CHICAGO (Reuters) - (The opinions expressed here are those of the author, a market analyst for Reuters.)
The U.S. government clings to a relatively optimistic view on domestically grown soybeans for the long term, though the prognosis for corn is less encouraging.
Soybeans, however, could find themselves in the same boat as corn if this year’s projected soy demand proves too lofty.
The U.S. Department of Agriculture on Tuesday published key tables from its annual baseline projections for U.S. agriculture. The full report – which covers the next 10 years – will not be available until February, but the tables give market watchers a first look at balance sheets for 2018/19 and beyond.
One of the main takeaways from Tuesday’s tables is the shift in focus toward soybeans, as both supply and demand elements received a significant boost over last year’s outlook. The uptick in supply, in particular, was much needed given that year-ago planting assumptions sorely missed the mark in 2017.
Heavier demand – led almost entirely by a lift in exports – is set to balance the additional supply, as next year’s total soybean use is slated to be 7 percent larger than the year-ago forecast for 2018/19. (reut.rs/2AJZ9hC)
The reliance on exports could be dangerous, though.
If 2017/18 exports fall short of the record 2.25 billion-bushel forecast – which many analysts fear might happen – soybeans might end up going the way of corn, where supply overpowers demand and ultimately, prices.
Oversupply continues to be the theme in the corn market as the ethanol-led rise in use is not expected to outweigh larger crops next year and beyond. Future area and yield targets are even larger than the year-ago predictions.
This means that without any global supply shock, the 2017/18 carryout of 2.487 billion bushels – a 30-year high – would be the smallest domestic corn stockpile for at least another decade.
That contrasts with the year-ago outlook which called for more evenly matched increases in both supply and use, as well as a shrinking trend in carryout over the next 10 years. (reut.rs/2zPew8y)
The planted area and yield numbers for the 2018/19 corn and soybean crops are the most immediately useful numbers because they are a good indicator of what USDA’s first official forecast is likely to reflect.
Soybean plantings are set to reach a new record of 91 million acres in 2018, topping the 90.2 million high from earlier this year. The agency sees U.S. farmers maintaining bean acreage in the low 90 million-acres range over the next decade. (reut.rs/2zP5UyT)
Corn acres are also seen at 91 million acres in 2018, slightly edging the 90.4 million from this year, though plantings will steadily decrease over the coming years. (reut.rs/2AHjIvk)
Combined corn and soy plantings topped 180 million acres for the first time ever in 2017, and USDA’s numbers push that total to 182 million in 2018. Although an increase in total row crop acreage is one explanation, further cuts to wheat will allow for the corn and bean expansion.
U.S. wheat plantings in 2018 are seen slipping to 45 million acres from this year’s 46 million. USDA does not soon expect a revival in wheat acres, which will likely remain near 100-year lows for the next several years. The year-ago projection for 2018 was 49 million acres.
Additionally, higher corn yields may work to support corn acreage because despite the lower prices relative to recent years, the profitability potential might not look as bad if farmers can raise more bushels.
USDA’s trend-line 2018 corn yield of 173.5 bushels per acre was unheard of prior to 2016 when yield shot to an all-time high of 174.6 bpa, well above the initial trend of 168.1 bpa. (reut.rs/2AIadfj)
The 2017 yield will break that record if the current peg of 175.4 bpa holds. The year-ago trend yield for the recently concluded harvest was 170.8 bpa.
Next year’s soybean yield will start out at 48.4 bpa, lower than this year’s estimated 49.5. The year-ago trend for 2017 yield was 47.9 bpa. (reut.rs/2zNZsYF)
USDA will present more detailed 2018 harvest scenarios at its annual Agriculture Outlook Forum at the end of February. These numbers may be slightly different than in the baseline projections, but the yield figures are the most likely to remain unchanged.
Editing by Matthew Lewis