USDA Long-Term Projections and Winter Returns - Tuesday, 21 February 2017

The USDA has made long-term projections for 2016 through 2026 for the 8 major agriculture crops in the U.S.  (Corn, soybeans, wheat, upland cotton, sorghum, rice, barley and oats).  Total acres planted to the 8 major crops averaged 257 million acres during the peak of 2012-2014.  That number fell to 252 million in 2015 and then rallied back in 2016 but is expected to drop again to just under 245 million acres by 2026 with the majority of those lost expected to be corn acres.  Even though the planted acres are predicted to fall new seed hybrids keep yields reasonably high and deliver most of the gains needed to keep ample supplies. The average yield is estimated to fall in 2017 to 170.8 bushels per acre vs the 175.3 per acre average in 2016.  As the yield is calculated out 10 years to 2026 the average yield per acre increases to an estimated 188.8 bushels.

Corn used for ethanol production is predicted to climb through 2018/19 but then is expected to slide back below levels of 2015.  This decline is anticipated due to a fall in domestic demand caused from higher average mileage vehicles and an overall change in vehicle usage. 

The United States remains the largest exporter of corn around the world and that is expected to continue.  The USDA anticipates that as the standard of living improves around the globe the demand for meat will rise which will strengthen demand for U.S. corn as a feed source.  The agency also sees that while the U.S. remains the leader in global corn exports, the overall share of that market will decline due to increased competition from Ukraine, Brazil and Argentina and a strengthening U.S. Dollar.

Based on all of this data the USDA predicts that the average farm price for corn over the next 10 years will range from $3.30 to $3.70 per bushel.

 

Projections for soybeans show that the recent gradual price increase and the potential for higher producer returns are encouraging producers to plant an estimated 85 million acres of soybeans this season. The 2016 soybean yield averaged 52.5 bushels per acre, in 2017 the USDA is planning for an average yield of 47.9 bushels per acre.  For the next 10 years the USDA does not expect that producers will exceed the average yield from 2016. Kevin Van Trump from the Van Trump Report is not convinced that last year’s yield will hold that long he wrote, “it’s extremely hard for me to believe that last year’s record average yield will hold for the next 10-years, especially when considering how rapidly new-technology is coming into the space?”

Global demand for soybeans is expected to remain strong over the next decade and U.S. exports of soybeans are predicted to rise.  Demand for U.S. soybeans is expected to rise, especially from China, but increasing competition from Brazil is likely to lead to a reduced U.S. share of global trade.

The average farm price for soybeans is projected to range from $9.35 to $9.55 per bushel over the next 10 year period.  Kevin Van Trump says, “I’m personally NOT in agreement with this number, especially when they show ending stock at one point dipping below 300 million bushels.  I think the farm price is underestimating the power of the funds and their ability to drive prices much higher than traditional fundamentals might dictate.”

The West Coast has been hit with several large and damaging storms this winter and this past weekend was no different.  The storm track is largely a result of the sharp difference between the cold North Pacific Ocean and the warm Central Pacific Ocean waters which has allowed for the formation of a powerful Jet Stream to develop between the two bringing storm after storm to California.  There has also been a strong High Pressure present off the warm waters of the Atlantic Ocean which has helped keep the Southeast very warm.  All of these factors have kept the weather patterns rather short-lived including cold snaps.  Unfortunately some models are showing that this appears to be changing.

An MJO cycle is bringing a pattern change, it is weakening the Pacific Ocean temperature gradient while a substantial Arctic air mass is building in Canada.  These changes point to a pattern change developing for North America.  According to Weather Trends 360, “The current storm track for the early week systems brings heavy snow from Colorado to Wisconsin with Spring-like weather out in front of it, but next weekend the track is further South with snow more likely from Colorado to Missouri into Chicago and interior Northeast.” 

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