Grain and Farm Supply

The economic shock in spring 2020 resulting from COVID-19-led economic shutdowns was unprecedented, causing ethanol demand destruction. 
According to an analysis of CoBank’s proprietary borrower database, ag retailers are on relatively firm footing as they prepare for spring following last year’s complicated agronomy season.

Grain Elevator Outlook

December 2019
Grain elevators face a struggle in the year ahead as they buy expensive basis on corn, soybeans, and wheat at levels not seen in years. 
Grain elevators and end users are navigating heightened market volatility as the size of this fall’s corn harvest remains uncertain.

Ethanol plants have been expanding capacity after several years of positive margins. Ample production and relatively stagnant demand growth have weakened ethanol margins.

Last August when the first cases of African Swine Fever (ASF) were announced in Northeast China, it was immediately clear that the global pork sector would be affected.

Last year’s poor fall weather, 2019’s wet spring with regionally catastrophic floods, and stressed farm financials weigh on the outlook.

Many in the agricultural retail industry are transfixed by the rapid development of e-commerce start-ups in the space.
Interest, innovation, and investment in gene editing tools like CRISPR (clustered regularly interspaced short palindromic repeats) and TALEN® (transcription activator-like effector nucleases) have heated up in recent years, and will only intensify in 2019.
While the short-term soybean processor outlook is positive with elevated soybean crush margins expected through the spring of 2019, soybean processor profitability will be threatened as new soybean processing plants begin operations.

Trade disputes and large fall crops have been the major drivers of grain markets this year. Both factors have contributed to wider carry and weakened basis.

Crop protection and seed segment margins remain compressed for many agricultural retailers and agronomy divisions of combined grain and farm supply companies (the farm supply sector). The stressed farm economy and intense competition have driven gross margins to near- or below-breakeven levels in these segments. Rebate programs are the only mechanism for many in the farm supply sector to eke out a profit.
With more dicamba-tolerant acres expected to be planted in 2018, the issues that plagued dicamba in 2017 are likely to persist. Many changes are coming, however, including new labels, university recommendations, and agricultural retailer policies aimed at mitigating the risks associated with applying dicamba.

Grain Elevator Outlook

November 2017
The 2018 crop year is likely to offer much better prospects to elevators than producers. Wide carry in futures markets, weak harvest basis, and low transportation rates should provide opportunities for grain elevators to secure healthy margins. A wet fall in the Eastern Corn Belt and Northern Plains will also improve drying revenue in these areas. Demand growth is critical to reduce large stocks and support appreciating basis.
The long-term outlook for grains and ethanol is one of cautious optimism, with domestic and global demand expected to continue rising as export competition builds abroad. In the absence of major weather disruptions, global grain surpluses are expected to persist in the near term. Acreage expansions and improvements to yields in major competing export hubs like South America and the Former Soviet Union will be headwinds to U.S. exports.
The ethanol industry is currently in an expansion phase. Blessed with an abundant supply of cheap corn, rising domestic ethanol demand and a quickening export pace, ethanol producers marked strong profits in 2016. Ethanol producers are aggressively reinvesting their profits into the core operations and expanding production capacity via plant expansions and increased efficiencies.
Feed mills have enjoyed substantial increases in profitability in recent years as grain prices have fallen, making the cost of their main input more affordable. Driven by the expansions in animal slaughter capacity at the local level, feed mills are bracing for a surge in demand in the years ahead.
Recent studies show that 68 percent of Americans have recently bought organic food items and 44 percent have recently bought non-GMO labeled food. So what impact are these trends in food consumption having on U.S. production agriculture?
As a result of this year’s crop surpluses, interior basis levels for corn and wheat across the U.S. have reached multiyear lows, offering elevators the opportunity to profit on basis appreciation on company-owned grain.
Over the next three years, the theme of worldwide crop abundance outpacing global demand will dominate the marketplace, while competition among the exporting nations heats up.
Grain handlers are anticipating a flood of orders for feed wheat, which should enable them to move excess wheat inventories out of storage ahead of what is expected to be a record-large fall harvest.
As agricultural commodity prices have fallen in recent years, so have growers’ incomes. The latter have fallen more than 50 percent from 2013 to today. Meanwhile, farmers’ debt-to-income ratio is on the rise and approaching levels not seen since the farm crisis of the 1980s.
Grain merchandisers are starting the new-crop growing season with weaker financial opportunities than in recent years, though their balance sheets generally remain strong.
U.S. grain and oilseed prices have been hovering at multi-year lows for months. The result has been tight or negative farm margins and the entire supply chain under economic pressure. This is not the first down cycle experienced by U.S. corn, soybean, and wheat producers, and it certainly won’t be the last. But this time is indeed different.
The domestic nitrogen fertilizer market is poised for transformative growth. No new nitrogen fertilizer plant has been built in the U.S. during the past 15 years. Today, nearly all of the major players involved in domestic nitrogen manufacturing are considering whether to build new facilities to expand their output.
Following 18 months of record earnings, the U.S. ethanol industry has rebalanced in 2015. As energy prices collapsed in late 2014, so did ethanol prices and plant margins. However, ethanol’s supply/demand has been well balanced in 2015, and producers have maintained positive earnings.
The combination of swelling world supplies of corn and record U.S. corn production has transformed the market landscape for corn in 2014/15 and beyond. During the past two years, U.S. corn production has rebounded from the drought-impaired levels of 2011/12 and 2012/13. At the same time, robust global corn production has swelled world stocks to historic levels, shifting the market’s focus to demand contributors rather than supply constraints.
The expansion of oil and natural gas drilling in the Bakken shale formation is creating significant rail transportation constraints throughout the Northern Plains and Upper Midwest states. The impact is broad and affects all goods that are transported by rail in the region.
Local grain and farm supply retailers are all still struggling to keep abreast of the latest precision ag technology and to figure out how best to position their companies to gain a competitive edge. Many retailers are striving to help their customer-members manage the huge volumes of data being generated by the latest models of farm machinery and equipment.
The efficiencies associated with shipping grain by shuttle train have revolutionized grain transport over the past two decades. Nearly 7 out of every 10 rail cars that are loaded with grain now originate from a shuttle loading facility.
Brazil has the land, climate, experience, research, knowhow, and production capability to become the number one food exporter in the world. It has emerged as a superpower in grain and protein production, and is expected to gain market share in soybean production and soybean exports as well as meat exports.
Up until the late 1990s, China was a net exporter of soybeans, and an important supplier of the oilseed to other Asian countries. Since then, however, China has outgrown its ability to produce enough soybeans for its own use, let alone be a supplier to greater Asia.
Precision agriculture promises to shape the future of crop production including the supporting supply chains, as practitioners continue to develop and employ more techniques to manage and analyze different streams of data.
Following months of anticipation and conjecture among ethanol stakeholders, the EPA recently released its proposal for 2014 biofuel blending obligations. The agency’s proposal reflects the most significant shift in biofuel policy since the Renewable Fuels Standard (RFS) was revised in 2007.
Producers and processors in the grains, oilseed, and ethanol sectors will be confronting a transitioning marketplace in 2014-16 with production volatility subsiding as crop inventories are rebuilt.

More Soybeans in 2014?

September 2013
Soybean prices for the 2013/14 season have been rising against corn at a staggering pace since early summer. The late developing crop and intensifying dryness in key growing areas have triggered a multi-month rally in soybean markets while corn has remained somewhat of a laggard.
Fertilizer swaps provide a way for buyers and sellers of fertilizers to meet through a broker and lock in a price for a type and quantity of fertilizer for a future date. Fertilizer swaps, unlike forward contracts, are cash-settled, so that buyers never take actual delivery of the fertilizer.
Fueled by a year of drought and dwindling stocks, expectations loom large for record South American soybean crop in 2013. Current estimates project that South American soybean output will exceed the previous record by 9 percent.
Since the early-2000s, elevated grain prices and improved seed traits have spurred a gradual but steady shift in acreage away from the Delta’s traditional crops of rice and cotton to make room for more profitable corn and soybeans.
Record grain production in recent years has necessitated massive investments in new storage bins across the heartland. And while the building craze began several years ago, it is likely to be years before new construction subsides.
During the past five years, the farm supply industry has been whipsawed by large swings in crop input and grain prices. The heightened price volatility is a fairly new phenomenon, and fertilizer retailers are still searching for effective risk mitigation strategies, especially for crop input prices.
Farm co-op retailers have a lot more on their plates today than simply selling fertilizer to growers. The marketplace has become much more dispersed and complicated than it used to be.