Hedge funds and other large speculators are getting less bullish on agriculture. A measure of their bets on higher prices across 11 US farm goods declined in nine of the past 10 weeks, Commodity Futures Trading Commission data show.
Higher prices are curbing demand, including from ethanol refiners, who use more US corn than anyone else. Output of the biofuel has fallen 14 percent this year as distillers idled plants, Energy Department data show.
Livestock producers are also paying higher feed costs. Hog farmers that did not hedge lost about US$54 on each animal sold for slaughter in September, from a year-earlier loss of US$2.65, according to data from Iowa State.
Smithfield Foods, the largest US pork producer, said on Sept. 4 that net income fell 25 percent in the quarter ended July 29.
Mark Legan, 52, who sells 20,000 hogs to slaughterhouses and 60,000 weaned pigs to other producers annually from his farm in Coatesville, Indiana, said feed costs this year are the highest since he started in 1989.
The outlook is better for agricultural suppliers. Saint Louis-based Monsanto, the world’s largest seed company, expects earnings to be as much as 17 percent higher in its fiscal year ending on Aug. 31.
The company said in June it would benefit from the drought because competitors face seed shortages.
North American sales of high-horsepower tractors rose 33 percent last month from a year earlier, according to Karen Ubelhart, an analyst for Bloomberg Industries in New York.
Agco Corp expects “historic high levels” of demand for high-horsepower products for the rest of the year, its chief financial officer Andrew Beck told a conference in Boston on Nov. 14.
More than 1.16 million crop-insurance policies were written to cover 281.2 million acres this year, 6.1 percent more than last year, when damage claims reached a record US$10.79 billion, USDA data show. Payouts would surge because most policies were linked to prices at the harvest, said Richard Pottorff, the chief economist for Doane Advisory Services in Saint Louis.
Government-backed insurance policies offered through units of companies such as ACE Ltd, Wells Fargo & Co, Great America Insurance Co and Deere have already paid US$5.74 billion in claims on liabilities of US$116.3 billion, according to USDA.
Farm income has more than doubled since 2006 and three consecutive years of record profit left US farmers with a debt-to-assets ratio of 10.2 percent — the lowest since the government began tracking the data in 1960. The gauge of net-cash income for farmers subtracts costs including seed, fertilizer, labor and interest on debt from gross cash income. The US Department of Agriculture updates its farm income forecast on Tuesday and farm-trade estimates on Thursday.
Rising profit helped spur a land rush. The Federal Reserve Bank of Chicago said on Nov. 15 that farmland in Iowa, the largest US corn and soybean grower, rose 18 percent in the year that ended on Oct. 1. A farm in Iowa’s prime northwest growing region sold several weeks ago for a record US$21,900 an acre, topping the previous high last year of US$20,000.