NAPERVILLE, Ill. (Reuters) - Not long ago it seemed that the United States had semi-permanently buried itself in soybeans, the main catalyst being damaged export demand to top customer China. And more recently, it was almost certain U.S. corn inventories were quickly running away to multi-decade highs.
But now, soybean supplies over the next year are seen dwindling to five-year lows, while corn stocks are slated to be on par with the last few years instead of surging more than 50% higher.
This has sparked an unusually timed rally in Chicago-traded futures in recent months, since prices normally tend to ease, not rise, into the U.S. harvest. The drastic shift in prices from planting to harvest likely has farmers thinking a little differently about next year’s strategy than perhaps they expected.
The United States in 2021 will be coming off two straight years of significant planted acreage disruptions, one of which was caused by weather and the other by economics. And over the past two years, curbed production probably better explains the unexpectedly lighter stock situation than do changes to demand, namely the recent surge in business to China in the case of soybeans.
Between the 2019 and 2020 U.S. corn crops, production was at least a combined 2 billion bushels lighter than what had been predicted just prior to the growing seasons. Fewer acres were a dominant factor, especially in 2020, though yield was well below the long-term trend in 2019 as many high-yielding acres sat idle.
That contrasts with the trend from prior years. U.S. corn production in 2018 was relatively close to what the Department of Agriculture unofficially projected that February, but the combined 2016 and 2017 crops overshot the early targets by close to 2 billion bushels. That was largely due to strong yields.
Losing 2 billion bushels of potential corn production is substantial over a two-year stretch given that year-end supplies averaged slightly above that level in the last few years.
After an extremely wet 2019 planting season curbed corn acres, U.S. farmers in 2020 planned to plant the largest corn area in eight years. But the coronavirus pandemic and the crash of grain prices to historic lows earlier this year quickly cancelled that agenda.
USDA last week estimated 2020 corn plantings at 91 million acres, some 6 million fewer than were indicated by the agency’s March survey. Such a huge departure from initial corn area expectations has not been witnessed in at least a quarter century.
The unprecedented acreage plunge for soybeans came in 2019 as the wet weather and surging corn prices meant that many soy acres were squeezed out. Soy prices were not hit as hard as those for corn amid the pandemic, but U.S. farmers were still relatively conservative on their 2020 bean acres, especially as U.S. export sales to China had not yet returned in the desired way.
U.S. soy output in 2019 undershot original expectations by more than 600 million bushels, a volume which prior to that would have topped the largest year-end inventory of the oilseed. Lighter acres in 2020 are expected to be offset by above-trend yields.
But between 2016 and 2018, those harvests outperformed initial predictions by more than 800 million bushels on very strong yields and record acres. This steady build-up in supply likely would have put a serious strain on soybean prices even without the trade war that began in mid-2018.
INCENTIVE TO PLANT?
The underperformance of the recent two U.S. corn and soybean harvests should in theory lead to a rebound in acres in 2021. Current price levels suggest soybeans are particularly primed for a boost.
The ratio of 2021 November soybean futures to December corn was at 2.48 on Wednesday, very close to 2.5, the level above which would distinctly favor soybean plantings over corn in 2021. That is strong for the date versus recent years, about equal with 2016 but lower than in 2017.
Soybean plantings in 2017 and 2018 totaled 90.2 million and 89.2 million acres, respectively, substantially more than in any other year. Some 83.1 million acres were likely planted in 2020, which aside from last year’s aberration would be the lightest since 2015.
U.S. farmers are already expected to realize stronger prices over the next year for their 2020 crops as USDA last week increased those average projections. The corn price rose 10 cents over the previous estimate to $3.60 per bushel, but the soybean price surged to $9.80 from $9.25.
That soybean price is by far the agency’s strongest October projection since 2014. Over the last five years, the average price projected in October was $9 per bushel, and the final average was $8.96. For corn, the five-year average for October was $3.51, just 1 cent above the final.
USDA in a few weeks will likely publish initial tables from its annual long-term projections, which will show price, acreage, and supply projections for the 2021-22 U.S. marketing year, the first look at those numbers. Data from the October supply and demand report, which the agency published last week, is typically used as a starting point for the baseline figures.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
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