Your reading list

U.S. farmers face greater uncertainty this spring

With huge political and trade uncertainty as well as tight cropping margins at the top of mind for American farmers, a long general trend of rising corn and soybean acreages could take a pause this year.

Farmers on the northern U.S. Plains are considering spring wheat over corn this spring, and those in the southern U.S. could shift acres out of corn and into cotton.

That was the gist of what American farmers told the U.S. Department of Agriculture in the annual prospective planting report issued March 29.

By the time you read this, the crop futures market might have settled down, but the immediate reaction following the USDA report was that corn futures closed up three percent on the day and soybeans two percent, while Minneapolis spring wheat was down about two percent. When the market reopened on the night of April 1, soybeans posted additional solid gains and corn and wheat were also higher.

Going into the report, the trade on average had expected increases in both soybean and corn seeding with soybean area topping corn for the first time, except for 1983 when the federal government, reacting to a huge surplus of production, brought in several programs to pay farmers to reduce their corn, wheat, cotton and rice acreages.

So it was a surprise when the planting intentions survey last week showed U.S. farmers expect to reduce corn two percent from last year and soybeans one percent. Cotton area is expected to rise seven percent.

It is unusual for American farmers to cut the combined area of the two largest crops. In the past 20 years, including this forecast for 2018, farmers had year-over-year increases of total corn and soybean area in 15 years and declines in only five. In that period, total area of the two crops grew from a little more than 151 million acres in 1999 to an expected 177 million this year.

Also note that in eight of the past 10 years, the combined corn-soy seeded area in the June planting report increased from the March intentions report.

From here on, much will depend on the weather. If farmers get good seeding conditions and recent price gains hold, they will be tempted to again seed more than they expected when they spoke to the USDA surveyors.

It looks like a slow start to seeding in the northern Plains and up into the Canadian Prairies. Forecasts show April colder than normal with above average moisture. Spring wheat is normally one of the first crops seeded in North Dakota.

Meanwhile, the heart of the Midwest — Iowa and Illinois — looks to have average weather in April so farmers might be able to stick with current plans.

However, if the trade tension between the U.S. and China gets hotter, fears will grow about the future of American soybean exports.

American soybean exports are already struggling, leading to larger than expected March 1 stocks of the oilseed. Export competition will only get more intense as the huge Brazilian soy crop soon hits the market, although Argentina’s crop will be smaller.

So nothing is written in stone, but here is my analysis of the planting intentions numbers.

Profitability related to yields could be driving the corn decline. In the heart of the Midwest — Iowa, Illinois and Missouri where the highest yields are usually guaranteed — the crop is still considered a contender with little acreage decline expected.

Bigger cuts are expected in the northern Plains — Minnesota and North Dakota — where corn area had been expanding thanks to introduction of shorter season varieties. However, the yields still lag behind the Midwest and that hurts profitability when corn prices are as weak as they are now.

Fairly large corn area declines are also expected in Kansas and Nebraska, perhaps because of dry conditions there this spring.

The soybean acreage decline looks to be fairly general, affecting production in most states west of the Missouri-Mississippi rivers. The uncertainty over the Chinese market and the recent slow pace of exports could be driving the plan to reduce soy plantings.

In the northern Plains, farmers indicated that spring wheat acreage increases would make up most of the shortfall in corn and soybeans.

In North Dakota, spring wheat area is expected to rise by about a million acres, or about 20 percent, while in Minnesota wheat climbs by 440,000 acres, or 38 percent.

Hard red spring wheat supply in the U.S. was trimmed by drought in South Dakota and western North Dakota last year, and stocks of that wheat class at the end of the current crop year are expected to be the smallest since 2013-14, even though supply of other wheat classes is expected to be more than ample.

Eastern North Dakota and Minnesota have fairly good soil moisture, and the Minneapolis new crop 2018-19 spring wheat futures price was fairly strong, above US$6 a bushel when the USDA was conducting its survey.

So that helps explain why hard red spring wheat acres could increase in the U.S.

However, durum area is expected to fall 13 percent to two million acres.

The total winter and spring wheat acreage is still expected to be the second lowest since records began in 1919.

About the author

Comments

Copyright © 2016. All market data is provided by Barchart Market Data Solutions. Futures: at least 10 minute delayed except as noted. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.
CME groupICE

explore

Stories from our other publications