Though precise dates vary by location, last week marked what is traditionally seen as the latest possible planting day for US row crop farmers.
In the weeks leading up to this year’s unofficial 15 June deadline, pundits debated how historic precipitation and resulting planting delays might influence yields and interact with trade-related payment programs. Producers commiserated by swapping tweets of submerged fields and planters stuck in muddy tracks.
Given the typical structures through which institutions lease farmland to operators, the most complicated decisions about when and whether to plant are largely made directly by tenants. Equipment considerations aside, this year’s rainfall has forced producers to weigh an incredibly complicated set of factors, including their own financial and market positions, insurance policies and production histories.
“There are cases where it is to a farmer’s advantage to simply not do anything after a certain date; the second crop you might plant would not bring a large enough revenue to offset the partial reduction in the payment you might get,” said University of Illinois professor Bruce Sherrick on a NCREIF conference call last month.
For institutional investors active across US ag, high precipitation levels have presented the clearest weather-related challenge since drought in 2012. An informal survey of market players suggests this year’s rainfall could reinforce ongoing consolidation in the sector. It might also come to mark a milestone toward a future featuring a more climate-constrained global ag production picture.
On the conference call, Sherrick said delayed planting could potentially keep millions of US acres out of production and substantially impact overall production of corn and soybeans.
A source monitoring prevented plantings tells Agri Investor, perhaps counterintuitively, that potential reduction in yield can help raise commodity prices sufficiently to make up the revenue lost by those who can’t plant. The source highlights that corn futures saw a sizable jump of about $0.25 per bushel in the hour after the USDA lowered its most recent projection for average yields and acres planted.
It is unclear exactly how many US acres have been prevented from planting, the source says, and it will likely be mid-summer before the USDA’s Risk Management Agency can confirm a definitive picture of what has and has not gone into the ground.
The Midwest has been under the spotlight, but high precipitation levels are also challenging producers and their investors elsewhere in US ag, including the mid-south. A second source tells Agri Investor that production volumes reported recently to permanent crop trade groups in California showed February and March rainfall had a “dramatic” impact there.
“Everyone is trying to tally – literally right now – what the magnitude of that is, but it is significant; it isn’t just a handful of percentage points,” the source says. “Across the industry, we know there is a delta, we are just not sure what it is right now.”
Several sources suggest that for institutions, the central impact of this year’s elevated moisture will be to exacerbate financial pressure on producers, perhaps encouraging more to liquidate assets.
In a recent paper examining debt levels and consolidation in US ag, Nuveen highlighted research showing approximately 13,000 farmers left the sector annually between 2008 and 2018. Other research cited in the paper suggested a more than 11 percent difference between the profits of the top quartile of US farmers over the past decade and the average.
Nuveen stressed that for investors, the research underlines the importance of partnering with the best producers, who, it pointed out, are also those most able to incorporate new technology as they pursue economies of scale.
The role of private investors in ag has expanded significantly since the challenges presented by 2012’s drought, which has also been a period when row crop yields have consistently risen. Those record-breaking yields have helped shape investors’ return expectations. The latter will now likely be forced to factor in a greater variability, with some fearing this year’s wetness is but a preview of things to come.
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