A ‘Black Swan’ Casts Shadow on Soggy Farm Belt
Mired by a rainy and chilly spring, U.S. farmers may soon give up on planting corn in rain-soaked parts of the Farm Belt because it is getting too late for money-making yields, said economist Scott Irwin of the University of Illinois. “I truly believe we are in ‘black swan’ territory as far as late corn planting is concerned,” he said over the weekend, using a term popularized during the financial crisis a decade ago.
Black swans are adverse events that are impossible to predict and have catastrophic ramifications.
The results would be a dramatic plunge in corn area and a crop that is 7% smaller than projected by the USDA. Growers would either accept a prevent plant insurance payment to leave fields fallow or switch to another crop, most likely soybeans. “I think the starting point right now is a 5-million-acre reduction in corn acres,” said Irwin. If so, corn plantings would be the smallest since 2009.
Analysts agree that yields per acre decline steadily for each day that corn is planted after May 20 in the central Corn Belt. On May 20, projected yields already are 8% lower than the maximum possible in Illinois, and they decline by an average 0.8 bushels per acre per day afterward.
Planting is far behind normal this spring. Last Monday, the weekly Crop Progress Report said 30% of corn and 9% of soybeans were planted — less than half of the five-year average for corn and one third of average for soybeans. The USDA is scheduled to update the figures this afternoon. Usually, around 80% of corn and 44% of soybeans are planted by May 20. With dry weather, planting can progress rapidly but forecasters such as World Weather say frequent rain is likely in the Plains and the western and northern Corn Belt through early June.
If corn acreage plummets, it would scramble market prices and corn inventories, with prices going up as ample stockpiles are pared, setting off domino effects on soybeans, struggling with low prices and headed for a billion-bushel carryover when this year’s crop comes to harvest. “The current corn rally is clearly due to expected fewer acres being planted to corn,” writes economist Art Barnaby of Kansas State University.
Growers could see more revenue from crop insurance, for a prevent plant claim, than if they plant corn or soybeans late in the season, according to four university economists. Using central Illinois as an example, they estimated insurance payments of $331 an acre for corn and $252 an acre for soybeans. By comparison, revenue could be $153 an acre for corn and $219 an acre for soybeans due to lower yields and the cost, such as fertilizer, seed, and equipment, to grow a crop.
“Prevented planting claims decisions are always difficult, but market and policy dynamics make 2019 decisions more difficult,” write the economists at the farmdoc Daily blog. They cite a White House promise of $15 to $20 billion in Trump tariff payments. If aid is based on 2019 production, as the 2018 payments were, “incentives will be reduced to take prevented planting payments.” The USDA paid $1.65 a bushel for soybeans grown in 2018. The USDA has not said how it will allot the trade payments.
The National Farmers Union says the new round of payments should be based on historical production. That would lessen the chance of farmers making crop decisions in pursuit of the largest government payment. It also would respond to a complaint farmers who lost a crop due to natural disaster were left out of the Market Facilitation Program, the official name for the Trump payments.
Agriculture Secretary Sonny Perdue said the new round of trade payments will “help farmers survive” while the administration resolves the Sino-U.S. trade war. “I’m hoping it won’t be four or five years, I’m hoping it will be this year,” said Perdue on Fox’s Daily Briefing program on Friday.