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 quarterly economic report, released this week.
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 a CoBank overview.
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.
Markets will likely look to U.S. spring weather for direction in the next few weeks, as the winter wheat crop a key development phase.
The final mix of corn and soybean acres is still to be decided. If yields return to trend, inventories could build for all three crops in 2014-15. However, spring planting continues to be delayed by cooler weather, and the markets are jittery.
How will the USDA reports and spring weather impact your marketing plans? If you missed the Farm Futures spring markets webinar, catch a replay now!
"Despite the recent rally, lower corn prices this year have bolstered the animal protein and dairy sectors," said Leonard Sahling of CoBank. "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."
PEDV overshadows livestock industry
For now, however, Sahling noted that the porcine epidemic diarrhea virus 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.
Dairy is looking better
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.