Predictions for the 2016 Crop Season - Monday, 14 December 2015

The USDA announced recently their longer-term outlook for next year.  The report shows that in spite of low corn and soybean prices the acreage for corn is expected to grow, normal weather and trend-line yields are assumed at this point and time of the year.  These projections will be reevaluated in February at the USDA Outlook Forum. 

Currently the USDA projects that corn acres will climb by 2.1 million acres to 90.5 million planted acres which computes to around 13.9 billion bushels with assumed normal weather and trend-line yields.  If the projection holds true this would be a 2% increase in corn acres from this year and potentially one of the biggest crops ever harvested in the U.S.  With these factors in mind they estimate that the average price for the 2016 corn crop would average close to $3.60 per bushel.

The soybean acre estimate stands at 82.0 million planted acres which is 1.2 million less acres than this crop year with a total production anticipated around 3.785 billion bushels. The USDA has estimated that if these projections hold true that the average price for soybeans in 2016 would be near $8.65 per bushel.

The Farm News Ag Show was held in Fort Dodge on December 3rd.  Dr. Elwynn Taylor spoke during the show about possible weather issues and yield expectations for the 2016 crop season.  Taylor has been seeing signs that the current El Niño weather pattern, which is the third strongest since records were kept beginning in the 1950’s, has peaked.  He feels that if the system breaks up in March we could be looking at a drought similar to the drought of 1988 which brought early spring rains which ended and didn’t return until it was too late in July. He described the weather patterns of El Niño and La Niña as a pendulum that swings wide in one direction and then swings almost as wide in the opposite direction.  We are currently in year 6 of a 25 year cycle of volatile yields and below trend-line yields should be expected more often than not, he pointed out that 4 out of the past 6 corn yields have fallen below trend-line and predicts a 50-70% chance of below average yields in 2016 if this scenario occurs.  In addition he also told the group that the Corn Belt can expect above=normal temperatures for the majority of the winter season.

David Kruse of Commstock Investments was also a speaker at the Ag Show.  He told the crowd that the tolerable debt to asset ratio of 4:1 has ballooned to 6:3.  This is below the double digit level of the 1980’s farm crisis but is a red flag warning producers to decrease the costs of production to bring themselves to profitable margins.  Some of the obstacles standing between farmers and profitability in his opinion are:

  • Cash Rents.  He feels that $200 per acre is supportable but according to ISU the average cash rent across the state for farmland in August was $250.00
  • Strong Dollar.  We have heard for quite some time now that China has been looking for cheaper sources of soybeans and Japan, our #1 purchaser of pork is also buying from other sources.  On top of our already strong Dollar now interest rates in Europe are being lowered to minus levels and he looks for international investments to continue to inflate the value of the U.S. Dollar.
  • U.S. Grain Balance Sheets.  In the November USDA Supply and Demand report an increase in both corn and soybean supplies was revealed.  He warns that the January report is also likely to show increases for both crops as well. 
  • Crude Oil.  The plummet in oil prices has caused the discount for ethanol to shrink.  Ethanol margins are in the red now which is likely to cause a slow- down in production which will only add to the corn carryover balance in August.

To conclude Kruse added “eventually the world’s food demand will get ahead of the food supply and commodity prices will rise again.  But that’s going to take a long time.”

The storm system that has brought tornadoes to parts of Texas and heavy rains to a large portion of the nation’s mid-section is forecast to continue to move north through Tuesday bringing snow to the northern and central Plains.  Wednesday the system will move into the upper Midwest delivering snow to the northern Plains, upper Mississippi Valley and Great Lakes regions.  The 6-10 day forecast for December 18th-22nd from the National Weather Service shows above normal temperatures across most of the country and normal precipitation east of the Rockies.

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