Evening Report | May 20, 2022

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Check our advice monitor on ProFarmer.com for updates to our marketing plan.

 

Your Pro Farmer newsletter is now available... Weather during the week ended May 15 was the best of the spring so far, leading to big jumps in corn and soybean planting, though both remained well behind average. There wasn’t as much of an advance in spring wheat planting due to continued rains in the Northern Plains. We look at how much of each crop was left to plant as of mid-May. While much of the focus is on the planting paces, summer weather will largely determine yields. The National Weather Service extended forecast for June through August calls for above-normal temps for all U.S. growing areas, with below-normal precip likely across the western Corn Belt and Southern Plains. Drought continues to hamper the U.S. winter wheat crop, with results of the Wheat Quality Council’s annual HRW crop tour through Kansas confirming sharply reduced yield prospects in the state. We cover all of these items and much more in this week’s newsletter, which you can access here.

 

Cattle on Feed Report: Another bearish placements figure... USDA estimated the May 1 large feedlot (1,000-plus head) inventory at just shy of 12 million head, up 236,000 head (2.0%) from year-ago and 90,000 head more than the average pre-report estimate implied. The bigger feedlot inventory was due to placements again topping expectations. While April placements declined 0.9% from year-ago, they topped the upper end of pre-report estimates for a second straight month. Marketings fell 2.2% from year-ago in April, just fractionally less than the average trade estimate.  

Cattle on Feed Report

USDA
(% of year-ago)

Avg. Trade Estimate

(% of year-ago)

On Feed May 1

102.0

101.3

Placements in April

99.1

95.4

Marketings in April

97.8

98.0


Placements declined 5,000 head in Kansas, 15,000 head in Texas and 16,000 head in “other states” compared with year-ago. But Nebraska and Colorado feedlots placed an additional 15,000 head and 5,000 head on feed, respectively, versus year-ago in April. By weight category, placements declined 6.6% for lightweights (under 600 lbs.), increased 8% for 6-weights, fell 1.2% for 7-weights, rose 0.8% for 8-weights, dropped 4.5% for 9-weights and were unchanged for heavyweights (1,000-plus lbs.).

The placements data is bearish compared to the average pre-report estimate, but traders took a lot of premium out of deferred live cattle futures ahead of the report. That should limit the market impact on Monday, though bears have momentum, so traders would need to fade the report to trigger a corrective rebound in futures.

 

High crops prices fuel surge in land values... Strong commodity prices fueled a more than 20% rise in farmland values in the first quarter, according to the Federal Reserve. Land values soared 29% in Kansas, 28% in Iowa, and 32% in Colorado, Wyoming and northern New Mexico.

 

Rural bankers note surge in loan volume, slowing economy... The Creighton University Rural Mainstreet Index (RMI) fell from April’s healthy reading but remained above growth-neutral for the 18th straight month, according to the survey of bank CEOs in rural areas of a 10-state region dependent on agriculture and/or energy. The region’s overall reading for May declined to 57.7, its lowest level since February 2021 and down from April’s 62.0. The index ranges between 0 and 100 with a reading of 50.0 representing growth-neutral.

“Much like the nation, the growth in the rural mainstreet economy is slowing. Supply chain disruptions from transportation bottlenecks and labor shortages continue to constrain growth.  Farmers and bankers are bracing for escalating interest rates — both long-term and short-term,” says Creighton University’s Dr. Ernie Goss, who conducts the survey.

The regions’ farmland price index for May sank to a still strong 72.0 from 80.0 in April. This marks the 20th straight month the index has moved above growth-neutral. Over the past several months, the survey has registered the most consistent and strongest growth in farmland prices since the survey was launched in 2006. On average, cash rents have risen 9.6% to $250 per acre for non-irrigated crop land over the past 12 months, according to bankers.

The May farm equipment-sales index declined to 88.9 from April’s 67.6. This was the 18th straight month that the index has advanced above growth-neutral. Readings over the past several months are the strongest string of monthly readings recorded since the beginning of the survey in 2006.

The May loan volume index soared to 73.0 from April’s 51,9. “Escalating costs of farm inputs pushed borrowing up to its highest reading since May 2020,” said Goss.

The survey found more than one of ten bankers expect the Federal Reserve to raise rates by 75 basis points at its June meetings. Approximately 70% of bankers anticipate a 50-basis-point rate hike in June.

 

Deere misses sales estimates as inflation weighs on customers... Deere & Co., the largest maker of agricultural machinery, reported quarterly sales that were below estimates as the company said higher costs impact farmers. The Moline, Illinois-based company reported revenue for its largest business segment, production and precision agriculture, of $5.12 billion, below the average estimate of $5.89 billion. “Looking ahead, we believe demand for farm equipment will continue benefiting from positive fundamentals in spite of availability concerns and inflationary pressures affecting our customers’ input costs,” Chief Executive Officer John May said Friday in a statement. “Deere’s second-quarter performance reflected a continuation of strong demand even as we face supply-chain pressures affecting production levels and delivery schedules.”

Deere also said it suffered from higher production costs and impairments related to the Russian invasion. Deere in March told investors it halted shipments of its equipment to Russia.

Deere forecast 2022 net income between $7 billion and $7.4 billion, above analysts’ average estimate of $6.99 billion and up from a prior range of $6.7 billion to $7.1 billion, according to a statement on Friday.

 

Plan for offshore oil, gas lease sales coming, but may have caveats... The Biden administration is committed to laying out an initial plan for offshore oil and gas lease sales following mounting pressure from key centrist Sen. Joe Manchin (D-W.Va.) and other lawmakers. Interior Secretary Deb Haaland told senators on Thursday the proposed program, which could outline potential auctions in the Gulf of Mexico and other U.S. waters, will be issued by June 30, when the current schedule expires. But there will be at least five months of public comment and other review before it could be finalized. And the final program might not actually authorize sales.

Manchin, who complained that the Biden administration is “blocking increased energy production at home,” while encouraging more oil flows from Venezuela and OPEC producers. Energy Secretary Jennifer Granholm assured lawmakers Thursday the U.S. doesn’t have any plans to accept oil imports from Venezuela even as the Biden administration seeks to ease sanctions to bring more crude from the South American nation to Europe.

Reports note that Chevron could boost its crude output in Venezuela by 33% this year if the U.S. allows the oil explorer to resume drilling in the country.

 

 

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