For example, old crop corn is stock heavy, but declines in new crop corn acreage are a positive. World soybean demand is extremely strong; on the other hand, the United States can’t keep producing 3 billion bushel crops year after year. Wheat acreage is down again and this year’s wheat crop could have some problems, meaning wheat prices could take a turn for the better. But haven’t we been hearing that for the last three years?
One way to get an understanding of what farmers think about the various crop outlooks is to take a look at the universe of all the crops planted in the United States this year. If you add it all together, oilseeds, cotton, feed grains, etc., you come up with 253.1 million acres, 3.4 million below last year and the lowest total acreage since the beginning of Freedom to Farm in 1996.
Corn is a big loser in early projections, dropping to 76.7 million acres because of high cost of nitrogen costs and the distortion between the corn and soybean loan rate, which caused some significant shifting into beans from corn.
At that acreage, a 138-bushel corn yield would produce a 9.6 billion bushel crop. With use at 10-billion bushels, the bottom line is about a 400-million bushel decline in ending stocks for corn for 2001/2002.
Another thing to consider is that over the last five years, corn acreage increased an average of one-tenth of a percent between USDA’s early projections of acreage and estimates of actual acreage, noted Joe Victor, market analyst with Allendale Inc. That means that when all is said and done, U.S. corn acreage could come in around 77 million acres.
While corn acreage is down, corn stocks are still burdensome, the analyst added. “This is a pure example of what Freedom to Farm has metamorphosed into. At 6 billion bushels, we have to go back to 1981/82 to find corn stocks that high.”
An interesting price parallel is that the April high for July futures in 1982 was $2.14, about where the board is now, noted Victor. “We’re positive for new crop, but negative for the old crop. We’ve got to get this stuff out of here someway, somehow. These stocks levels are not what we need right now.”
Soybean acreage continues to expand, according to the projections, and is now at 76.7 million acres, 2.2 million acres above last year. This is the second time that prospective plantings for soybeans have been higher than for corn. The last time it happened was in 1983, when prospective plantings were 64 million acres for soybeans and 60 million acres for corn.
If current acreage projections hold true, a 39.5-bushel yield will produce a 2.967-billion bushel crop. “With next year’s demand, that will increase our ending stocks by 25 million bushels,” Victor said.
This is not good, especially in light of strong crops from South America. “We’re producing 3 billion bushel bean crops every year, and we’re just going to see significant oversupplies of oilseeds over the next five years. As strong as world demand is, it will not be able to compete with that excess supply.”
U.S. wheat acreage, at 60.3 million acres, is the smallest total wheat planting since 1973. Wheat acreage has declined 15 million acres since Freedom to Farm.
“What’s significant is that with the poor conditions we’re already starting off with, we’re setting the stage for some very poor crops,” said Dick Loewy, market analyst with AgResource Co. in Chicago.
“We’re looking at a wheat crop size of 2.09 billion bushels. With good demand, that would certainly give us the opportunity to get to less than 600 million bushels in ending stocks next year. So wheat could come out smelling like a rose.
“May 10 is the key day for wheat prices because that’s when you get the first world production numbers for wheat. We could get much higher wheat prices.”
India recently announced that it might export 5 million metric tons of wheat. “If India does start shipping wheat out, that could add 350 million bushels back into our lap if they indeed go after our customers like the Philippines, Indonesia. So we could be in trouble even with the lighter acreage figure.”
However, if India doesn’t export to U.S. customers, “we’ll be okay,” Victor said. “In a similar year, 1990/91, the trade range for July futures was $2.80 to $3.”
As for short-term corn and soybean prices, he added, “I believe we have one more shot on new crop futures for corn to go back up to $2.60. We also feel we have one more shot on new crop soybeans to get back up into the $5.20 $5.40 area. But that may be it for the year.”