VIDEO: Brace for low prices

CHICAGO, Ill. — Farmers should brace for lower prices next year, according to data from a leading industry analyst.

Darin Newsom, senior analyst with DTN, said he expects U.S. corn, soybeans and wheat stocks to increase in 2016-17, which means lower prices for those commodities, as well as for almost every crop grown in Canada.

The U.S. Department of Agriculture forecasts 2015-16 corn ending stocks of 1.76 billion bushels and a 13 percent stocks-to-use ratio.

Newsom expects the already burdensome carryout to get worse next year. Informa Economics forecasts U.S. growers will plant 90.1 million acres of corn in the spring, which would be 1.7 million acres more than this year.

He expects an average yield of 169.7 bu. per acre based on his trend line yield forecast, which would be slightly higher than this year’s average of 169.3.

It would result in nearly 14 billion bu. of corn production and a record 15.8 billion bu. of total supply.

Newsom increased the estimated use for feed, food and ethanol, but it wasn’t enough to mop up excess supply. He forecasts ending stocks of 2.1 billion bu. of corn and a bearish stocks-to-use ratio of 15.5 percent.

“To avoid that, we need a weather disaster. The odds probably aren’t too good that’s going to happen,” Newsom told delegates attending DTN’s Ag Summit 2015.

A stocks-to-use ratio that high would historically result in a national average corn cash price of about US$3 per bu., which is down from the 2015 average of $3.50.

The soybean outlook is also dismal.

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The USDA forecasts 465 million bu. of carryout from 2015-16 and a 12.4 percent stocks-to-use ratio.

Informa Economics said U.S. growers will plant 85.3 million acres of soybeans in the spring, which would be up 2.1 million acres from this year.

Newsom forecasts an average yield of 48 bu. per acre, down slightly from this year’s average of 48.3.

It would result in slightly more than four billion bu. of production and a record 4.54 billion bu. of total supply.

He increased domestic crush and exports slightly, but there would still be 699 million bu. of carryout and an ugly stocks-to-use ratio of 18.2 percent.

“Absolutely nothing about that is bullish,” said Newsom.

The last time the stocks-to-use ratio was that high was 2006-07, when the national average cash price for soybeans was $6 per bushel. It would be down from the 2015 average of $9.55.

However, Newsom said the USDA is notorious for overestimating soybean supply. He believes this year’s carryout could be closer to 178 million bu., which would result in more palatable 2016-17 ending stocks of 412 million bu. and a 10.7 percent stocks-to-use ratio. Newsom said a stocks-to-use ratio of that level would lead to a national average cash price of about $8 per bu.

The wheat outlook isn’t pretty either.

“There is so much wheat worldwide it’s going to take a disaster somewhere to prop this market up.”

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Newsom is forecasting an increase in U.S. ending stocks, which would result in a 41 percent stocks-to-use ratio and a national average cash price that could fall as low as $4 per bu., down from $5 in 2015.

Renewed buying interest from the investment community, which has been steadily selling off its stake in corn and soybeans is one factor that could cause prices to rally next year.

However, that is unlikely because the U.S. Federal Reserve is poised to raise interest rates. It would further strengthen the U.S. dollar, which would not be a good development for export-oriented commodities in the U.S.

“You cannot get investors to buy when you have supplies continue to increase and the U.S. dollar index going up,” he said.

The good news for growers is that the technical market charts are not nearly as pessimistic as the supply and demand fundamentals. The March-May corn futures spread accounts for 48 percent of the total cost of carry for the crop, and the May-July spread accounts for 44 percent of the cost.

Newsom said anything higher than 66 percent is considered bearish, so the corn spreads are surprisingly neutral, suggesting corn could maybe rally as high as $4.10 per bu.

It’s an even better outlook for soybeans. The January-March spread is 13.5 percent of the cost of carry, and anything less than 33 percent is considered bullish. Soybeans could rally to $10 if the technical charts are correct.

“The futures spreads are saying the (supply and demand) numbers are wrong,” he said. “There is either more demand for U.S. soybeans or less supplies available or the market is just dead wrong, and that’s what we saw play out last year.”

Newsom’s gut tells him the market is wrong, and leans toward a bearish price outlook.

Contact sean.pratt@producer.com

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