Commodities

US farmers face harsh economics with record corn supplies in silos

Published

10 months ago

February 22, 2024

US farmers face harsh economics with record corn supplies in silos

By Tom Polansek

CHICAGO (Reuters) – Illinois farmer Dan Henebry regrets not selling more of his corn crop last summer, when the Midwest needed rain and prices were high.

He is not alone.

Farmers across the United States are kicking themselves for putting off corn sales after fields dried up in May and June, fueling expectations for higher prices and smaller harvests. Instead, prices tanked as rains saved the crop. The size and speed of the price collapse stung farmers and left their storage bins stuffed with record amounts of corn.

The steepest market downturn in a decade in 2023 has extended into 2024, hurting the U.S. rural economy. Two years of high prices and tight crop supplies spurred by unfavorable global weather and disruption from the Ukraine war have been quickly reversed.

Record-large harvests in the United States and Brazil, increased competition for U.S. grain exports, and limited domestic demand led to hefty amounts of corn locked away in storage, pushing U.S. corn prices to their lowest level since November 2020 on Wednesday.

Corn is the world’s most traded commodity crop and often sets the tone for other crops. Soybeans, too, plummeted to their lowest prices in more than three years in February.

Ten farmers, economists and market analysts said U.S. growers miscalculated when they held on to corn rather than booking sales. The “store and ignore” strategy of waiting for higher prices has not paid off, leaving some farmers cutting back purchases of pricey equipment and planting less corn. The interviews also demonstrate the tricky decisions farmers face when determining when to sell in the face of potential crop losses.

Corn futures prices that approached $6.30 a bushel in June have since tumbled to $4.10, after U.S. farmers ultimately produced record crop yields.

“I wish I sold a lot more,” Henebry said.

U.S. growers held a whopping 7.83 billion bushels of corn in storage bins on their farms as of Dec. 1, the most ever for that date and up 16% from a nine-year low in December 2022, U.S. government data show. Globally, leftover inventories are projected to reach a five-year high by September after accounting for all the corn used to feed livestock, make biofuels and other purposes.

Henebry said he still has about 40% of his 2023 harvest in storage, including 30,000 bushels on his farm in central Illinois. He is paying 3 to 4 cents per bushel a month to keep another 30,000 bushels at a local grain elevator. In a normal year, he would not have any still stored there, he said.

Before prices plunged last summer, Henebry said he sold some corn for $5.50 to $5.70 per bushel and then for as much as $6.21 per bushel delivered to the grain elevator. He held off on further sales because he was counting on poor weather to reduce production and boost prices.

Prices tumbled, though, and Henebry said he sold corn in December for $4.60 per bushel. He wishes he would have unloaded even more at that price.

Prices will come under renewed pressure as farmers do sell the grain they have in storage, analysts said.

“Any sort of little rally, there’s going to be a lot of corn sold,” said Henebry.

‘I’LL JUST GIVE UP’

Fred Huddlestun, a farmer in Yale, Illinois, said he still had his entire 2023 corn harvest in storage last month: about 39,000 bushels at an elevator and 25,000 bushels at home. Prices never reached targets he set to make sales last year, even as he lowered them.

Huddlestun could have earned roughly $360,000 if he had struck deals to sell 64,000 bushels just after Easter; $382,000 around Father’s Day in June; and $307,000 on Halloween, based on Chicago Board of Trade corn futures that represented last autumn’s crop. At current prices, his grain is worth about $263,000. Futures and cash prices often differ by a few cents.

“I kept thinking the market would go up,” Huddlestun said. “I’ll just give up eventually and start selling if nothing happens.”

Huddlestun said he should have sold around $5.50 a bushel. Though all operations are different, breakeven prices for corn growers in central Illinois were about $5.27 a bushel in 2023, including costs for land and other expenses, according to University of Illinois estimates.

Farmers have the space to squirrel away crops after increasing their storage capacity by 24% over the last two decades to 13.6 billion bushels. Storing grain gives farmers more control over when and how they sell, to avoid prices that are typically low at harvest time and to best take advantage of spikes in futures. At grain elevators and other commercial handlers, off-farm storage capacity has increased by 40% to 11.9 billion bushels over the past 20 years, according to U.S. government data.

High interest rates make storage more costly because farmers’ crops are tied up in bins rather than sold to reduce debt, economists said.

In southern Illinois, the second biggest corn-producing state, farmers could actually lose up to $160 an acre growing corn this year, based on corn prices and the cost of production, University of Illinois economists said in a January report. Two years ago, profits reached about $340 an acre.

Such expected losses are rippling through rural America. Net farm income in 2024 is projected to suffer the largest year-to-year dollar decrease in history, the American Farm Bureau Federation, an industry group, said in a report this month.

Deere (NYSE:) & Co, the world’s largest farm equipment maker, expects sales of large agricultural equipment to decline 20% this year, due to lower commodity prices and high interest rates.

‘PLENTY OF CORN’

In Wamego, Kansas, Glenn Brunkow, a fifth-generation crop and livestock farmer, plans to delay upgrades to machinery and may try to repair equipment himself, rather than paying a dealership.

“We’re tightening expenses as much as we can,” he said. “We’re trying to limp through putting off some expansion with the livestock, just trying to limp by.”

Early forecasts show U.S. farmers are likely to cut back on corn planting and favor soybeans in 2024. They may struggle to turn a profit with either crop.

Brunkow said he plans to forgo corn planting entirely and grow some sorghum, which requires less fertilizer and has less expensive seeds than corn. Sorghum can be used to make ethanol, feed livestock or be exported to China to make baiju liquor.

Years ago, Brunkow gave up on growing sorghum because it produces lower yields and is difficult to dry at harvest time.

Now, “the economics just are better,” he said. “You’re going to lose less money.”

Analysts do not expect a major bump in demand to draw down corn stockpiles. U.S. exports of agricultural and related products fell 10% by value in 2023 to a three-year low, as plentiful supplies from Brazil and elsewhere challenged U.S. export sales.

Demand from the U.S. meat industry, which feeds corn to livestock, is limited as pig farmers face lackluster pork demand while cattle ranchers slashed their herds due to drought in the Great Plains.

Biofuel demand, which typically accounts for about one-third of U.S. corn production, also worries Rod Weinzierl, executive director of the Illinois Corn Growers Association, as Americans buy more electric vehicles.

“This year every fork in the road has been bearish,” said Matt Wiegand, commodity broker for risk management firm FuturesOne in Nebraska.

Commodities

Gold prices edge higher after dismal week as soft US inflation offers relief

Published

24 hours ago

December 23, 2024

Investing.com– Gold prices edged higher in Asian trade on Monday after suffering heavy losses last week as a slightly softer U.S. inflation print provided some respite, although caution remained following the Federal Reserve’s hawkish stance.

was 0.2% higher at $2,626.65 per ounce, while expiring in February inched 0.1% lower to $2,642.32 an ounce by 22:15 ET (03:15 GMT).

The yellow metal had lost 1% last week after the Fed officials projected fewer interest rate cuts in 2025 in the face of sticky inflation. This hawkish tilt had bolstered the U.S. dollar and created downward pressure on gold prices.

Gold prices remain under pressure after Fed meeting, markets mull over PCE data

Gold prices had hit a one-month low on Wednesday, as the markets lowered expectations for the number of Fed rate cuts in 2025.

Markets now expect the first cut of 2025 to come in June, and are pricing in roughly two reductions in the upcoming year, according to .

Higher interest rates put downward pressure on gold as the opportunity cost of holding gold increases, making it less attractive compared to interest-bearing assets like bonds.

U.S. data released on Friday showed that data—Fed’s favored inflation gauge —rose 0.1% in November, a slower pace from October’s 0.2% increase. This brought the annual PCE inflation rate to 2.4%, slightly below estimates of 2.5%.

However, the annual increase in , excluding volatile food and energy, remained at 2.8%, well above the central bank’s 2% target.

Other precious metals were higher on Monday. rose 0.8% to $940.15 an ounce, while gained 0.6% to $30.137 an ounce.

Dollar remains near 2-yr high

The Fed’s hawkish shift provided renewed strength to the U.S. dollar, as higher interest rates make the greenback more attractive due to increased returns on dollar-denominated assets.

The rose 0.1% in Asia hours on Monday and hovered near a two-year high it reached on Friday.

A stronger dollar often weighs on gold prices as it makes the metal more expensive for buyers using other currencies.

Copper rises on soft US inflation, markets await China stimulus

Among industrial metals, copper prices edged higher on Monday after falling more than 1% last week as softer inflation data in the U.S. boosted sentiment.

The red metal has also been under pressure from a strong dollar after the Fed’s meeting.

Markets are awaiting details on new stimulus measures in China, as recent reports suggested Beijing will ramp up fiscal stimulus in the coming year. The country is the world’s biggest copper importer.

Benchmark on the London Metal Exchange rose 0.3% to $8,978.50 a ton, while one-month climbed 0.6 at $4.1227 a pound.

Commodities

Oil prices stable on Monday as data offsets surplus concerns

Published

24 hours ago

December 23, 2024

By Robert Harvey

LONDON (Reuters) -Oil prices stabilised on Monday after losses last week as lower-than-expected U.S. inflation data offset investors’ concerns about a supply surplus next year.

futures were down by 17 cents, or 0.23%, to $72.77 a barrel by 1129 GMT. U.S. West Texas Intermediate crude futures were down 14 cents, or 0.2%, to $69.32 per barrel.

Oil prices rose in early trading after data on Friday that showed cooling U.S. inflation helped alleviate investors’ concerns after the Federal Reserve interest rate cut last week, IG markets analyst Tony Sycamore said.

“I think the U.S. Senate passing legislation to end the brief shutdown over the weekend has helped,” he added.

But gains were reversed by a stronger U.S. dollar, UBS analyst Giovanni Staunovo told Reuters.

“With the U.S. dollar changing from weaker to stronger, oil prices have given up earlier gains,” he said.

The dollar was hovering around two-year highs on Monday morning, after hitting that milestone on Friday.

Brent futures fell by around 2.1% last week, while WTI futures lost 2.6%, on concerns about global economic growth and oil demand after the U.S. central bank signalled caution over further easing of monetary policy. Research from Asia’s top refiner Sinopec (OTC:) pointing to China’s oil consumption peaking in 2027 also weighed on prices.

Macquarie analysts projected a growing supply surplus for next year, which will hold Brent prices to an average of $70.50 a barrel, down from this year’s average of $79.64, they said in a December report.

Concerns about European supply eased on reports the Druzhba pipeline, which sends Russian and Kazakh oil to Hungary, Slovakia, the Czech Republic and Germany, has restarted after halting on Thursday due to technical problems at a Russian pumping station.

U.S. President-elect Donald Trump on Friday urged the European Union to increase U.S. oil and gas imports or face tariffs on the bloc’s exports.

Commodities

Oil steady as markets weigh Fed rate cut expectations, Chinese demand

Published

2 days ago

December 22, 2024

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices settled little changed on Friday as markets weighed Chinese demand and interest rate-cut expectations after data showed cooling U.S. inflation.

futures closed up 6 cents, or 0.08%, at $72.94 a barrel. U.S. West Texas Intermediate crude futures rose 8 cents, or 0.12%, at $69.46 per barrel.

Both benchmarks ended the week down about 2.5%.

The U.S. dollar retreated from a two-year high, but was heading for a third consecutive week of gains, after data showed cooling U.S. inflation two days after the Federal Reserve cut interest rates but trimmed its outlook for rate cuts next year.

A weaker dollar makes oil cheaper for holders of other currencies, while rate cuts could boost oil demand.

Inflation slowed in November, pushing Wall Street’s main indexes higher in volatile trading.

“The fears over the Fed abandoning support for the market with its interest rate schemes have gone out the window,” said John Kilduff, partner at Again Capital in New York.

“There were concerns around the market about the demand outlook, especially as it relates to China, and then if we were going to lose the monetary support from the Fed, it was sort of a one-two punch,” Kilduff added.

Chinese state-owned refiner Sinopec (OTC:) said in its annual energy outlook on Thursday that China’s crude imports could peak as soon as 2025 and the country’s oil consumption would peak by 2027, as demand for diesel and gasoline weakens.

OPEC+ needed supply discipline to perk up prices and soothe jittery market nerves over continuous revisions of its demand outlook, said Emril Jamil, senior research specialist at LSEG.

OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, recently cut its growth forecast for 2024 global oil demand for a fifth straight month.

JPMorgan sees the oil market moving from balance in 2024 to a surplus of 1.2 million barrels per day in 2025, as the bank forecasts non-OPEC+ supply increasing by 1.8 million barrels per day in 2025 and OPEC output remaining at current levels.

U.S. President-elect Donald Trump said the European Union may face tariffs if the bloc does not cut its growing deficit with the U.S. by making large oil and gas trades with the world’s largest economy.

In a move that could pare supply, G7 countries are considering ways to tighten the price cap on Russian oil, such as with an outright ban or by lowering the price threshold, Bloomberg reported on Thursday.

Russia has circumvented the $60 per barrel cap imposed in 2022 following the invasion of Ukraine through the use of its “shadow fleet” of ships, which the EU and Britain have targeted with further sanctions in recent days.

Money managers raised their net long futures and options positions in the week to Dec. 17, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.