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USDA Acreage Deviation vs. Year Ago
Grain markets continued their soft tone the past week, with corn, soybeans, and wheat all dropping lower in price ahead of the March 31 intended acreage report from USDA. In it, USDA will use its early-March survey to tell us what farmers intend to plant in 2017.
Most anticipate more acres of soybeans and less acres of corn, with USDA weighing in on acreage in February at its Annual Ag Outlook expecting 90 million acres of corn (4 million less than last year) and 88 million acres of soybeans (4.6 million acres more than last year).
However, the deviations from these numbers in many private estimates are significant, with some expecting 90 million or more acres of soybeans in the report (or essentially the reverse of USDA), and 88 million acres of corn. Soybeans have had some price incentive on new-crop prices as the soybean/corn price ratio all winter has been at 2.6 to 2.7, with 2.6 generally considered a price that attracts soybean acreage away from corn. That price ratio should have attracted acreage away from corn and toward soybeans, but the question (and debate) is just how much.
Once the intended acreage report is released in March, attention will turn to the weather in the U.S. and world. Weather also can have an impact on the final acreage actually planted to various crops: An early planting season generally favors planting more corn and HRS wheat, and a later planting season generally means more soybean and late-season crops. So far the weather forecast is warm across most of the U.S. as we finish up March and start the month of April, but much can change during the growing season. Wet weather is also now in the forecast, and that could offset any potential early planting from the warm weather so far.
We have heard that many fringe Corn Belt states will flex a lot of acreage from corn to soybeans (South Dakota, North Dakota, and Minnesota particularly), so there could be some surprises on the sheer size of the intended soybean acreage and the potential cutback in corn (which many anticipate) and HRS wheat (which many have not seemed to anticipate).
Of course, acreage is only half the equation needed to calculate final production. The other half is yield, and for now every analyst will insert a trend yield for now for most crops. How we deviate from trend will be the question of the day. Recently, the past three years have given us an above-trend yield in corn and soybeans, and last year wheat also was a record-large yield. That’s why prices are so poor, as stocks have been rebuilt from the three most recent above-average yield years. But what will 2017 bring?
Trend yields right now are about 170-bushel-per-acre corn, and 47- to 48-bushel-per-acre soybeans. About every five years, we get a yield either 10% above or below trend, and of course, that has a great influence on yield. Lately, we have pushed to the high end of these numbers and frankly, the market has gotten used to these excellent yields and almost anticipates them happening again.
But man is not in control of weather, and while farmers do all they can to bring about the best yields possible on their ground (and they do a great job), Mother Nature in the end has the say in whether or not we achieve trend yields or above, below, or even well below trend yields. Farmers have done an excellent job improving yields in the U.S. from year to year, by fertilizing better, doing a better job planting for a stand, planting improved varieties, and doing more timely operations. Farmers just continue to do better year to year, and that means improved yields every year (for example, corn yields improve about 2 bushels per acre per year over many years). Because of this improvement in productivity, we have the term trend yields to describe this year’s expected yield.
Can we achieve trend yields in 2017? Or will it be better (or even much better), or will it be worse (or even much worse)? Once the acreage is determined, the focus will shift to weather and its impact on yields, and then we will focus on the question posed above. For now, the market is soft and looking for some news to push it one direction or the other.
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings.
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