On Your Mark, Get Set

January 23, 2018 08:08 AM
 
As “go time” nears, farmers evaluate the markets to finalize cropping decisions

Commodity prices and export demand heavily influence the crops farmers plant each year, and this season will be no exception. With that in mind, Farm Journal editors have evaluated the outlook for five key crops to give you a snapshot of what to expect in the marketplace with each of them in the near future.

King Corn Dethroned. In the race for acreage, corn might take a step back this year. USDA projects corn and soybeans will both reach 91 million planted acres in 2018—the first time in years the two are equal.

“We’re going to lose some wheat acres, and everyone I talk to in the south indicates there will be more cotton acres than in 2017—some of those acres will come out of corn and soybeans,” says Chip Flory, Farm Journal economist. “I think we’re going to lose corn and soybeans to spring wheat up in the Dakotas. I like 90.5 million acres on both for a 181 million corn and soybean total.”

The hope is for improved prices. “USDA is projecting a $3.30 average for 2018, but futures have been stronger than that,” says Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri.

Domestically, corn demand is strong, with ethanol and livestock feed driving potential growth. For producers who live near ethanol plants or feedlots, planting corn could be their best choice.

“Look at hog and cattle prices. If you’re a farmer-feeder it makes sense to move that corn off the farm on the hoof rather than on the truck,” Flory says. “When you get into corn deficit areas, such as Northwest Iowa, and start looking at cash markets there is a book to be written in opportunity.”

The size of the South American soybean crop will also impact U.S. corn prices and acres this year. “Watch exchange rates; they have been moving around a lot and could bring a surprise,” Westhoff notes.

Chinese demand for U.S. corn could see an uptick in 2018 as the country’s domestic stocks dwindle and its leaders develop plans to expand ethanol use to up to 10% of their fuel supply, Westhoff adds.

Strong Outlook for Soybeans. Demand has been key to the soybean market, which has experienced year-over-year growth. But back-to-back record crops mean even more robust demand growth is needed.

“The U.S. share of trade with China has dropped to about 30%, while Brazil’s market share of the top market has expanded,” says Pro Farmer Editor Brian Grete. “The good news for the U.S., however, is it has made substantial gains in market share to all other markets. Continued U.S. export demand growth outside of China will be critical as production and ending stocks rise.”

The new-crop soybean-to-corn price ratio favors soybeans over corn, suggesting soybean acres could rise again, adds Bill Nelson, Doane Advisory Services senior economist. “While price isn’t the only factor in planting decisions, the trend has been for more soybeans as financial conditions tighten,” Nelson says.

Stronger-than-expected crushing, possible outperformance of Chinese soybean import demand and potentially problematic South American weather are compelling issues that might lead to better-than-expected soybean demand into at least the start of the 2018/19 marketing year.

Little Hope for Wheat Prices. In 2017, wheat acres fell to their lowest total in 108 years.

“We don’t have prices to support wheat production,” says Joe Vaclavik, president of Standard Grain.

Farmers in just a few regions could make a case for planting wheat, says Arlan Suderman, chief commodities economist for INTL FCStone. Yet he expects a 4% to 6% drop in acres.

“We have some parts of the country, particularly in the High Plains, where they don’t have a lot of alternatives,” Suderman says. Farmers there plant wheat as a cover crop for grazing and will decide in the spring whether to fertilize and save it for grain.

Globally, other wheat-producing countries are in expansion mode. “Currency exchange rates are encouraging expansion overseas while we contract acres,” he says. “We need to go for the quality market; farmers here really need to plant for protein wheat and sell it as such.”

For U.S. wheat prices to rebound, major weather challenges will have to prevail in one or more major wheat-producing parts of the world, Suderman notes. “And right now, there’s none on the horizon,” he says.

Steady Cotton Acreage Possible. Barring the unexpected, a big acreage change from 2017 doesn’t appear on tap for U.S. cotton. “With the exception of 2011, which is an outlier due to the high price situation, acreage hasn’t been above 12.6 million since 2006,” says Jody Campiche, vice president of economics and policy analysis for the National Cotton Council.

However, the farm bill is a major concern for the industry. The Cotton Ginning Cost Share program and the question of whether cottonseed will be considered an oilseed eligible for Price Loss Coverage (PLC) under Title I of the farm bill are key issues, says Don Shurley, Extension cotton economist with the University of Georgia.

In the Southwest, projected cotton prices are still better than corn and wheat prices. In the Mid-South and Southeast, cotton is an attractive alternative unless prices drop, Campiche says. The large peanut supply could translate to increased cotton acres.

Farmers should keep an eye on India’s export and production levels and the possibility China might loosen import caps, Shurley notes.

Grain Sorghum Climbs On Early Seed Sales? U.S. farmers planted 5.7 million acres to grain sorghum in 2017. Based on early seed sales and a strong fall export market, grain sorghum acreage could be in line for a strong increase in 2018.

The farm bill is the top-tier issue going into 2018, notes Tim Lust, CEO of National Sorghum Producers. “Many of our growers chose PLC the first time around, but many didn’t, and they’re looking forward to the option or opportunity to switch.”

With NAFTA renegotiations underway, trade is front and center. Typically, 40% to 60% of U.S. grain sorghum is exported. China is responsible for 80% to 90% of export consumption, a remarkable number considering China bought virtually  no grain sorghum in 2013.

Lust believes a healthy export target is 40% to 50%. Most of the success in China has been on the feed side but the country has a massive alcohol market that uses grain sorghum and remains untouched by U.S. exports.

He says domestic human consumption is the fastest growing segment of the grain sorghum industry.

“A lot of that is driven by contract acreage, which is great for growers,” Lust explains.

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