Crop prices, some of which reached the highest averages ever in 2011, bolstered the economies of Midwest growing states, sent net farm income up 28 percent to $100.9 billion and pushed the value of farmland to a record $2,350 an acre, the U.S. Department of Agriculture estimates. Global food costs are down 11 percent from a peak a year ago as grain output rises from China to Canada, United Nations data show.
“There is unlikely to be any ground that won’t be planted this year,” said Todd Wachtel, a 40 year-old who farms about 5,700 acres in Altamont, Illinois, and plans to expand his corn fields by 21 percent when seeding begins in early April. “Farmers know that they have to plant more when prices are high because they may not last.”
A bigger harvest in the U.S., the world’s largest exporter of all three crops, will help compensate for shortages in the current crop year. Drought damage in Brazil and Argentina will probably spur the USDA to cut its global and U.S. grain-supply forecasts for the current season on Feb. 9. The USDA’s first forecast for the year 2012-2013 crop year will be Feb. 23.
Farmers will sow corn, used to feed livestock and make ethanol, on 94.329 million acres this year, up 2.6 percent from last year and the most since 1944. Soybean fields may expand 0.4 percent to 75.309 million acres, the fifth-most ever. Both crops are harvested after the current season ends on Aug. 31. Wheat in the season that begins June 1 will reach a three-year high of 57.233 million acres, up 5.2 percent, the survey showed.
Corn may rise 7.4 percent to $6.90 a bushel in six months because of the damage in South America, before dropping to $5.25 in a year as U.S. farmers increase supply. Corn for delivery in December, after the harvest, fell 1 percent to $5.7525 today, 10 percent below the March contract on the Chicago Board of Trade.
Wheat may tumble 17 percent to $5.50 by July and soybeans may drop 17 percent to $10.20 a bushel, analysts at commodity broker Allendale Inc. in McHenry, Illinois, said Jan. 21.
World food prices fell to a 14-month low in December, led by declines in grains, sugar and oilseeds, the UN’s Food and Agriculture Organization said Jan. 12.
The USDA affirmed its forecast for moderating food costs last month. Prices will increase 2.5 percent to 3.5 percent in 2012, below last year’s 3.7 percent gain. The same day, the International Monetary Fund forecast a 14 percent drop in non-oil commodities this year, citing more supply.
Farmers in the Midwest, the main growing region, are less than two months away from planting seeds, and dry soils in some areas could limit output. The most widely-held option on December corn futures gives the holder the right to buy the grain at $7.
It’s been an abnormally warm winter, which keeps most farmers on the edge of their seat a little bit, wondering when the next moisture event is going to happen.
Corn averaged $6.79 in Chicago last year, the highest ever and twice the level of the previous decade. Soybeans averaged a record $13.21, 72 percent above the 10 previous years, while wheat’s average of $7.235 was the second- highest ever and 57 percent more than the past decade.
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Money managers have been betting on lower wheat prices since September, U.S. Commodity Futures Trading Commission data show. They cut their bullish wagers on soybean and corn in two of the past three weeks.
Floods, drought and freezes last year prevented planting of the three crops on about 8.577 million acres, 28 percent more than in 2010. An additional 1.84 million acres that were planted failed to produce, more than double the amount a year earlier.
A return to normal weather in 2012 would mean more production from last year’s lost acres. The government also has reduced the amount of land it pays farmers to leave fallow by 4.7 percent, adding 1.47 million acres that weren’t available in 2011, USDA data show.
Rising incomes allowed farmers to buy more land and the extra seed, crop chemicals and equipment needed.
Grain farming has been one of few profitable industries for the past three years, and there will be a tendency for farmers around the world to maximize acreage. We have the potential to grow record world crops this year that can swamp demand.
Deere & Co., the world’s largest farm-equipment maker, will report record net income of $3.14 billion this year, up from $2.8 billion a year earlier. Monsanto Co., the biggest seed company, will earn $1.9 billion, up from $1.61 billion. The St. Louis-based company rose 14 percent in New York trading this year.
Land prices in Iowa, the biggest corn- and soybean-growing state, averaged $5,600 an acre last year, three times the amount a decade ago, USDA data show.
While farming accounts for 0.9 percent of the U.S. economy, it has been among the fastest-growing contributors. The amount of value added by agriculture in the four years through 2010 rose 42 percent to $132.6 billion, compared with 8.6 percent growth for the entire economy, government data show.
U.S. exports surged as global economic growth boosted demand for crops, meat and dairy products, while weather damage disrupted supplies of everything from Russian wheat to Chinese pork.
Shipments reached a record $137.4 billion in the year that ended Sept. 30, with China the largest farm-goods buyer. While the government expects a drop to $132 billion in the current fiscal year, that still would be the second- largest ever and 21 percent higher than when President Barack Obama set a goal in 2010 to double all U.S. exports by 2015.
Unemployment in Midwest states was 7.9 percent in December, tied with the Northeast as the healthiest job region. North Dakota, Nebraska and South Dakota were the only states with unemployment under 5 percent. The national rate fell to 8.3 percent in January from 8.5 percent in December.
Corn will lead the planting surge because it is the most profitable row crop. U.S. mandates for alternative fuels have led to an increased use of the grain to make ethanol, and rising worldwide incomes are boosting meat consumption, increasing requirements for livestock feed. Global production of beef, veal, pork, chicken and turkey will reach almost a quarter of a billion metric tons this year, 62 percent more than two decades ago, the USDA estimates.
An acre of corn will earn as much $150 more than soybeans at current prices and normal weather, says a 30 year old farmer, who farms about 7,000 acres with his father in Montgomery, Indiana. He plans to sow 85 percent of his family’s land with the grain compared with 70 percent last year. Raising corn pays more money than soybeans.
In North Dakota, the largest producer of spring wheat, farmers probably will plant record corn and soybean acres this year as they use most of the 5.6 million acres that couldn’t be planted in 2011. Spring-wheat acreage will remain steady.
Source: Bloomberg, 2/7/12