Price pressures continue

March 4th, 2016

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Category: Grains, Oilseeds

Wheats-and-Cereals450x299(AgriNews) – Larger domestic and global grains and oilseeds supplies and reduced price prospects are forecast to continue through the 2016-2017 marketing year.

Projections, prepared by the Wheat, Feed Grains, Rice and Oilseeds Interagency Commodity Estimates Committee, were released recently at the U.S. Department of Agriculture’s annual Agricultural Outlook Forum.

“Lower returns reduce incentives for plantings of wheat and soybeans, but shifts in relative prices and lower input costs support a year-to-year increase in expected corn plantings,” the report stated.

Corn plantings for 2016 are projected at 90 million acres, up 2 million from the 2015 final estimate, and 0.8 million above last year’s intended plantings from the March Prospective Plantings report.

Relative returns are expected to favor increased corn plantings even though prices are down again this year. New-crop futures during the first half of February averaged $3.88 per bushel, down 27 cents from early February last year.

Reported corn cash bids for fall 2016 delivery at central Illinois elevators averaged $3.60 per bushel the first half of February compared with $3.78 per bushel for the same period last year based on the Agricultural Marketing Service Illinois Grain Prices in Country Elevators report.

The 2016-2017 season average farm price for corn is projected at $3.45 per bushel, down 15 cents from the midpoint of the 2015-2016 projected range.

Input prices, however, also have fallen with AMS reporting nitrogen fertilizer prices down 19 percent to 23 percent and farm diesel fuel down 35 percent from last year at this time in the biweekly Illinois Production Cost Report.

USDA also noted the current 2016 revenue projections from the University of Illinois for farmland producing 201 bushels per acre of corn at $723 per acre based on $3.45 per bushel sales, costs at $558 and cash rent of $228, implying a net loss of $63 per acre.

Fewer Soybean Acres

Soybean plantings for 2016 are projected at 82.5 million acres, 200,000 below last year and 2.1 million below the record intentions in the March 2015 prospective plantings report as prices and returns decline for the third consecutive year.

New-crop futures prices during the first half of February averaged just more than $8.85 per bushel, down 8 percent from last year and down 21 percent from 2014.

Soybean cash bids for fall delivery in central Illinois during the first half of February, at $8.52 per bushel, are sharply below new-crop bids in 2014 that soared to above $12 during spring planting and pushed soybean area to a record 83.3 million acres.

With an anticipated increase in soybean supplies, ample ending stocks and lower corn prices, the soybean season-average farm price is projected at $8.50 per bushel, down 3 percent from the $8.80 mid-point of the 2015-2016 projected range.

Farmland producing 58 bushels per acre of soybeans will have revenue of $523 per acre with a $8.50 per bushel price, non-land costs of $348 and cash rent of $228 per acre will result in a net loss of $53 per acre, according to estimates from the University of Illinois.

Wheat planted area for 2016 is projected down 3.6 million acres to 51 million.

Winter wheat seeded area in the Jan. 12 Winter Wheat Seedings report was 36.6 million acres, down 2.9 million from last year mostly resulting from a drop in hard red winter, which was estimated down 2.5 million acres at 26.5 million.

Soft red winter area was estimated down 0.4 million acres to 6.7 million. Winter white seedings were raised fractionally to 3.4 million acres. Spring wheat, including durum, plantings are expected to decline 5 percent.

The 2016-2017 season-average farm price is projected at $4.20 per bushel, down 80 cents from the midpoint of the range projected for 2015-2016. Wheat prices are expected to remain under substantial pressure from large world supplies of wheat and corn.

Economic Drivers

“Last year, the outlook for the agricultural sector was driven more by factors, such as transportation issues, energy price declines and drought in the West,” said Robert Johansson, USDA chief economist.

“This year, while energy prices and drought remain important components of the outlook, the overall picture for agriculture in the United States is being driven more by lower global economic growth and currency valuations.”

Weak economic growth outside the U.S. and the strong dollar contribute to a competitive trade environment in 2016. That coupled with record global crops for grains and oilseeds and moderate demand growth over the past few years have contributed to stock building and price declines over the past year.

Those trends are expected to continue into 2016, but level off as trend yields would be expected to produce 2016 crops slightly lower than this past year’s record production.

“Because global stocks for most commodities have grown, markets will be less sensitive to global production disruptions and concerns about price volatility should diminish. We have seen commodity prices soften, and food prices for most commodities are expected to show little inflation in 2016,” Johansson said.

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