Record-high animal protein and dairy prices, volatile grain and oilseed prices, and steady-to-lower cropland values reflect agricultural markets in transition, according to CoBank's new quarterly economic report.
The U.S. grain markets continue to anticipate record crops in the coming year, leading to higher inventories and lower prices. While the large 2013-14 grain harvest pushed prices moderately lower, grain stocks remain low by historical standards, according to the CoBank report titled "Cautious Optimism Prevails."
Lower expectations for South American corn and soybean production contributed to an early-year price rally, but final harvest estimates will continue to sway markets.
In the coming weeks, markets will increasingly look to U.S. spring weather for direction. The winter wheat crop is entering key development phases with a lack of moisture in the Southern Plains, and the final mix of corn and soybean acres is still to be decided.
If USDA's initial 2014 acreage estimates prove accurate, and if yields return to trend, inventories will build for all three crops in 2014-15. However, spring planting has been delayed by continuing cold weather, and the markets are jittery.
"Despite the recent rally, lower corn prices this year have bolstered the animal protein and dairy sectors," said Leonard Sahling, director of CoBank's Knowledge Exchange division, which produced the report.
"These industries are already enjoying major improvements in their profit margins and are aggressively rebuilding balance sheets after the stress of record high feed costs over the past several years. The consensus view for these sectors is that the best is yet to come."
For now, however, Sahling noted that the porcine epidemic diarrhea virus (PEDv) continues to cast a cloud of uncertainty across the animal protein industries. Constrained supplies in the beef and pork sectors have driven prices up to near record highs, yet demand for beef and pork has remained surprisingly resilient in the face of these high prices.
The U.S. dairy industry is transitioning from one of shortage to one of surplus. Milk production has begun to increase, exports are taking a breather along with domestic sales, and dairy product prices appear to have topped out and begun to recede. Still, dairy producers and processors remain upbeat about their prospects for the coming year.
CoBank's Knowledge Exchange Division is a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.