Farmers Facing Financial Stress in U.S and South America - Thursday, 03 November 2016

An article found in Reuters tells of the financial stresses facing farmers across the nation and the alarming 125% increase in Chapter 12 filings in Iowa.  The current problem facing many of these individuals occurred when, according to the article, “Some farmers loaded up on easy credit when grain prices were high and kept borrowing after they crashed.  Now debt and delinquencies are rising fast, raising fears of broader turmoil in U.S. agriculture.”  The U.S. government does not follow the occurrence of large farm bankruptcies but Chapter 12 bankruptcies (those with less than $4.03 million in debt) are tracked and the results are alarming.  Last year about 1 out of every 3 farms raising grain and other row crops (except cotton) were classified as “highly leveraged” or “very highly leveraged”.  These terms are used to describe situations in which debts were equal to 41% or more of the producer’s assets. 

                   

Markets appear to be waiting patiently as our nation heads to the polls next week to elect a new president and potentially “shift the underlying macro space”.  It’s unknown how any perceived “surprises” may influence the U.S. Dollar and other “major asset classes” as well.

The USDA now estimates that the U.S. corn harvest is 75% completed.  States posting the largest variances from normal:

  • North Dakota -15% behind normal
  • South Dakota -11% behind normal
  • Iowa -5% behind normal
  • Ohio is +11% ahead of normal
  • Indiana +7% ahead of normal
  • Illinois +6% ahead of normal

 

Some traders are beginning to discuss the possibility that the surge in soybean demand may in fact be high enough now to offset record production.  Argentina is experiencing some weather issues which will also likely shift some demand to the U.S. and with exports to China remaining strong many feel that the USDA will need to raise their export numbers. 

It’s reported that Buenos Aires has 1.2 million acres that have been declared a farming state of emergency in this region 70% of the fields are underwater. A public works secretary reported, “We declared a state of emergency and we are working with Banco Provincia to secure zero interest lines of credit for impacted producers.” Jorge Solmi from the Argentina Agrarian Federation stated, “Many small producers are condemned to disappear. They are the ones who are least likely to recover.”

USDA now estimates that 87% of the countries soybean crop has been harvested which is slightly ahead of the typical pace of 85% for this time.  States showing the largest variances from normal are:

  • Michigan which is -11% behind
  • Iowa and Nebraska which are both -5% behind
  • South Dakota and Kansas which are both -2%
  • Kentucky is running +24% ahead of normal
  • North Carolina and Tennessee are both +14% ahead of normal
  • Indiana +2% ahead
  • Illinois +1% ahead

 

Data from The Ministry of Industry, Foreign Trade and Services shows that current corn exports out of Brazil are down over -72% from this time last year.  Lower costs and overall strength of North American exports are drawing more business to the U.S. Export quotes this month from the U.S. range from $135 to $140 per ton compared to $173 per ton for corn originating out of Brazil.

On October 24th, 2016 the Journal Nature published a new study regarding the movement of the Polar Vortex away from the U.S. and towards Europe and Asia in late winter.  While initially this sounds like positive news for those of us that don’t enjoy bone chilling cold temps it is in fact just the opposite.  The study that was conducted has been following the path of the Polar Vortex over the past 30 years, the findings indicate that during February the Polar Vortex shifts closer to Europe and Asia. The term Polar Vortex was not a term well known by Americans until a few years ago when the U.S. experienced several prolonged periods of time with record shattering Arctic cold temps.  In essence the Polar Vortex keeps the Arctic air mass far to our north but when the vortex weakens or is disrupted for any reason the Arctic air escapes and is able to flow deep into North America or Europe. The shifting of the position of the protective Polar Vortex during the late winter months is also adjusting the time-frame in which the U.S. is most vulnerable for visits from the frigid Arctic air mass to late-winter and early-spring (Feb-Mar) and away from when we most typically expect our coldest temps.

Taking a look at the current outlook for November 7th-11th NOAA expects that the majority of the U.S. will see favorable precipitation and temps.  Maps below show more specific details.

 

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