FORT COLLINS, Colo. (Reuters) - It has been three years since U.S. farmers experienced a normal spring planting season, as extreme flooding in 2019 and a pandemic in 2020 derailed the initial plans, resulting in dramatically thinner supply levels than originally projected.
The extraordinary underproduction of corn and soybeans over the past two seasons has helped Chicago-traded futures reach multi-year highs, increasing projected profitability for the 2021 harvest. Corn, soybeans and competing crops are no longer “hot potatoes” in farmers’ eyes as they have been in recent, low-price seasons.
Producers will report planting intentions to the U.S. Department of Agriculture at the beginning of March, and those numbers will be published at the end of next month and will be factored in to balance sheets until the next acreage survey results are revealed at the end of June.
But USDA at the end of this week will be unveiling unofficial supply and demand outlooks for 2021-22, which will start on Sept. 1 for domestic corn and soybeans. These will include the only area projections of the year that are not based on farmer surveys.
Analysts polled ahead of this week’s numbers pegged corn and soybean acres at 92.9 million and 89.4 million, respectively. If realized, that would be the highest corn plus soy universe on record, topping 2017 by 2 million acres.
The estimates display more uncertainty on soybeans than corn. Soybean guesses vary by 6.5 million acres, well above the five-year average range for this report of 4.6 million. The corn range is 3.2 million acres, a half million below average, though a Bloomberg poll last week had corn ideas spanning 4.5 million acres.
USDA in October had tentatively slated 2021 U.S. corn and soybean plantings at 90 million and 89 million, respectively, as part of the agency’s annual 10-year baseline projections. Those projections are for budgetary purposes and are not necessarily intended to specifically forecast the upcoming cycle.
DIFFERENT IMPLICATIONS?
The relative price of new-crop November soybean futures against December corn, a ratio used to determine profitability and likely planting decisions, unequivocally favors soybeans when placed in historical context.
That ratio is close to 2.6 this week, comparable with only two years in recent memory, 2017 and 2018. Those two years featured by far the largest soybean plantings ever, pushing over 90 million acres in 2017 and coming close again a year later.
But is the situation truly similar in 2021? This year’s insurance guarantee for soybeans, set by the average new-crop price in February, is on track for the highest in eight years. That price is averaging about 22% to 27% above the lower guarantees observed in 2019 and 2020.
So far, corn insurance prices are the strongest in seven years, running between 13% and 16% above the last two years. In some cases, that might be enough to give corn the edge as farmers love to plant the yellow grain and often feel more confident in their ability to produce big yields relative to those of soybeans.
The soybean-corn ratio from the fall to spring is often correlated with the year-on-year change in acres, especially in soybeans. Soybean plantings in 2014 and 2017 jumped 8% over the previous two years with the unusually high price ratio.
Soybean plantings in 2020 rose 9% on the year, but that had nothing to do with economics and in fact, soybean profitability may have looked worse a year ago than in 2019. Still, soybean plantings were held back in 2020 by low prices and uncertainty over trade with China. Flooding in 2019 drove soybean acres to an eight-year low.
It is also hard to use the year-on-year changes in corn area given that U.S. farmers planted more than 6 million fewer acres last year than they planned. That was an unprecedented reduction as corn prices plunged to 14-year lows with demand zapped by the coronavirus pandemic.
USDA 101
This week’s planted area estimates will predominantly stem from economic analysis conducted by various USDA officials from multiple agencies, who have collaborated to finalize the assumptions. The factors considered are ones that most industry analysts would use to predict plantings, such as the entire pool of available acres, the previous year’s prevented plantings and new-crop prices.
The long-term baseline numbers first published in October are also formulated in a way similar to the February ones, but there is less information available in October, specifically the results of the ongoing harvest and the subsequent price trends.
Both the October and February numbers are considered unofficial estimates. The first official supply and demand estimates for the upcoming marketing year are issued each May.
The February corn and soy yields from USDA are based on a weather-adjusted trend model assuming normal weather. In recent years, these yields have been the exact ones that appear in the initial balance sheets in May.
The baseline projections had placed 2021 corn yield at 180.5 bushels per acre and beans at 50.6, though there is a decent chance those could be slightly smaller this week based on historical differences between the October and February numbers.
Whenever the previous season’s final yields come in below the October expectations, which was the case in 2020, the February yield outlooks for the upcoming season tend to be below the baseline projection, but the difference has been by less than a bushel in recent years.
These numbers are important because they will be official USDA yields until survey-based estimates are published in August, unless there is a historic disruption like the extremely late planting in 2019 or the devastating drought in 2012 that would warrant an earlier change.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
February 18, 2021 at 03:04PM
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Column: Back-to-back black swan events complicate 2021 U.S. corn, soy planting puzzle - Reuters
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