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In the Market: Jan. 2, 2014
Biweekly analysis and commentary from Arkansas Farm Bureau's ag economists
1/2/2014 at 3:01 p.m.
By Brandy Carroll, Matt King & Bruce Tencleve
Year-End Review (as of Dec. 31, 2013)
As we end the year, let’s take a look back at 2013.
At the beginning of 2013, most commodities were feeling the effects of a drought in the Midwest and back-to-back droughts in the High Plains. Corn yields were down some 40 bushels per acre from their trend, and the market was concerned that there would not be enough grain to make it through the end of the year. Consequently, the market began rationing grain through higher prices, and we saw corn prices close to $7 and soybean prices over $14 during most of the first six months of 2013.
At the same time grain prices were rising, cattle prices also were seeing significant gains as producers were forced to liquidate herds due to a lack of affordable feed supplies, especially hay. In 2011 and 2012, herds in major livestock-producing areas were reduced by more than 10 percent in some cases.
As we continued through 2013, the old adage “the cure for high prices is high prices” became true as producers responded and planted the largest corn crop ever and one of the largest soybean crops. While the crop got off to a rocky start with less than favorable planting conditions, the weather throughout most of the growing region was near optimal, and corn and soybean yields are forecast to be at or near record levels in 2013. This provided the market with some cushion heading into this next year and has caused prices to decline significantly from where they were just a year ago.
As we head into 2014, there remains a lot of unknowns, but what we do know is that the current ratio between soybeans and corn is more than 2.5 to 1, which heavily favors more soybean production. With the outlook for lower wheat prices to continue to decline and put in new lows, the opportunity exists for producers to significantly increase soybean acreage in 2014. If this acreage is planted and the forecast South American crop materializes in March 2014, we could see a soybean price drop similar to corn this year, as supplies would be replenished. Producers planning to grow more soybeans in 2014 should consider pricing a portion of their crop before the South American crop is realized in March, if growing conditions remain favorable.
The potential record crop combined with increases in the U.S. would lead to record global soybean stocks for the 2014-15 year. If these supply increases were realized, if U.S. soybean stocks topped 200 million bushels and if corn supplies remained near 2 billion bushels, prices for both crops would be lower than they are today. The big unknown for all of this remains the weather, which, as we saw in 2012, can drastically change these types of long-term forecasts.
On the livestock front, the effects of the drought will be felt for a much longer time. With the drastic declines in cattle inventories we have seen in recent years, it will take time to rebuild the U.S. herd. As most of you know, it takes at least two years for a heifer to have a calf and for that calf to make it to the marketplace. With sequestration cutbacks, the cattle inventory surveys are only done once a year, and that report will be released at the end of January. This report will give the market its first look in a year to see if inventory numbers have stabilized. The December cattle-on-feed report, which is released monthly, showed the second lowest inventory for December since the series began in 1996. Additionally, placements continue to decline and were down three percent from last year. These types of declines are a trend the livestock market continues to see. As we head into 2014, cattle prices will likely trend higher as the market tries to pull additional cattle to marketplace. One of the dangers in these higher prices is the chance for beef demand to decline in favor of cheaper substitutes.
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