysts expected 50 million bushels less.

Wheat prices decreased by 3.1% this month, closing at $6.87 per bushel. The USDA estimated U.S. wheat ending stocks 25 million bushels higher this month due to decreased export demand. Wheat prices decreased in early March due to sluggish export demand and a report of a 4.3% increase in global production this year, according to the U.N., but extremely cold and dry weather led to a late month rally. 24% of the Southern Plains' winter wheat crop may be abandoned due to the persistent cold and dry weather, according to Futures International LLC. The thin snow cover left winter wheat plants exposed to below freezing temperatures this month, which may significantly impact yields.

Farmland Values
The traditional buying season of farmland is concluding as the primary buyers, farmers, are shifting attention to their spring field work. We are still seeing attractively priced properties across the U.S. and expect competitive prices throughout planting season.

The Creighton University farmland price index increased to 67.2 from 67.0 in February. This marks the 38th consecutive month the index has been above growth neutral. The farm equipment sales index fell to 60.5 vs. 65.8 last month. Farmer income is expected to reach a record high in 2013 and bankers indicated in March that cash rents will increase by over nine percent in 2013.

According to economist Ernie Goss, "Current readings are consistent with farmland price growth between 12 and 16 percent. The Federal Reserve’s cheap money policies continue to bolster farm commodity prices, farm income, farmland prices and farm equipment sales. The Fed has indicated little change in this pro-agriculture money policy for 2013, which means we will likely continue to see healthy growth in farmland prices and farm equipment sales."

South American Harvest
Soybean harvest is almost complete across South America and double cropped corn is being planted. Single cropped corn will be harvested within the next few weeks. Both soybean and corn yields should be strong this year as adequate rain fell across Argentina and Brazil throughout the growing season. The USDA estimated the Brazilian soybean crop to be 83.5 million metric tons, a record and 26% larger than in 2011/12.

Major port delays have been reported in Brazil at up to 55 days. Almost all harvested grain travels via trucks in Brazil which creates a major backup at ports when exports are in high demand. We will be monitoring the port issues in Brazil moving into the South American corn harvest. If delays increase throughout corn harvest, major importers, including China, may turn full attention to the U.S. as an alternative.

RFS Blend Wall
Ethanol producers are beginning to prepare for the so-called blend wall when ethanol production will exceed demand due to RFS requirements. The RFS requires 16.55 billion gallons of renewable fuel to be produced in the U.S. in 2013, of which 13.8 billion gallons must derive from corn based ethanol. As U.S. gasoline demand continues to decline and the proportion of ethanol blended into gasoline remains unchanged, ethanol producers are starting to stockpile RINs. RINs are credits equivalent to producing ethanol which producers are forecasting to use to meet the RFS instead of producing ethanol that would go unblended. One solution would be to increase the amount of ethanol blended into U.S. gasoline from 10% to 15%, but many automakers are against the already EPA approved increase. We predict both the ethanol blend wall and RIN market to be major factors in the upcoming 12 months.

Outlook
April will be a very exciting month for agriculture as the U.S. corn crop begins to be planted. We expect rationing to be present among corn consumers as the old crop corn supply becomes dangerously low in the U.S. Additionally, we are monitoring the progress of the U.S. planting season and how realistic a bumper crop may be in the U.S. with 97.3 million acres of prospective planted corn. USDA trend line yields are in a best case scenario and we are cautious of the 2013 weather.