'Top Ag News Story of 2015
Markets: High Supplies, Record Production, Low Prices
Katie Micik DTN Markets Editor
Bio | Blog
Thu Dec 31, 2015 06:20 AM CST
OMAHA (DTN) -- This year's bear market may have brought misery to farmers' profit margins, but DTN Analyst Todd Hultman offers perspective: After major bull markets such as 2012, it usually takes three years for prices to come down and rebalance.
(Illustration by Nick Scalise)
"So here we are, 2015, we're in the third year post-drought," he said. "It's probably the most bearish part of the cycle, and we should see better stability ahead."
In other words, things may not get better, but they probably won't get worse.
A sober reflection on this year's markets will show a pattern that's far from new. Good growing weather around the globe contributed to surplus supplies. Add to it that most of our major competitors' economies struggled and currencies weakened, undercutting U.S. exports.
"I think we're going to look back on 2015 and see that it had something in common with the mid-'80s and late-'90s in the fact that we had good growing weather combined with this international problem of the currencies," Hultman said. "When those two things get together it's a very tough, bearish spiral to pull out from."
In the U.S., the only major growing problem was heavy spring rains from Missouri to Ohio. While it cut into soybean acreage, it couldn't stop the rest of the country from harvesting a record-large soybean crop and third largest corn crop. The rain also recharged soil moisture in the Southern Plains, a benefit for winter wheat producers.
Europe produced solid crops despite a heat wave. Ukraine and Russia came through with big harvests. In South America, both Argentina and Brazil produced record soybean crops.
The same countries experienced economic problems, a double whammy for U.S. growers. Europe struggled with Greece's debt problems. Russia's ruble tanked after its economy got hit by sanctions and low oil prices. Fighting and instability in eastern Ukraine hurt its currency. Brazil's gross domestic product contracted amid an oil scandal, and the real devalued dramatically against the dollar.
Hultman thinks it really was the weakness of other currencies, not the strength of the U.S. dollar, that hurt U.S. exports in 2015.
"The good growing year, the big surplus crops plus the internationals currencies tilting against us, really hit us with bigger supply and pinched our demand at the same time," he said. "The result is very tough U.S. prices."
There was a brief window -- the last week of June and first few weeks of July -- where price offered some hope for profits. December corn futures rallied, hitting a high $4.54 1/4 on July 13 on concerns that the spring's rains irreparably damaged the crops' potential. The national average cash price climbed to a high of $4.06.
"Unfortunately it didn't last long," Hultman said. "I know when it did happen, there were lines at the elevators. A lot of the people I talked to at farm shows said they did sell some that week, but unfortunately not enough."
Those prices may have faded, but Hultman thinks there will be opportunities to sell grain near or above many producers' cost of production in 2016.
"You can't sustain prices below producers' costs for a long period of time," he said. "Now that we've gotten to such a cheap level, I expect more of a market rotation. So we'll start involving both sides of the market, something we haven't really seen much of the past two years. That should mean some opportunities."
Hultman thinks 2016 is set up to be a neutral, range-bound year. Farmers aren't likely to cut back on overall acreage, and carryover supplies are large. In fact, USDA is forecasting record global ending stocks for corn, soybeans and wheat for the 2015-16 marketing year. It's hard to envision a bullish scenario.
"I think the theme is, you have got to control your costs," he said. "It's going to be a year of fighting tooth and nail. I think you're going to be scraping for nickels and dimes, and not getting big opportunities unless weather has some kind of surprise."
Katie Micik can be reached at katie.micik@dtn.com
Follow her on Twitter @KatieMDTN'
Markets: High Supplies, Record Production, Low Prices
Katie Micik DTN Markets Editor
Bio | Blog
Thu Dec 31, 2015 06:20 AM CST
OMAHA (DTN) -- This year's bear market may have brought misery to farmers' profit margins, but DTN Analyst Todd Hultman offers perspective: After major bull markets such as 2012, it usually takes three years for prices to come down and rebalance.
(Illustration by Nick Scalise)
"So here we are, 2015, we're in the third year post-drought," he said. "It's probably the most bearish part of the cycle, and we should see better stability ahead."
In other words, things may not get better, but they probably won't get worse.
A sober reflection on this year's markets will show a pattern that's far from new. Good growing weather around the globe contributed to surplus supplies. Add to it that most of our major competitors' economies struggled and currencies weakened, undercutting U.S. exports.
"I think we're going to look back on 2015 and see that it had something in common with the mid-'80s and late-'90s in the fact that we had good growing weather combined with this international problem of the currencies," Hultman said. "When those two things get together it's a very tough, bearish spiral to pull out from."
In the U.S., the only major growing problem was heavy spring rains from Missouri to Ohio. While it cut into soybean acreage, it couldn't stop the rest of the country from harvesting a record-large soybean crop and third largest corn crop. The rain also recharged soil moisture in the Southern Plains, a benefit for winter wheat producers.
Europe produced solid crops despite a heat wave. Ukraine and Russia came through with big harvests. In South America, both Argentina and Brazil produced record soybean crops.
The same countries experienced economic problems, a double whammy for U.S. growers. Europe struggled with Greece's debt problems. Russia's ruble tanked after its economy got hit by sanctions and low oil prices. Fighting and instability in eastern Ukraine hurt its currency. Brazil's gross domestic product contracted amid an oil scandal, and the real devalued dramatically against the dollar.
Hultman thinks it really was the weakness of other currencies, not the strength of the U.S. dollar, that hurt U.S. exports in 2015.
"The good growing year, the big surplus crops plus the internationals currencies tilting against us, really hit us with bigger supply and pinched our demand at the same time," he said. "The result is very tough U.S. prices."
There was a brief window -- the last week of June and first few weeks of July -- where price offered some hope for profits. December corn futures rallied, hitting a high $4.54 1/4 on July 13 on concerns that the spring's rains irreparably damaged the crops' potential. The national average cash price climbed to a high of $4.06.
"Unfortunately it didn't last long," Hultman said. "I know when it did happen, there were lines at the elevators. A lot of the people I talked to at farm shows said they did sell some that week, but unfortunately not enough."
Those prices may have faded, but Hultman thinks there will be opportunities to sell grain near or above many producers' cost of production in 2016.
"You can't sustain prices below producers' costs for a long period of time," he said. "Now that we've gotten to such a cheap level, I expect more of a market rotation. So we'll start involving both sides of the market, something we haven't really seen much of the past two years. That should mean some opportunities."
Hultman thinks 2016 is set up to be a neutral, range-bound year. Farmers aren't likely to cut back on overall acreage, and carryover supplies are large. In fact, USDA is forecasting record global ending stocks for corn, soybeans and wheat for the 2015-16 marketing year. It's hard to envision a bullish scenario.
"I think the theme is, you have got to control your costs," he said. "It's going to be a year of fighting tooth and nail. I think you're going to be scraping for nickels and dimes, and not getting big opportunities unless weather has some kind of surprise."
Katie Micik can be reached at katie.micik@dtn.com
Follow her on Twitter @KatieMDTN'
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