Assumptions no longer valid
An increasing number of assumptions are being shaken in the United States grains and oilseeds business.
We have come to take as standard certain cause-and-effect linkages. Like, smaller acreage should mean lower production. Also, lower spring prices for a particular commodity should cause farmers to reduce acreage of that crop.
But in today’s difficult marketplace, our expectations are often exploded.
Take last year’s wheat acreage in the U.S., for example.
It fell to 65.9 million acres from 70.4 million in 1997-98 and 75.1 million the year previous.
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This should have helped wheat prices, but as is all too clear, wheat prices tanked in the last 12 months. Why?
One of the reasons is that despite falling acreage, U.S. wheat production actually climbed thanks to rising yields, which pushed up to 43.2 bushels an acre in 1998-99 from 36.3 bu. in 1996-97.
This year, wheat area is expected to be even smaller. Winter wheat will be 43.35 million acres (46.45 million in 1998) according to an estimate by the U.S. agriculture department. Sparks Co., a major agricultural forecasting firm, estimates the U.S. spring wheat crop at 14.83 million acres (15.62 million last year).
With recent late winter snowstorms, moisture levels on most of the U.S. plains are becoming ideal, with the early promise of another year of ideal yields. However, if weather problems do develop, there is potential for a tight market.
Another surprise is that U.S. soybean acreage is expected to increase again this spring even though the price has plunged, supply at the end of the crop year will be high and there are good competing crops in South America.
Sparks estimates soybean acres will grow to 74.6 million, up from 72.4 million acres last year. Why? Because beans are less risky than corn.
The federal floor price for soybeans is higher than for corn and it costs fewer dollars per acre to put beans in the ground than corn or cotton.
U.S. producers have had disease problems with wheat. Cotton prices have been bad. Also, soybeans are less affected by drought and there is some indication that following La Nina events, the U.S. Midwest tends to be dry.
So analysts are betting that soybean acreage will increase.
The first real test of this theory will be the March 31 seeding projections report from the USDA.
