Prices too low to plant? Bank economist says no

Corn, bean, and wheat prices have all taken the plunge the past couple years, but analysts and traders said they’re optimistic that futures will improve in 2016. Corn futures on the Chicago Board of Trade have dropped 19% in the past two years, soybeans are down by a third, and wheat has dropped 24%.

A readjustment of input costs, some negotiating over land rents, and a forecast La Niña weather system, however, could make 2016 a more profitable year for producers.

U.S. corn prices for the year were projected by the USDA to average as low as $3.35 to $3.85 a bushel vs. $3.70 in 2015 and $4.46 the prior year. Soybean prices are pegged from $8.05 to $8.55 a bushel, down from $10.10 last year and $13 in 2014. While lower prices are frowned upon, the silver lining is that they could spur demand.  

“What a lot of people are missing is the job of lower prices,” said Jeff Kaprelian, the trade desk manager at brokerage The Hueber Report in Sycamore, Illinois. “To this point, we’ve had weak exports because of the strong dollar as well as poor ethanol margins because of low energy prices, but if the dollar falls and we use the usual logistics problems out of Brazil during their upcoming harvest, we can add some value back to the grain.”

Global production of corn is expected by the U.S. Department of Agriculture to be the third-biggest in history while soybean and wheat stockpiles are forecast to be records, thanks to favorable weather conditions in several producing countries.

Inventories of corn will jump to 208.8 million metric tons, wheat carryout is seen at 238.9 million tons, and soybean stockpiles are pegged at 80.4 million tons – all record amounts, according to the USDA. Exports are down for corn, soybeans, and wheat year-over-year as importers turn to investors including Brazil, Russia, and Ukraine.

A stronger dollar, which has jumped this year, isn’t helping matters, and a warm winter has pushed down the price of oil, causing ethanol to fall out of favor. Fundamentally, the outlook isn’t exactly rosy for agricultural commodities, but some promising signs of a price increase are on the horizon, analysts said.

Global growth has slowed, led by China: It saw its gross domestic product increase at the slowest rate in 25 years in 2015. While the global economic downturn hasn’t been good for investors, it might be good for agricultural prices, analysts said.

The Dow Jones Industrial Average and the Standard & Poor’s 500 both lost more than 8% of their value in the first two months of the year. Investors taking money out of the stock markets might be looking for an alternative, Kaprelian said.

“Institutions will search for positive returns (and) the logical place is the fixed income market, but yields continue to fall as equity risk increases,” he said. “So there isn’t enough there to attract funds dollar for dollar.  So where do they go? Commodities. With funds as short as they are, it would be sure to usher in additional short covering and new index investment.”

UAC Information Center by information Agriculture.com