U.S. Global Supplies to Cap 2017 Crop Prices, Analysts Say

Stocks-to-use ratio at 10-year highs.

Agriculture prices will remain subdued in 2017 due to ample supplies in the U.S. and as global suppliers continue to increase production, according to analysts and economists.

Chad Henderson, a grain and livestock market adviser at Prime Agriculture in Brookfield, Wisconsin, told Agriculture.com he expects corn to average $3.25 to $3.75 a bushel next year, soybeans to run between $9 and $10, and wheat to be at $4 to $4.50 a bushel.

U.S. producers harvested 15.2 billion bushels, or 386.8 million metric tons, of corn in 2016 on yields of 175.3 bushels an acre, the Department of Agriculture said in a report earlier this month. Global growers, excluding those in the U.S., will produce about 653 million metric tons of corn, up from about 616 million tons in 2015. World inventories will rise to 222.3 million tons, up from 209 million tons.

Soybean production in the U.S. will total 4.63 billion bushels, or 118.7 million metric tons, of soybeans with yields of 52.5 bushels an acre, the USDA said. Global producers outside the U.S. will harvest 219.3 million tons of soybeans, up from 206.5 million last year. Carryout globally will rise to 82.9 million tons from 77.3 million last year.

Increased output and inventories globally will keep a lid on prices next year even as demand for U.S. supplies has increased since the start of the marketing year on September 1, Henderson said.

“When you consider U.S. carryout has grown and world carryout has grown, you may have a demand story to help support prices, but on the other hand, with the large inventories, you don’t have a bullish driver,” he said.

Growers who have the option likely will plant less corn and more soybeans as the latter offers more potential for profitability, according to agricultural economists at Purdue University.

In a report released this week, economist Chris Hurt noted that U.S. production outpaced usage for a third year in a row, boosting inventories of both commodities and pushing the stocks-to-use ratio to the highest in a decade. That may make farming unprofitable this year, especially as the cost of seed, fertilizer, and other inputs are not falling in line with crop prices.

“Abundant inventories of grains and soybeans mean low prices,” he said in the report. “Unfortunately, costs of production have not nearly dropped back to the levels they were a decade ago, so margins for the 2016 crops will be narrow or even negative for many producers.”

The saving grace for farmers so far this year has been the increased demand for U.S. corn and beans, which is underpinning prices on the Chicago Board of Trade. Corn sales since the start of the marketing year on September 1 are up almost 80% from the same time frame last year, and bean sales have risen almost 30%, according to the USDA.

Demand likely will continue until South American growers begin harvesting their corn and beans. For corn, that means until May or June. For beans, however, Argentina and Brazil could gain market share starting in February at the expense of U.S. growers, said Terry Reilly, a broker at Futures International, told Agriculture.com.

Reilly, who expects beans to average about $9.50 a bushel in 2017 and corn to average $3.25 a bushel, said harvests in the South American countries will add to a global glut of both commodities.

“We think South America will take a lot of business from the U.S.,” he said. “This strong demand will remain in place for the next couple of months, but it will taper off, and that’s when we’ll see prices drift lower.”

It’s not all bad news for growers who want to see prices increase.

Stock indexes in the U.S. already are at records with the Dow Jones Industrial Average nearing the elusive 20,000 mark. That bullishness, in turn, is increasing the appeal of everything from equities to oil to corn, he said. Speculative investors remain bullish on soybeans, according to the Commodity Futures Trading Commission data.

Along with the strong demand, a general feeling of economic bullishness since the presidential election in November is boosting prices of raw materials including agricultural commodities, Reilly said.

Still, global inventories of corn, beans, and wheat are forecast to continue rising. Even as corn acres drop in the U.S., growers worldwide will continue to plant the grain. As output increases, it’s going to be hard for market-watchers and hedgers to stay bullish on corn and beans, even if prices fall to levels at which investors normally would buy contracts, Prime Ag’s Henderson said.

“With flat prices on wheat and corn, and beans vulnerable” to declines, prices will remain subdued for most of 2017, he said. “Just look at the carryout figures – how is anyone going to paint a bullish picture? Even if we get down to levels where you feel like you shouldn’t be bearish anymore, do you really want to be long?”

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