Money managers have been betting on lower wheat prices since September, U.S. Commodity Futures Trading Commission data show. They cut their bullish wagers on soybean and corn in recent weeks.
Floods, drought and freezes last year prevented planting of the three crops on about 8.577 million acres, 28 percent more than in 2010, Agriculture Department data show. An additional 1.84 million acres that were planted failed to produce, more than double the amount a year earlier.
Crop insurers paid out a record $9.1 billion last year to cover the damage, and the bill may top $10 billion when all claims are settled, National Crop Insurance Services said.
A return to normal weather in 2012 would mean more production from last year’s lost acres. The government also has reduced by 4.7 percent the amount of land it pays farmers to leave fallow, adding 1.47 million acres that weren’t available in 2011, Agriculture Department data show. Rising incomes allowed farmers to buy more land and the extra seed, crop chemicals and equipment needed.
A profitable industry
“Grain farming has been one of few profitable industries for the past three years, and there will be a tendency for farmers around the world to maximize acreage,” said Don Roose, the president of U.S. Commodities, who has been advising farmers and grain elevator operators since 1979. “We have the potential to grow record world crops this year that can swamp demand.”
Deere, the world’s largest farm equipment maker, is expected to report record net income of $3.14 billion this year, up from $2.8 billion a year earlier, according to analysts. Its shares rose 14 percent this year. Monsanto, the biggest seed company, is expected to earn $1.9 billion, up from $1.61 billion, estimates show.
Land prices in Iowa, the biggest corn- and soybean-growing state, averaged $5,600 an acre last year, three times the amount a decade ago.
While farming accounts for 0.9 percent of the U.S. economy, it has been among the fastest-growing contributors. The amount of value added by agriculture in the four years through 2010 rose 42 percent, to $132.6 billion, compared with 8.6 percent for the entire economy.
U.S. exports surged as global economic growth boosted demand for crops, meat and dairy products, while weather damage disrupted a wide range of supplies, including Russian wheat and Chinese pork.
Shipments reached a record $137.4 billion for the year that ended Sept. 30, with China as the largest farm-goods buyer. The government expects a drop to $132 billion in the current fiscal year; still, it would be the second-largest ever for exports.
Unemployment in December was 7.9 percent in Midwest states, tied with the Northeast as the healthiest job region. North Dakota, Nebraska and South Dakota were the only states with unemployment under 5 percent. The national rate fell to 8.3 percent in January from 8.5 percent in December.
Demand for alternate fuels
Corn, the most profitable row crop, will lead the planting surge. U.S. mandates for alternative fuels have led to greater use of the grain to make ethanol, and rising worldwide incomes are boosting meat consumption, increasing requirements for livestock feed. Global production of beef, veal, pork, chicken and turkey this year will be 62 percent higher than 20 years ago, the Agriculture Department says.
An acre of corn will earn as much $150 more than soybeans at current prices and normal weather, said Mike Wagler, 30, who farms about 7,000 acres with his father in Indiana.
“Farmers have the capital to plant a big corn crop this year,” said Wagler, who plans to sow 85 percent of his family’s land with the grain, compared with 70 percent last year. “We can make more money raising corn than soybeans.”
In North Dakota, the largest producer of spring wheat, farmers probably will plant record corn and soybean acreage this year as they use most of the 5.6 million acres that couldn’t be planted in 2011, said Frayne Olson, an agriculture economist. Spring-wheat acreage will remain steady, he said.
David Kopseng, a fourth-generation grower on 4,700 acres in Harvey, N.D., said he will boost corn planting by 17 percent, to 1,400 acres, from a year ago. In 2006, he didn’t sow any corn. Improved seeds have boosted yields by about 40 percent during the past decade, he said.
“We’re going to plant the most corn acres ever,” Kopseng said. “I’ve been buying some more land and renting more because of corn’s profitability. It’s a great time to be a farmer in North Dakota.”