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2012 farm markets a blessing

Ray Grabanski 12/27/2012 @ 12:37pm President, Progressive Ag www.progressiveag.com

Markets have shown some weakness recently, as there seems to be more and more evidence of a softening in demand from major sources. China in particular has canceled almost 1 mmt of soybean imports in the past week, and that highlights the fact that one of the major importers of U.S. grain may be slowing its purchases of U.S. exports. There may be a number of reasons for this change of heart, but part of it might be that South American (SAM) weather may be improving vs. last year's poor crop.

So demand is waning a bit in spite of some major production problems throughout the world in 2012 that left many thinking the U.S. would be the only source of grain for countries with import needs. However, that seems to be a perception that is not accurate to this point.

March corn futures dropped below the magical $7 support area this week, although in holiday-type trade, that seems to suggest more pressure may be forthcoming in the next few weeks. The price weakness was reflected in wheat and soybean markets as well. So technically, the downtrends of the past few weeks have been well documented, and these grain markets are still in technical trouble as the weakness continues to be present.

While the outlook is not positive, we have a lot to be thankful for in 2012 as we finish up this year:  1) We have had outstanding prices in 2012, with corn running to new all-time highs, and staying above $7 and even $8 for an extended period of time in 2012.  2) Production in North Dakota and Minnesota was some of the best in the country, although South Dakota suffered through some major drought problems in 2012 (especially in the southern areas). However, revenue per acre was one of the best ever in 2012 for the upper Midwest.  3) Land values are up substantially in 2012, with some estimates as high as 30%. This helps the balance sheet of any farmer who owns land.

The positives of 2012 definitely outweighed the negatives. But we have a few challenges in 2013 that could arise. First, prices are essentially "coming off the mountaintop," especially for corn and soybeans, which both ran to all-time highs in 2012. These price levels are going to make it hard for farmers to pull the trigger on $13 soybeans and $6 corn sales for 2013. Indeed, these prices may look good by the time harvest arrives for 2013.

We have increasing acres likely in the U.S. and also the world, as the 'fertilizer' of high prices in 2012 continues to draw acreage into production. In the US, its CRP acres and other land that is drawn into production, with estimates by Informa and others as high as 99 million acres of corn for 2013 (that pressured the market in mid-December).  The estimated acreage in SAM also continues to rise as the incentive to produce has been encouraged by high prices recently.  So it is important to understand the nature of the industry right now.  Basically, we are still gearing up for strong demand for ag products in 2013, and still trying to make up for poor production years in many areas in 2012.  

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