Chip Flory: Watch Macro, Live Micro

January 8, 2018 10:04 AM
Chip Flory

Changes in an operation are driven by opportunity and by necessity. Of course, farmers prefer to change when opportunity comes knocking, rather than being forced into unfamiliar territory. For years, growers have willingly adopted new seed and crop-management technology to grow more. The results have been nothing short of phenomenal.

Looking back at 2017, the corn crop will be remembered for years to come. Southern bushels replaced those lost to drought in northwestern production areas. In the middle of the country, many are left wondering if the corn crop is bulletproof. It’s not, but technology and management seem to have reduced yield risk.

Soybean yields are also gaining resiliency against less-than-ideal growing conditions, and it seems wheat always manages an eleventh-hour recovery from crop stress.

The “extra bushels” many growers squirreled away this fall once again moved break-even prices lower. In the micro-economic world of individual operations, those bushels brought unexpected end-of-the-year financial stability for some. And corn’s ability to yield is making for tough acreage-mix choices for 2018.

Macro speaking, changing global consumption trends have forced fairly simple acreage shifts from one crop to another in recent years. But for the 2018/19 marketing year, the market will have to work harder to send the right signals to producers to correctly divvy up acres.

Global soybean demand growth in recent years has propped up prices—a bit. Growers have responded by increasing acres. Global oilseed production in 2017/18 will outpace total consumption by an estimated 15.7%, allowing oilseed ending stocks to expand 2.2% from year-ago. Looking only at soybeans, global production is estimated 1.1% higher than total use and ending stocks are expected to increase 1.8%.

The lagging price performance in corn and other feed grains was the market’s signal to reduce corn acres, and you responded. Global coarse grain production, which includes corn, is expected to be 2.3% smaller than consumption in 2017/18, resulting in an 11.5% cut in ending stocks. Looking only at corn, global production is estimated to be 2.2% smaller than consumption with ending stocks estimated to fall 10.2% from a year ago.

In fact, looking at all crops, global consumption is expected to outpace production in 2017/18. It’s happened before, most recently in 2012/13 coming off the U.S. drought. Global crops for 2017/18 were good, but not good enough to keep up with total demand, especially for feed grains.

That’s what I’ll remember most from 2017. Up until now, the market had a relatively easy job of shuffling acres, but not anymore. Eventually, it will send the right signals to balance needed feed grain production against growing oilseed demand. That means more competition for acres—a contest that’s likely to start now.

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