CHICAGO (Reuters) - U.S. corn and soybean yields are shaping up to be larger than many analysts originally thought, but the production volume could get an additional boost from an increase in planted acres.
This is not exactly pleasant news for market bulls with domestic corn supply at a 29-year high and soybean reserves the largest in a decade. Swelling inventory, both domestically and globally, has been a heavy weight on futures prices throughout the year.
The implications of extra acres may be greatest for soybeans, while additional corn supply might not be as noticeable. But both crops could completely offset the production gains offered by the extra acres with slightly reduced yields, something that may still be in the cards.
U.S. wheat inventory has also reached the highest levels in nearly three decades, but that is projected to fall significantly over the next year and a potential loss in acres could push it even lower.
U.S. producers participating in government programs, such as Agriculture Risk Coverage and Price Loss Coverage, are required to report all cropland use to the Farm Service Agency within the U.S. Department of Agriculture. The FSA runs the farm commodity, credit, conservation, disaster, and loan programs.
The reporting of planted acres, as well as failed and prevented acres, takes place throughout the growing season. The FSA acreage data is first published in incomplete form in August and each month thereafter until January, when USDA finalizes the previous year’s balance sheets.
USDA’s statistics service NASS will make changes to corn and soybean planted acreage based on the FSA data for its October report, if necessary. The adjustments for wheat would appear in the September small grains summary and are considered final. These reports are expected on Oct. 12 and Sept. 29.
As of Aug. 1, some 86.8 million planted acres of corn were reported by U.S. growers. This represents 95.5 percent of what NASS reported in its June 30 acreage report, which is above the five-year average of 93.6 percent and below last year’s rate of 96 percent.
Soybean plantings were reported at 88.2 million acres, some 98.6 percent of the June 30 figure, above both the five-year average of 95.4 percent and last year’s 97.2 percent.
FSA data showed reported wheat plantings at 42.76 million acres as of Aug. 1, which is 93.7 percent of the June acreage number. The five-year average is 92.5 percent.
June acreage placed U.S. corn plantings at 90.9 million acres, soybean plantings at 89.5 million acres, and wheat plantings at 45.7 million acres. These are the figures that USDA is currently using in the 2017/18 balance sheets.
Considering the completeness of the FSA dataset and factors that influence planting decisions, corn planted acres have a moderate chance of coming in higher than the June figure. Soybean plantings have high chances of increasing and wheat acres have moderate to high chances of decreasing.
On average over the past five years, final corn plantings ended up 6 percent higher than what was reported on Aug. 1. Soybean and wheat plantings ended up 4 percent and 7 percent higher, respectively. But these figures are too large for this year given that the reporting is likely more complete than usual.
Final soybean acres are likely to break 90 million for the first time ever. Under the most aggressive scenario of 91 million acres, they could top corn acres for the second time in history. However, it is more likely that soybean plantings end up between 90.2 million and 90.6 million acres.
There is a chance that corn acres slip by less than half a percent, but the more feasible scenario is that corn plantings land between 90.9 million and 91.4 million acres. The implied upside on corn is not as large as that for soybeans.
Final wheat plantings could drop as low as 45.1 million acres, but a modest decrease to 45.4 million or 45.5 million is the most probable outcome.
A rise in corn and soybean inventory under more acres should not be burdensome unless yields end up higher than currently projected, and this would be the most noticeable for soybeans.
USDA earlier this month placed U.S. corn and soybean yields at 169.5 and 49.4 bushels per acre, respectively, both of which were larger than the market expected. Last week following the Farm Journal Midwest Crop Tour, advisory service Pro Farmer projected these numbers at 167.1 and 48.5 bpa, also larger than what many anticipated.
With 49.4 bushels per acre, the extra soybean acres would add between 30 million and 80 million bushels to production, pushing it over a never-before-seen 4.4 billion bushels. USDA’s current target is 4.381 billion, nearly 2 percent larger than 2016’s record-setting harvest.
USDA has new-crop soybean carryout at 475 million bushels, so without an increase to demand or decrease in yield, this figure could push 500 million.
But the model is sensitive to yield, which many analysts believe still has some downside based on less-than-ideal August weather in some key states. Under the highest planting scenario of 91 million acres, a yield of just 48.5 bushels per acre would offset the production gains.
If soybeans were not hurt by adverse weather as much as analysts think and USDA’s yield estimates start to trend upward as they have in recent years, the extra supply could add up quickly. Should yield reach 50 bpa even under modest acreage assumptions, it could add nearly 100 million extra bushels into the ending stocks.
But soybeans have strong demand on their side, and increases equally as large – particularly in exports – are very realistic over the next year. However, the risk is that the robust demand and large harvest simply offset, meaning current carryout levels would be maintained instead of trimmed – something futures traders would certainly notice.
The highest corn acreage scenario would add 80 million bushels to production, but this is a less significant impact than for soybeans as the corn harvest is pegged at 14.2 billion bushels and the new-crop carryout at 2.273 billion. A yield of 168.6 bpa would completely offset those additional plantings.
On wheat, the lowest acreage scenario would reduce production by 23 million bushels under current yield assumptions. USDA predicts 2017/18 wheat carryout at 933 million bushels, some 21 percent lower than year ago.
(The opinions expressed here are those of the author, a market analyst for Reuters.)
Editing by Matthew Lewis