There may be sizeable production swings in soybeans, corn and spring wheat if farmers follow through on the planting intentions indicated in the U.S. Department of Agriculture’s March 31 Prospective Plantings report. With those potential supply changes, and of course depending on weather during planting and the growing season, analysts expect mostly lower new crop prices in the months ahead, despite gains of about 15% in nearby corn and soybean futures prices and of 20% in wheat values since the first of the year.
While farmers responded to high prices for corn by planting the most corn acres since 1944 in 2013, which in turn sent prices down about 40%, they also appear to be responding to prices in 2014 by switching to crops other than corn with record high plantings of soybeans expected.
The U.S.D.A. said farmers intend to plant 91.7 million acres of corn in 2014, down 3.7 million acres, or 4%, from 95.4 million acres in 2013 and down 5.6 million acres from initial intentions of 97.3 million acres last year. At the same time, soybean plantings were indicated at a record 81.5 million acres, up 5 million acres, or 6%, from 2013. The corn planting number was below the average of trade expectations while the soybean number was above the average.
“U.S.D.A. planting intentions are directionally correct,” said Sam Miller, managing director and head, agriculture at BMO Harris Bank. “Market conditions favored less corn so other crops picked up acres at corn’s expense. Soybean prices favored buying acres from corn.”
The great unknown — weather — will be the key factor during the next few months in determining grain and oilseed supplies available in the United States and to international markets in 2014-15, said Don Roose, president of U.S. Commodities in Des Moines, Iowa.
Because he is holding out hopes for good weather in the 2014 growing season, Mr. Roose said he expects yields of both crops to exceed 2013-14 levels, which he noted were surprisingly high given the tough weather where much of the corn was planted at the last possible minute because of soggy field conditions. He said it was possible soybean yields could average 45 bus an acre in 2014, up from 43.3 bus per acre in 2013, and corn yields may average 167 bus an acre, up from 158.8 bus an acre last year.
With weather being the key, the outlook appears favorable, with the exception of the drought-ridden western hard red winter wheat belt and California.
Spring wheat areas and most of the Corn Belt are in “pretty good shape” heading into planting season, said David Salmon, owner of Weather Derivatives, a Belton, Mo., agricultural and energy meteorological consultancy. Although many farmers are expecting a “late spring” because of the long, cold winter, Mr. Salmon suggested soil temperatures may warm up fast because of the lack of snow cover in most areas, which also reduces flooding potential.
The longer-range forecast for the growing season across the Corn Belt “looks okay” at this point, Mr. Salmon said. Some dryness may potentially develop across the Delta and Southeast, especially if there is a light hurricane season, he said.
Mr. Roose said the last four growing seasons have not been “normal” — either too dry or too wet to be ideal. He argued that so many years of unusual weather raises the odds that a year of sunshine, reasonable warmth and adequate rains will hit the “sweet spot” needed by corn and soybean crops to produce top yields, putting downward pressure on prices. If that happens, the projections from the U.S.D.A.’s annual Agricultural Outlook Forum in February of corn at $3.90 a bu and soybeans at $9.65 a bu may be “good numbers,” he said.
Several analysts, though, expect a significant number of acres may be switched from soybeans or other crops back to corn, unless wet weather delays corn planting and forces farmers to plant soybeans.
Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, said the potential exists of adding back about 1 million acres of corn if the weather cooperates and corn prices advance relative to soybeans.
Mr. Meyers said he expects nearby corn futures prices to trade between $4.75 to $5.25 a bu in the next two months, compared with values just over $5 last week. But prices could firm 25c a bu if corn planting is delayed, he added. Mr. Meyers said he sees November soybean prices that are currently around $12 a bu falling to about $10 by fall harvest, if the number of planted acres holds up.
Stephen Nicholson, vice-president, food and agribusiness research and advisory at Rabo AgriFinance, St. Louis, said he could see 1 million to 2 million more acres of corn planted and fewer acres of soybeans.
“It seems almost unfathomable we would plant so few corn acres,” Mr. Nicholson said, although he added he was bearish on new crop commodity prices in general.
Mr. Nicholson said he sees corn futures prices trading in the $4.20 to $4.40 a bu range this fall.
“I’m still bearish, but we’ve taken some of the downside out,” he said, noting earlier forecasts ranged as low as $3.80 a bu. He sees soybean futures values this fall in the $11 to $11.50 a bu range. He suggested buyers be patient in pricing new crop corn and soybeans, but if they still need old crop supplies, they should “just hold their nose and buy it.”
Mr. Miller of BMO Harris said several concurrent factors pushed interest in planting soybeans rather than corn, but he also sees the possibility of some acres being switched back to corn.
“If the spring is early and current corn price strength in the markets (as of April 1) is maintained, expect corn to buy back some acres at the expense of beans,” Mr. Miller said, adding that “if the planting window starts to close in late May and June, expect acres to shift to soybeans.”
If soybean area attains the record 81.5 million acres forecast by the U.S.D.A. and world supplies remain steady, “we’ll be awash in soybeans” in 2014-15, Mr. Roose said. And if El Niño develops into a full-blown weather pattern known to be favorable for crops in North America, then the United States is likely to be “awash in corn” as well, he added.
That scenario stands in contrast to the current crop year in which soybean stocks especially have been tight and are expected to stay that way until harvest, and in contrast to last year when corn stocks were tight due to drought in 2012.
Exports drive corn and soybeans
In its March 31 Grain stocks report, the U.S.D.A. estimated U.S. soybean stocks on March 1 at 992 million bus, down slightly from a year earlier. Corn stocks, on the other hand, have become more ample after last year’s record-large corn crop. The U.S.D.A. estimated March 1 corn stocks at 7,006 million bus, up 30% from 2013.
The U.S.D.A. in its April 9 World Agricultural Supply and Demand Estimates forecast Sept. 1, 2014, corn carryover at 1,331 million bus, down 125 million bus, or 9%, from its March WASDE projection, and soybean carryover at 135 million bus, down 10 million bus, or 7%, and the lowest since 2004. Both carryovers were reduced mainly due to increased export forecasts from March, with soybean exports expected record high at 1,580 million bus and corn the highest since 2010-11 at 1,750 million bus.
Strong export sales of U.S. corn and soybeans have underpinned prices in recent weeks, as has concern about potential disruption to shipments because of Russia’s annexation of Crimea from key exporter Ukraine, although the latter has yet to affect grain shipments. Consistent, strong demand for U.S. soybeans by China has been reducing stockpiles. In the current marketing year ending Aug. 31, exporters have sold 40.5 million tonnes of soybeans overseas, the U.S.D.A. said. This amount is almost equal, after only eight months, to the entire year’s U.S.D.A. projected soybean exports of 41.6 million tonnes.
Even without China being the dominant customer as it is with soybeans, as well as problems with China accepting certain bioengineered U.S. corn shipments, U.S. exports of corn have been strong as well. Shipments during the current marketing year that began Sept. 1 have totaled 22.8 million tonnes, more than double the amount sold last year during the same first eight months of the 2013 marketing year.
But competition with the United States from the South American soybean crop, especially from Brazil, is expected to heat up soon as demand is expected to shift to South America from now until the U.S. harvest.
South American soybean production will be at least as large, if not larger, than the current forecast, although there is uncertainty about Brazil, Mr. Meyers said.
Mr. Nicholson, who just returned from a trip to Brazil soybean-growing areas in early April, noted record-high global soybeans stocks and strong South American production.
“The Brazil soybean crop is big,” Mr. Nicholson said, adding that harvest was virtually completed, although Brazilians will have the usual problems of getting the crop to export ports because of the country’s poor infrastructure. He sees the crop between 86 million and 88 million tonnes, despite some lower estimates out of Brazil.
“The crop is much better than first thought,” he said.
In addition to strong export demand for U.S. soybeans, Mr. Nicholson noted domestic crush has been active, which has been driven by strong demand for soybean meal. He said livestock feeders have most of their old crop soybean meal needs covered, but not much new crop. He suggested the delayed coverage may support new crop soybean meal prices in coming months.
Mr. Nicholson suggested there was opportunity to ship Canadian canola meal to the United States to fill some demand.
At the same time, strong demand for soybean meal translates into ample soybean oil supplies, and Mr. Nicholson suggested soybean oil basis levels “could be sloppy” in coming months.
Hard red winter wheat challenged
“Lower grain prices across the board, as compared to last year, and crop input costs not declining at a similar rate, favored lower input cost crops such as wheat,” Mr. Miller said.
The U.S.D.A. in its Prospective Plantings report said farmers indicated they intend to plant 1.8 million acres of durum in 2014, up 22% from last year, and 12 million acres of spring wheat other than durum, up 4%. The spring wheat area includes 11.3 million acres of hard red spring wheat. The U.S.D.A. durum number was above the trade average of 1.7 million acres, but the other spring wheat number was below the trade average of 12.2 million acres.
“Spring wheat and durum planting intentions appear reasonable given the status of winter wheat conditions, lower acres produced in 2013 and current pricing dynamics,” Mr. Miller said.
Mr. Meyers said the trade had expected higher spring wheat planting intentions on ideas plantings would “bounce back” after last year’s low acreage that resulted from larger-than-expected prevented-plant area due to wet weather. Growers indicated in the March 2013 Prospective Plantings report they would plant 12.7 million acres of spring wheat other than durum, but actual plantings were only 11.6 million acres.
“But farmers know Canada has huge wheat supplies,” Mr. Meyers said. Canadian wheat production was record high in 2013, and supplies have been marketed at a slower-than-expected pace in part because of extremely poor railroad performance during the winter.
“There is a lot of wheat in the rest of the world,” Mr. Meyers said, and he expects Minneapolis spring wheat futures prices will trend lower with the other wheat classes. He sees Minneapolis wheat futures trading in the $6.70 to $7.10 a bu area this summer, down from around $7.20 to $7.35 a bu last week in the July and September 2014 contracts.
Although most fieldwork across the spring wheat region of the Upper Midwest is not expected to begin until late April, according to state U.S.D.A. field offices, the current moisture profile bodes well for the crop. Most of the states in the region reported soil moisture was 80% or above adequate to surplus as of April 6.
While spring wheat, durum and most corn and soybean acres still need to be planted, more is known about the hard red and soft red winter wheat crops that were planted last fall. And it’s not all good.
The U.S.D.A. pegged winter wheat planted area at 42 million acres, up slightly from the January Winter Wheat Seedings report but down 3% from 2013. But how much wheat those acres will produce remains to be seen as the hard red winter wheat crop was challenged with harsh weather as it was emerging from dormancy and, even more significantly, remains in the throes of drought in western parts of the southern Plains.
In its initial aggregate winter wheat crop condition report of the spring, the U.S.D.A. rated the winter wheat crop at 35% good to excellent, 36% fair and 29% poor to very poor as of April 6, ratings that are nearly identical to the first ratings of the spring last year. But that doesn’t tell the full story as the final rating for the current crop last fall was much higher at 62% good to excellent, 30% fair and 8% poor to very poor.
Drilling down even further reveals where the trouble spots are, with top-producing Kansas on April 6 at 29% good to excellent (63% last fall) and 27% poor to very poor (4%), Oklahoma at 15% good to excellent (77% last fall) and 48% poor to very poor (5%) and Texas at 13% good to excellent (32% last fall) and 61% poor to very poor (28%). Of the seven major hard red winter wheat states, only Montana had better condition ratings in April than in the fall.
Western Kansas and parts of southeast Colorado and western Nebraska were in severe to extreme drought as of April 1, according to the National Drought Mitigation Center’s Drought Monitor. Even worse were the panhandles of Oklahoma and Texas and western Oklahoma that were in extreme to exceptional drought, with the latter being the highest drought rating.
The seven main soft winter wheat states of the Southeast and Central states also had April 6 ratings below the final ratings of last fall, but not to the extent seen in most of the hard winter region. There were no real weather concerns for the major soft red winter states indicated on the Drought Monitor map as of April 1.
Ratings in Oregon and Washington, where significant white wheat is grown, also were down sharply from last fall, likely reflecting recent drought conditions, although those states have received significant rainfall recently, unlike the central valley of California that continues to have water problems.
Despite the poor winter wheat conditions and assuming average rainfall the next 60 days, Mr. Meyers expects Kansas City hard red winter futures prices to average between $6.90 and $7.30 a bu this summer, and Chicago soft red winter futures to average $6.40 to $6.80 a bu, both down about 30c from early April levels.
“The demand is weaker for U.S. wheat,” Mr. Meyers said, noting that significant wheat feeding seen last year has declined mainly due to lower corn prices. He added, “If we get some timely rain, we still can have a decent hard red winter wheat crop.”
Mr. Salmon, though, doesn’t have much hope for the driest parts of the hard red winter region.
“Some areas are 3 inches behind on soil moisture content,” he said. “The models keep showing rain then it doesn’t happen. Nothing looks good ahead.”
The Wheat Quality Council’s annual hard red winter wheat tour, scheduled for April 28-May 1, will take on special meaning this year as participants analyze crop conditions and yield potential across the region. Also much anticipated will be the U.S.D.A.’s first survey-based winter wheat crop production estimate on May 9.
Mr. Meyers said the keys to final planted area and summer price trends for corn, soybeans and wheat are weather’s impact on planting conditions in the next 30 days and rainfall in the hard red winter wheat region. Also important are whether the export pace slows, especially for corn, and the tight soybean supply situation.
The bulk of fieldwork has yet to begin in much of the Corn Belt and especially in northern states where farmers are prepared for the possibility of a late planting season. As temperatures rise from one of the harshest winters in recent years and the planting season moves northward, many farmers still have time to adjust planting decisions for corn, soybeans, spring wheat and other crops as prices, or more likely, as spring weather, dictates.