Soybeans jumped on the bullish bandwagon, too

Farm Forum

While there were some bearish numbers for corn in in the January 11 Crop Production, Grain Stocks, and World Agricultural Supply and Demand Estimates (WASDE) reports, the increase in domestic use was enough to create nearly a $0.40/bu rally in nearby March corn futures over the last week. Further, the bullish enthusiasm in the corn market spilled over to the soybean market following the reports’ release, offsetting some otherwise bearish soybean information in those reports. In the last week, March soybean futures have rallied almost $1/bu.

In the January WASDE report, the USDA raised national soybean yields from 39.3 bu/a to 39.6 bu/a, in-line with expectations. However, production increased by 44-million bushels, more than the 28-million-bushel increase expected, due to a 400,000-acre increase in harvested area. Thirty-nine million bushels of the 44-million-bushel supply increase were offset through higher use estimates. Soybean crush use was raised 35-million bushels, reflecting strong soybean oil and meal demand, and residual use was increased by 5-million bushels. As a result, ending stocks were increased by 5-million bushels to 135-million bushels, about as expected.

Overall, the expected impacts from the changes to the domestic balance sheet were mostly neutral; however, world-ending stocks for soybeans were also reduced by 0.47 mmt. Of note, the USDA increased its forecast for Brazilian soybean production by 1.5 mmt to 82.5 mmt and decreased Argentine soybean production by 1 mtt to 54 mmt.

While those changes were mostly anticipated by the market, it is the updated weather forecasts last week that spurred soybean prices higher in the middle of last week. The weather has trended to drier in Southern Brazil and Argentina over the last couple of weeks, and forecasts are for mostly dry weather for the next week or two and temperatures in the 90s. Thus, rains will be needed by the beginning of February. And, because the U.S. ending stocks remain tight, the market will be sensitive to South American weather until that crop is closer to harvest.

Hay supplies plummet

According to the USDA, the December 1, 2012 supply of hay in the U.S. was 76,547 tons, the smallest inventory in at least four decades. Due to the widespread drought this summer and fall, hay supplies were 15.6% lower than December 1, 2011. In fact, most states saw decreases in hay supplies at the end of 2012, with the general exceptions of the Southern and Southeast U.S. (primarily because their drought was worse in 2011 than 2012). South Dakota led the year-over-year reduction with a 48.8% drop in hay supplies. As of December 1, 2012, there were 4,300 tons of hay in South Dakota, the smallest inventory since 1976.

Alfalfa hay production totaled 2,590 tons in South Dakota last year – a 3,755 ton or 59% decrease from 2011. Not only did the 2012 state yield drop to 1.4 tons-per-acre (from 2.7 tons-per-acres in 2011) due to drought, but harvested acreage declined by a half-million acres (21%) in South Dakota due to acres being diverted to grain production. In comparison, U.S. production dropped 20%, while harvested acres declined by 10% and yield was 11% lower.

Other hay acreage in South Dakota and the U.S. was higher in 2012: 50,000 acres and 2.5-million acres, respectively. However, lower yields reduced other hay production for the state, but not for the nation. South Dakota had a 37% decline in other hay yields in 2012, averaging 1.2 tons-per-acre, whereas the U.S. averaged 1.74 tons-per-acre, only a 4% decline. South Dakota’s other hay production was 1.5-million tons last year, a drop of 34% since last year. The U.S., though, saw a 3% increase in other hay production.

Looking ahead to 2013, forecasts call for national ‘all hay’ yields to increase about a quarter-ton per acre and for about 2.5-million more acres of hay to be harvested. If realized, that would temper record-high prices for hay in the year to come. However, even if that were to occur on the national level, South Dakota hay prices are likely to remain high as the drought remains entrenched across much of the state.

In 2012, alfalfa prices in South Dakota averaged $176/ton, about $68/ton higher than in 2011, but monthly average prices surpassed $215/ton for each month from August through December. Other hay (excluding alfalfa) prices averaged $122/ton last year in South Dakota, but had reached a monthly average of $155/ton in December. Of course, local instances of much higher prices were common throughout the year as well.

While forecasts for national average hay prices call for a 15-20% reduction in 2013 compared to last year, prices in South Dakota are likely to fall much less than that since drought conditions remain in the state, drought-stressed hay lands haven’t fully recovered from 2012 drought, and high grain prices will compete for acres in 2013. Therefore, at this point, livestock producers should prepare for hay prices to remain high through 2013, at levels similar to those in 2012.