By John DePutter & Dave Milne – November 6, 2018
“As China soy demand wavers, U.S. farmers turn back to grains.”
– Reuters, Nov. 2, 2018
What it means:
More production of corn, wheat ahead.
With China cutting back on soybean imports in 2018-19 – and some reports suggesting the reduction could be as great as 10% – U.S. soybean ending stocks are currently forecast by the USDA to surge to a price-crushing 885 million bu. As it should, the soy market is telling producers now they should consider other cropping choices for 2019.
Of course, the two most obvious choices are corn and wheat. Other smaller crops will probably pick up some acres as well, but it’s a safe bet most producers looking to reduce their reliance on soybeans will seek out the former first.
The problem is, farmers may overproduce themselves into another problem. In its first look at new-crop planted area, the USDA’s Office of the Chief Economist last week pegged 2019 U.S. corn acres at 92 million, up 3.2% from this year’s planted area of 89.1 million, while wheat area was estimated at 47.8 million acres, up roughly 6.7%.
(In contrast, American soybean planted area is projected at 82.5 million acres, down 6.6 million acres or 7.4% from 2018, and potentially the lowest since 76.8 million acres were planted in 2013).
Now, before we go any further here, understand that these predictions are shots in the dark. After all, farmers across the U.S. tend to stick to their basic rotations with just minor variations in response to prices. And with wet weather hampering seeding of winter wheat, some acres intended for wheat will have to be switched to other crops including soybeans. Plus, the Trump administration is making payouts to soybean growers to soften the blow of low prices. As a result, the USDA folks might be over-stating the swing out of soybeans and into corn and wheat.
However, all factors considered, it’s a good bet the direction of soybean acres in 2019 is down – while total area to corn and wheat is up – even if it’s questionable by how much.
Weather still matters, but more acres set the basic stage.
It’s important to recognize also that a larger planted area certainly doesn’t guarantee a bigger crop – the weather must cooperate as well.
But in the absence of an absolute catastrophe like 2012, it’s a good bet that constantly improving crop genetics and steadily increasing yields will mean that just ok weather could result in large supplies of U.S. corn and wheat in the 2019-20 marketing year.
Demand remains strong of course – world consumption is growing year by year – but it seems the production side still has more upside potential, especially if next year’s weather is average or better.
Not just U.S. This is a global shift.
Meanwhile, it’s not just farmers in the U.S. and Canada who may be looking to cut back on soybeans next year and grow more wheat. In its latest Grain Market Report, the International Grains Council said it is projecting an expansion in world wheat area for the 2019-20 harvest, the first gain in four years.
And it’s worth noting that at an estimated 1.074 billion tonnes, global corn output for 2018-19 is already up from 1.048 billion a year earlier, so supplies could take another major step up in 2019-20 with an increase in planted area.
More and more, it takes a sharper and sharper pencil for producers to maintain a positive margin. Let us help you with our weekly DePutter Market Advisory Service newsletter for Western Canada, and Ag-Alert for Ontario and east.
P.S. – These services warned for five years that there would come a time when the soybean market would swing to such a low price level as to discourage acreage. That time has come.
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