Lower Prices Influence Crop Mix

January 7, 2017 02:47 AM

Soybeans are rising to challenge King Corn as profit leader

Every crop decision you make must take into account a variety of information. The editors at AgWeb.com are taking a look at experts’ projections for several commodities in 2017 to help you succeed and be profitable in the coming year. Take these industry projections into account, along with your individual production data and resources, to develop a long-term profit strategy for your operation in 2017 and beyond. While you might encounter a few bumps in the road, a flexible plan will keep you on the path to improved production and profitability. 

Can ‘King Corn’ Keep its Crown?
The king of the crop world might lose ground in 2017 as weak prices combine with more appealing profits on alternative crops.

“We expect to see a drop in corn acreage and a jump in soybean acres in 2017,” says Pat Westhoff, director of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. “If you look at prices today it says plant beans, don’t plant corn.”

He warns, however, input prices might reduce soybeans’ advantage. “Corn looks better when fertilizer prices are lower,” he says. “It gets more complicated when you look at futures—corn prices look better in December 2017 than today.”

This isn’t the first year farmers have taken a harder look at swapping out corn acres for soybeans.

“Farmdoc showed this is the fourth year in a row where soybean profits beat corn profits in Illinois,” says Matt Bennett, corn and soybean farmer and owner of Bennett Consulting. “But now input prices have affected corn profitability and rotation is so important. I’m encouraging producers not to just make the assumption the best thing to do is plant more soybeans.”

Although lower inputs might improve the chances of making a profit with corn, FAPRI research still predicts a drop in corn acres and a jump in soybean acres. As of December, the group predicts corn will drop from 94.5 million acres in 2016 to 90.9 million acres this year. Soybeans should jump from 83.7 million acres to 86.6 million acres in 2017.

Prices could improve in 2017. Corn likely won’t climb as high as $5 without a massive weather event, but Westhoff still expects price recovery with more normal weather conditions.

“Last year’s season average was $3.35 and FAPRI expects 2017’s to reach $3.62—nearly a 30¢ jump,” Westhoff says. “But, as always, we’ll have surprises.”

In addition to encouraging prices, a weather event would lower average yields, which would help work through massive stocks, Westhoff adds.

The U.S. has its own massive supply of corn, but it’s not the only country in this situation. China does too, Westhoff says.

“China has changed policies to allow corn prices to drop in the country,” he says. “That’s positive for demand in the long run, but in the near term it means they’re going to be working to draw down their large government stocks. So it’s unlikely they’ll be a major importer in the short run.”

Westhoff also encourages farmers to pay attention to South American weather and policy and how it will impact worldwide supply.

When it comes to marketing in 2017, Bennett encourages farmers not to dwell so much on the mistakes they made in 2016 but rather the “why” behind each marketing decision. “Our priority needs to be locking in profitability on our farm when it’s there and managing risk when it falls to levels we don’t expect,” he says.

It’s important to go into the year with a plan, know breakeven levels and avoid putting all your eggs in one price basket, he says.

“Start [selling] in small increments before you know production and get more aggressive once production is known,” Bennett adds.

Domestic and foreign weather and stocks can impact prices quickly.

“Don’t make marketing plans based on any single current market projections,” Westhoff says. “Think about what you’ll do in numerous situations and consider downside risk in each situation.” - By Sonja Begemann

Soybeans Eye China Demand Versus South America Supply
The U.S. soybean market in 2017 will continue to feel the effects of China’s insatiable appetite. But it could face headwinds from a stronger U.S. dollar and a larger South American crop.

“China’s robust buying pace continues to be on target for the growth rate we’ve seen in recent years, suggesting final demand just above 102 MMT, up about 1.5 MMT from USDA’s current estimate,” says Arlan Suderman, chief commodities economist, INTL FCStone in Kansas City, Mo.

About half of U.S. soybean exports go to China, which is roughly one-third of the U.S. soybean crop, according to estimates by ag economists.

USDA’s current 2016/17 export forecast for soybeans is 55.8 MT (2.05 billion bushels), an increase of 5.9% from 2015/16.

The increase in demand for soybeans in China and elsewhere is partly driven by the expansion of hog and poultry operations and the increased need for soybean meal.

“Expansion in the poultry and pork industries should be good for soybean demand, both domestically and globally,” Suderman says. Poultry is the largest consumer of soybean meal protein, and per-capita poultry consumption is increasing globally, he adds.

China’s economic growth and modernizing hog industry is increasing soybean demand, adds Chad Hart, ag economist, Iowa State University.

Soybean demand is increasing in the U.S. as well, Suderman notes. “NOPA [National Oilseed Processors Association] crush for soybeans posted its third-largest record month in October in a year when export demand is largely expected to be steady with the previous year,” he says.

With increasing demand, global soybean production is set to go up 22.9 MMT to a record 336.1 MMT for 2016/17, according to USDA. 

In addition to demand, keep an eye on U.S. and China trade relations and the strong U.S. dollar.

“All things considered, I will be closely monitoring developments in our incoming president’s administration and if naming China as a currency manipulator as outlined in his first 100-day plan will impact China’s attitude when it comes to trade,” says Angie Setzer, vice president of grain, Citizens Elevator in Charlotte, Mich.

Meanwhile the U.S. dollar has hit a 14-year high, weakening Brazil’s real, the top U.S. soybean competitor, and Argentina’s peso, making their exports cheaper.

“The greatest challenge for ag commodities is the strength of the dollar,” Suderman says. “That’s not a significant problem for U.S. soybeans right now because there are few alternatives.”

But that will change in early February when South American farmers head to the fields for an early harvest and the real is weaker. At that point, demand will shift to South America and stay there until September if yields are normal, Suderman says.

Despite current demand levels, there are some uncertainties about China’s demand for 2017.

“The size of China’s 2016 domestic soybean harvest, as well as the timing and rate at which the government auctions off its reserve stocks, will influence the country’s 2016/17 import demand,” explains Mark Ash, economist, USDA–Economic Research Service.

Incentives to further expand 2017 soybean production in China will likely be affected by the rate at which the government auctions off reserve corn stocks, he adds.

With the largest U.S. soybean crop in the bin and record soybean plantings expected in the U.S. and South America, soybean futures are posting lower for the 2017 crop.

More soybean acreage could drive prices down further, Ash cautions. “Any indications U.S. farmers will increase 2017 soybean acreage more than expected will apply more downward pressure on prices,” he says.—By Debra Beachy

Global Glut Pushes Down Wheat Prices
Analysts expect an even greater global wheat glut in 2017 to drive down prices and whittle away at acreage.

After three consecutive years of high world wheat production and carry- out, USDA estimates a third record global wheat harvest of 751.26 MMT will come in 2016/17, which will send carryover to a record 252.14 MMT.

“The perceived oversupply of wheat continues to weigh on the market. Record high global supplies, coupled with the idea of a record crop coming out of Australia, will keep a lid on prices short-term,” says Angie Setzer, vice president of grain, Citizens Elevator in Charlotte, Mich.

Producers struggling with low prices are looking at switching acres to other more profitable crops.

“A lot of farmers are moving away from wheat and going to soybeans, corn and lots of milo,” says Greg Thurman, a custom harvester in Kiowa, Kan. 

Thurman, who is also vice president of U.S. Custom Harvesters, says canola is picking up the slack. “We tripled canola acres compared to what we have been doing,” he says. 

Analysts project farmers will plant less wheat for the second year in a row.

“The expectation is we will see a significant reduction in winter wheat acres, and likely a reduction in spring wheat as well as current price relationships,” explains Arlan Suderman, chief commodities economist, INTL FCStone in Kansas City, Mo.

Overall wheat acres could decrease by 7% to 10%, although in some areas they might actually increase, Suderman notes, including Oklahoma and surrounding Southern Plains states. Those expectations would be in line with USDA projections for 50.2 million planted wheat acres and a harvest of 43.9 million acres in 2016/17, Those figures are down from 55 million planted acres and 47.3 harvested acres estimated for 2015/16.

One potential bright spot is an increase in wheat exports. USDA is projecting exports of 975 million bushels for 2016/17, which would be 200 million more bushels, or a 26% increase, than the 775 million bushels export estimated for 2015/16.

However, a significant amount of wheat with low test weights and protein could result in much lower prices, especially with hard red winter (HRW) wheat, cautions Kim Anderson, Extension agricultural economist, University of Oklahoma. 

It doesn’t cost much to store wheat and wait for higher prices, he adds, but prices are projected to head lower.

USDA estimates a third year of back-to-back falling prices, with the average wheat farm price for 2016/17 at $3.60 to $3.80 per bushel. That would be lower than the estimated 2015/16 farm price of $4.89, and roughly 60% less than the 2014/15 price of $5.99.

As with other crops, there’s always the China factor to consider. That’s because China holds an estimated 44% of the world’s wheat, which means “actual global supplies remain somewhat of a wild card,” Setzer says.

“Any type of reduction in projected Chinese supplies coupled with a North American production scare could send wheat soaring higher,” she says.

However, with a decrease in fall acres and questionable growing conditions in many areas, wheat production could drop significantly and perhaps attract buyers’ attention, Setzer adds. —By Debra Beachy

Cotton, Rice Stuck in Static Markets
Despite a tepid forecast, cotton growers won’t “spit the bit” in 2017, particularly with no safe haven crop in sight, but rice producers might be in for a significant acreage dip.

The echo of a 17% jump to 10 million acres in 2016 is fading fast for the U.S. cotton industry. With prices perpetually caught in the doldrums, shifts between 65¢ to 75¢ make for a sub-profitable cash 
price, the third year of inadequate or subsistence-level pricing for growers. 

John Robinson, Texas A&M University Extension cotton economist, doesn’t see much cause for change and expects Dec. 17 futures to trade between 63¢ and 75¢.

“We have a cluster of financial stress, carryover debt, banking concerns and production problems in some areas, and a lot of growers, at least in Texas, can’t really switch to grain,” Robinson says.

Signals from the futures market indicate scant change in demand for now. In 2016, China whittled down its 
50-million bale reserve by shaving off 11 to 12 million bales, yet didn’t crater the market. However, Robinson expects China’s influence to remain in 2017, depending on how much of the reserve they unwind. “We’ve been in a weak demand situation for several years and may not get pulled out soon. All said, I expect prices will stay in the current range,” he says.

Flat cotton prices and relatively weak grain prices might mean growers will hold the line on cotton acreage this year.

“Sometimes you can ease price pain by packing on pounds and good grades, but most growers are already stretching their crop to the fullest,” Robinson says. “Financial stress is a fair description for cotton in 2017.”

Likewise, rice prices are tottering in a see-saw motion, which doesn’t bode well for 2017. Two of the biggest sales of the 2016 marketing year were registered in November, but they didn’t provide enough fuel for a rice market fire—prices haven’t responded and trends can’t seem to find traction. When rice prices top out at $10.30 cwt then fall to $9.70 cwt, the market is trapped in a cough-and-sputter cycle.

Jarrod Hardke, rice Extension agronomist with the University of Arkansas, expects Mid-South rice acres to fall by 15% to 20% in 2017. He forecasts Arkansas at roughly 1.2 million acres; Missouri at 200,000 to 220,000; Mississippi at 180,000; and Louisiana at 420,000; for an approximate total of 
2 million Mid-South rice acres.

Hardke is hoping for sudden market interest, but doesn’t know where it might surface. “We already know our domestic demand, but we’re looking for something to pop up on the international market,” he says.

From a grower perspective, Hardke believes 2017 will be another year to weather the storm. Tremendous acreage in the Mid-South is uniquely suited to grow rice, and when rotated to other crops, doesn’t hit high yields.

“The market for rice growers in 2017 isn’t great,” Hardke adds. “I’d say everybody is disappointed and I don’t see many positive outlooks. Most people are just hoping to tread water.”  — By Chris Bennett

Has Sorghum Lost Its Momentum?
It appears the pendulum has swung back the other way for sorghum. This crop enjoyed a large uptick in acres in 2016—from 7.1 million acres to 8.5 million acres. But the latest estimates from USDA indicate sorghum is poised to lose all that ground, and then some.

The projected 2016/17 acres will drop to 6.8 million acres, according to USDA. Some market fundamentals go far in explaining the reduction in acres, including higher stocks and lower prices. The 2016/17 estimated price range is $2.80 to $3.40 per bushel, down from $3.31 a year ago and $4.03 two years ago.

Several other factors could become obstacles for sorghum, says John Holman, associate professor of cropping systems, Western Kansas Agricultural Research Center.

“With the challenges we have had recently with sugarcane aphid and weeds in sorghum, and with China backing away from buying sorghum, we might see a slight shift to more dryland corn acres,” he says.

Other obstacles are apparent for sorghum farmers, adds Paul Hay, University of Nebraska Extension educator. In the southeast part of the state where he works and lives, Hay has seen sorghum acres slink from 174,000 acres in 1980 all the way down to 3,000 acres. He ticks off a multitude of reasons why this has happened: 

“The profitability of corn is better,” Hay explains. “Corn has become more drought tolerant. The upward yield potential is better with corn. There are better weed control options. The corn price is usually more favorable. Corn dries and stores easier. And the crop insurance flip from corn to milo (or reverse) 
is problematic.”

Hay is optimistic some badly needed post-emergence grass control options will hit the market soon.  —By Ben Potter 





Back to news


Spell Check

No comments have been posted to this News Article

Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by QTInfo.com
Brought to you by Beyer