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Rabobank: Outlook bearish for grain prices

Carol Ryan Dumas
Rabobank projects good conditions in the beef and dairy sectors in second half of 2014, despite some price softening.

Improved growing conditions across most of the U.S. corn belt is driving prices lower, and a cool, wet July could result in record-breaking corn and soybean yields, according to Rabobank’s latest agribusiness review, released Thursday.

Corn prices at the Chicago Board of Trade have dropped about 50 cents a bushel, from the $5 a bushel range March through May to about $4.50 in June.

Good moisture has left near-ideal growing conditions across most of the corn-producing states, although recent excess moisture and flooding in northwest Iowa and southern Minnesota has become an issue, Rabobank reported.

In addition, the likelihood of an El Nino year, which usually means cooler summers in the U.S. with greater precipitation, would prove "very bearish" to grain prices, the bank’s analysts stated.

"Though the outlook remains bearish for grain prices, a strong 2014 harvest is critical in light of uncomfortably tight domestic corn and soybean supplies," they reported.

USDA forecasts a national record corn yield of 165.3 bushels per acre, 10 percent higher than the five-year average and 0.6 bushels per acre over the record yields of 2009. Rabobank is less optimistic, expecting 162-163 bushels per acre.

While widespread rains across much of the Corn Belt and Central Plains enhanced growing conditions, drought continues in the West and Southwest.

California and the Southwest continue to experience severe drought, critically impacting beef and dairy operations, as well as crops. Conditions continue to deteriorate, and large quantities of Intermountain and central U.S. feed grains and hay are expected to be shipped to California to support its dairy complex, the bank’s analysts said.

Livestock producers can expect great regional variances in hay prices as drought continues in some areas and not others, they stated.

In the beef sector, feeder cattle prices have seen an unprecedented rally, with current cash prices of $200 to $210 per hundredweight. Feeder cattle are trading in excess of $65 per hundredweight over year-ago levels and $75 per hundredweight over the five-year average, the bank reported.

"The run in feeder cattle has been driven by tight supplies, steadily declining feed prices and cattle feeding profitability," the analysts stated.

The market is overextended in the short term, however, and vulnerable to a short-term price correction, they added.

A recent recovery in fed cattle prices has brought prices to the upper $140s to $150 per hundredweight, "strikingly close to the record-high prices that were established in February and March," the analysts stated.

But aggressive feedlot placement in much of fourth quarter 2013 and first quarter 2014 are expected to bring a sizable increase in available fed cattle in July and August. Combined with a seasonal slowdown in beef consumption, beef prices are soon expected to peak and fed cattle prices could drop to the upper $130s to $140 per hundredweight range, Rabobank reported.

In the dairy sector, Rabobank is expecting producer margins to soften in line with softening global dairy markets but remain attractive in the second half of the year.

Class III prices are expected at $19.66 per hundredweight in the third quarter and $18.95 in the fourth, down from $22.73 in the second quarter of 2014. Class IV prices are expected at $20.44 per hundredweight in the third quarter and $19.75 in the fourth, down from $22.88 in the second quarter of 2014.

Rabobank expects the prolonged nature of improved returns and continued investments will increase milk production 3 percent year over year in the second half of 2014.



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