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Great gifts in 2013 markets
MERRY CHRISTMAS 2013! As we review the year 2013 we realize how blessed we have been, as prices were very high for most of 2013 with opportunities galore to sell at relatively high prices early in the year. We started the year with still some hangover from the 2012 drought lingering in areas of the Corn Belt, but with a wet spring in 2013, we wiped out the drought effects and had a chance to have a decent crop in 2013.
Spring was a real challenge for producers to get the crop planted, as wet conditions and an icy cold spring (with temps 10 to 20 degrees below normal for most of March, April, and early May) meant a real struggle for soils to dry out and warm up to allow planting.
With the beefed up machinery from the past five years of relative prosperity in agriculture (perhaps the best five-year run in history!!!), farmers were able to make remarkable progress in very adverse conditions. In spite of a terrible spring, farmers were planted only about a week later than normal, and much of the crop was planted due to the "fertilizer" of high prices in 2013. There was prevent-planted crop, much more than USDA anticipated, though, and we finally found out how much PP there was, but it took until the November USDA report to finally account for it in balance sheets.
In the end, we produced a very good crop in 2013. USDA's Nov. report said it was a 161 bu/acre corn crop and 43 bu/acre soybean crop, but those numbers are likely to be hiked a bit more in the January final crop estimate. (Perhaps 163 and 43.5 bu/acre???) As it turns out, these are slightly above normal trend yields in corn, and slightly below these numbers in soybeans.
Looking back at USDA numbers, it was the ill-advised August report in which USDA dropped corn and soybean yields significantly that was where the government got off track in their numbers. The drop from 43 bu to 41.2 bu/acre in that report was especially ill advised, as USDA gave in to some private estimates that were not very well thought out. Then we experienced a very dry August, where soybeans were put under the first major stress of the year. USDA had by then screwed up the market, so that there were ideas of even more yield loss (and some private estimates below 40 bu/acre) where soybeans rallied sharply.
But that, too, was ill advised. Pro Ag yield estimates for corn and soybeans were maintained well above these private estimates throughout the year, with our estimates calling for USDA to hike yields into the final reports in January. And USDA had to comply as yield results across the country were consistently better than expected.
Turns out that yield models based upon crop condition ratings were more accurate than anything this year, including the vegetative index and yield models based upon temperatures and precipitation in July and August (USDA's favorites).
What USDA precip/temp based models didn't account for was the huge impact of stored soil moisture on yields - crops were able to produce in spite of little rain in August!!!
What is interesting is that the Pro Farmer tour found essentially the same thing as USDA - that the soybean crop wasn't there and corn was below trend yields - both estimates that ended up well off the mark!!!
Perhaps USDA influences the Pro Farmer tour, which then influences USDA??? This biased feedback mechanism kept many producers from selling at much higher early season prices - especially for wheat and corn. Then in November, when Canada confirmed their government had missed the mark widely as well in their early estimates (10% low in barley and wheat, 20% low in canola and durum!!!) by then the market had no where to go but down.
We end 2013 with soybean prices at 3x corn prices, an unusual price ratio, and also 2x wheat prices!!! These are extraordinary ratios, and maybe that just points to cash soybean prices likely to decline at least $2 in the next 12 months!!! Pro Ag recently has been removing wheat and corn hedges, so far taking 75% of these sales off by buying back futures and taking $2 to $3 profits on these positions which were placed in the last half of 2012. Here's hoping your 2013 was a successful marketing year as well, and that 2014 will be a Happy and Blessed New Year as well!
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