by Gayl Mileszko
At 4.44 billion bushels, the United States had record high soybean production last year and, even in the midst of a hundred-year pandemic, corn growers nearly set a new record high at 15.1 billion bushels. The bushel is a unit of measurement dating back to the Middle Ages. Even in our modern era of digitals and metaverses, it is still used the to measure the weight of most agricultural crops. Many commodity prices are quoted in these units and there are standard measures that vary by crop. According to the U.S. Department of Agriculture, there are about 125 apples in a 48-pound bushel. A bushel of dry corn weighs 56 pounds, while a bushel of soybeans or wheat weighs in at 60 pounds. A peck is equal to one quarter of a bushel. From a productivity perspective, one acre can yield 51.4 bushels of soybeans and 177 bushels of corn every year, as it did in 2021 under the tender care of our American farmers.
The output of America’s farms directly contributed $134.7 billion to the gross domestic product in 2020, but the actual amount is obviously so much larger as so many other sectors from groceries to clothing stores to restaurants rely upon their input. Our farmers also produce for consumers worldwide. U.S. agricultural exports amounted to $177 billion in 2021, up from $66.5 billion in 1996. In January alone, we exported $3.4 billion worth of soybeans and $1.5 billion of corn. A bushel of soybeans goes for about $16.02, roughly double the price from February 2020; corn prices, at $7.35 a bushel, are up more than 91 percent in the last two years.
Disruptions in global trade due to the Russia-Ukraine war, tariffs, changing consumer demand, planting and acreage decisions and higher input costs are all impacting the prices of key commodities. In particular, the cost of fertilizer has skyrocketed, cutting into what would otherwise be a highly profitable year for U.S. farmers. The fertilizers price index, which takes into account the weighted average of natural phosphate rock, phosphate, potassium and nitrogenous prices is up more than 96% from a year ago, exceeding prices seen during the food and energy crisis in 2008. Some crops, such as soybeans, require about four times more fertilizer than others, so many farmers are opting to plant corn and other crops, impacting future global food supplies. At least for now, all crops need fertilizer. And while our domestic fertilizer producers are ramping up, we still are the world’s third largest fertilizer importer of 93% of potash, 12% of nitrogen and 9% of phosphate needs.
Commodities just wrapped up their best quarter in 32 years. Corn gained 26%, wheat gained 31% and many metals hit new highs. The Dow and the S&P 500, on the other hand, closed down more than four percent and the Nasdaq lost nine percent. But stocks have been in rally mode since mid-March; all three major indices put correction territory behind them in a matter of two weeks. Volatility as measured by the VIX plummeted by 32% to 20.56 over the course of the month but is still up 19% year-to-date. Oil prices swung by more than 30%, between $95 and $123 in March and closed the quarter at $100 a barrel, up 33%. Coal prices have topped $100 for the first time since 2008. Gold and silver were both up more than six percent in the first quarter while Bitcoin lost 2.8%.
U.S. bond markets suffered their worst quarter in more than 40 years. Treasuries had no field of dreams. The 2-year yield at 2.33% surged by 90 basis points increase over the course of 23 trading sessions in March and 160 basis points year-to-date. The 10-year yield, which also closed at 2.33%, increased by 82 basis points during the first quarter, 51 basis points in March alone. And the 30-year yield at 2.44% rose by 28 basis points last month and is 54 basis points higher so far this year. During these past three months, the difference between the 2-year and 30-year yields narrowed from 117 basis points to 11; the spread between the 2-year and 10-year yields fell from 78 to 0. Treasury indices are down 5.56% in 2022, before adjusting for inflation.
Rates rose a bushel and a peck in all the bond markets during the first quarter as traders started to visualize all the seeds planted by the Fed for as many as seven rate hikes, curtailed bond purchases and balance sheet reductions start to sprout. Last quarter, the dollar decline in corporate bonds was estimated by Bloomberg at $805 billion for investment grade debt and $236 billion for high yield securities. Nevertheless, high yield corporate issuers sold $43.1 billion in total during the quarter. Investment grade corporate issuers sold $230 billion of debt in March, the fourth largest monthly amount on record, bringing the year-to-date total to $453 billion. The 10-year Baa corporate bond yield rose as much as 60 basis points during last month alone and closed at 4.42%, up 122 basis points on the quarter. Investment grade corporate indices are down 7.74% so far this year, and high yield corporates have lost 4.51%.
In March, municipal bonds suffered one of the worst months on record. A negative price trend has defined all but 10 trading days in 2022. The 2-year AAA general obligation benchmark yield increased by a whopping 71 basis points last month from 1.06% to 1.77%. The 10-year yield rose by 58 basis points from 1.58% to 2.16%. The 30-year yield at 2.51% finished 53 basis points higher. Year-to-date, the 2-year yield is 153 basis points higher, the 10-year is up 113 basis points and the 30-year has increased 102 basis points. Investment grade muni indices are down 6.18% year-to-date and high yield munis have fallen 4.72%. Taxable munis have been hit very hard this year; they plummeted 8.03% in the first quarter. Zero coupon bonds have fallen the most: returns were negative 6.46% in March, lowering the year-to-date loss to 13.82%
Governmental and nonprofit borrowers came to the municipal market with $103.5 billion of issues in the first three months of the year, down about nine percent from the first quarter of 2021 due to a drop in refunding volumes amid continuing volatility and the rising-rate environment. The Virgin Islands had some trouble finding buyers for their tender/refunding to support severe public pension system shortfalls but came up with a matching fund special purpose securitization structure that enabled them to sell $952 million of Kroll BBB-rated bonds that had a 2039 maturity priced with a 5.00% coupon to yield 4.73%. During the quarter, there were about 42 charter school financings, the most recent of which included an $18.8 million non-rated sale by Polaris Tech Charter School through the South Carolina Jobs-Economic Development Authority that had a final maturity in 2057 priced at 5.25% to yield 5.41%, and a $6.5 million transaction for Arts Academy Charter Middle School through Pennsylvania’s Allentown Commercial and Industrial Development Authority that had a single 35-year maturity that priced at par to yield 5.00%. We also saw approximately 18 senior living financings in the first quarter, the most recent of which was our $47.9 million non-rated 30-year variable rate refunding for First Village Obligated Group in Upper Arlington issued through Franklin County, Ohio priced at par with an initial interest rate of 5%.
This week, we will see five Treasury auctions, we will hear seven Federal Reserve speakers and we will scrutinize the minutes from the least policy committee meeting. The Washington media are closely covering the debate over the form and amount of aid to the Ukraine, another pandemic spending package and several high profile confirmations, including the Supreme Court associate justice nominee. Talk of a suspension of the gas tax has fizzled as have proposals for higher taxes. But the demand for tax-exempt securities persists, even as it takes on new shape at this point in the cycle. Retail investors have been withdrawing money from mutual bond funds and re-investing it in municipal bond exchange traded funds as well as individual bonds. Net flows into muni ETFs hit an all-time high during the last week of March and exceeded $1 billion for the first time ever, bringing year-to-date totals to $4.5 billion and assets under management in 68 ETFs to $84 billion while the 541 different muni mutual bond funds lost assets for the 11th consecutive week, cutting assets under management by $26.5 billion so far this year to $939 billion. Rates nevertheless remain extremely favorable for tax-exempt borrowers; this week’s muni slate is expected to be the largest of the year at more than $10 billion.
Speculation over the alarming change in the trading value of short-term versus long term securities (in which there is virtually no difference in the yield you receive for buying a 2-year bond versus a 30-year bond) has spurred much talk of recession. Inflation still rages and the full impacts of war-related supply disruptions and sanctions have yet to be seen. A myriad of opportunities for investors nevertheless emerges every day. The 30-year municipal bond to Treasury bond ratio currently stands at 101.6% and makes long munis look quite appealing. Higher yielding essential purpose municipal bonds are being offered every day by mutual funds. Taxable municipal bond yields are now appearing more attractive than many comparably rated corporate bonds. Market disruptions are occurring in every sector from fertilizers to pharmacies to natural gas and high yield bonds.
Life is always full of change and uncertainty and every generation faces events never before experienced. So much of what is happening today is truly unprecedented. There are three quarters left in the year, only about six trading sessions until Tax Day. This is a great time to reach out to your HJ Sims representative to help you, your family and your business plow through the challenges and find opportunities to boost your yields.
For more information on our municipal offerings or questions about current market conditions, please contact your HJ Sims representative