FORT COLLINS, Colo. (Reuters) - The United States is expected to have a more modest corn and soybean inventory later this year than a year earlier, but the lighter stockpiles could be just a flash in the pan as millions of acres that sat idle last year are due to re-enter the mix.
U.S. farmers planted only 165.8 million acres of corn and soybeans in 2019, down 11.6 million from pre-spring intentions and 12.2 million acres fewer than the year before. Extremely wet conditions caused severe delays in field work, and a record number of acres could not be planted.
Although it brought grief to a lot of growers, last year’s planting woes saved the United States from having potentially out-of-control stockpiles, especially for soybeans. But if planting goes smoothly, the significant boost in acres could overwhelm the market with supplies of both crops toward the end of the year, especially with a return to normal crop yields.
Chicago-traded corn and soybean futures currently suggest that soybeans are the less attractive option compared with corn, though soybean acres should still have a relatively larger year-on-year gain due to how thin they were in 2019.
U.S. farmers will be closely watching CBOT futures over the next four weeks as those prices may have a hand in what they decide to plant. Some of the more elevated February prices in recent times have been driven by supply concerns in South America, almost always caused by unfavorable weather.
But South America does not seem to have drawn the short straw this year, so farmers will be largely looking to demand to support prices, and a lot of that will likely ride on whether China starts stepping up U.S. agricultural purchases as stated in the Phase 1 trade deal.
The average prices of CBOT December corn and November soybeans during February will set the insurance guarantee to U.S. farmers for the 2020 harvest under the revenue protection program of the U.S. Department of Agriculture’s Risk Management Agency (RMA).
Those average prices reflect a level of assumed risk by a U.S. farmer to plant corn or soybeans in the upcoming growing season, though the potential financial impact is variable depending on individual production histories.
A U.S. farmer would likely say that corn prices at or above $4 per bushel and soybeans at or above $10 are most preferable, but that may be a pipe dream for soybeans. The November contract ended at $9.16 per bushel on Thursday after reaching eight-month lows.
December corn prices have averaged $4 per bushel so far in January, but that trend has been downward. Thursday’s settle of $3.90-1/2 is the lowest yet of the year.
The new-crop futures ratio, measuring November soybeans to December corn, is a good indicator of relative profitability for U.S. farmers. Values above 2.5 favor soybeans and below 2.3 favor corn, especially in “fringe” areas where farmers are less locked in to rotational planting. Values in the middle are more of a gray area.
That ratio finished at 2.35 on Thursday, certainly leaning more toward corn.
The lowest soybean insurance price in recent years was $8.85 per bushel in 2016, and that also marked the recent corn low of $3.86. That ratio of 2.29 heavily favored corn that year and plantings surged 6 million acres over the previous year versus a rise of less than 1 million for soybeans.
February is also price discovery month for spring wheat, which is set by the September Minneapolis wheat contract. North Dakota plants roughly half of the U.S. spring wheat area.
U.S. farmers will begin reporting acreage plans to USDA in just four short weeks, and the results of that survey will be featured in the annual prospective plantings report, due at the end of March.
In early November, USDA tentatively set 2020 U.S. corn plantings at 94.5 million acres and soybeans at 84 million, up from 89.7 million and 76.1 million, respectively, in 2019. These figures are subject to change in three weeks when USDA holds its annual Outlook Forum in Washington.
The November projections suggest the 2020 soybean crop at 4.2 billion bushels, some 642 million bushels or 18% more than the previous year. In prior years, harvests of that size were generally accompanied by extremely robust demand in order to keep the year-end supply at reasonable levels.
That broke down last year amid the U.S.-China trade war, and U.S. soybean stocks surged to all-time highs due to the loss of exports. Most market participants still have a lukewarm attitude toward U.S. soy exports, remaining skeptical over China’s recent promises to substantially boost U.S. farm imports.
Three weeks ago, USDA pegged U.S. soybean carryout for 2019-20, which ends Aug. 31, at 475 million bushels, down nearly 50% from the previous year, but still historically high.
Late last year, USDA saw the 2020 U.S. corn crop at a record-high 15.545 billion bushels, up 1.85 billion bushels or 14% on the year. USDA’s current 2019-20 ending stock peg is 1.892 billion bushels.
In its baseline projections, the agency was not shy about what impact such a large corn crop would have on supply. Although the estimates were formed in October, USDA slated 2020-21 U.S. corn ending stocks at 2.75 billion bushels, the highest in more than 30 years.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis