September 21, 2016
2017 U.S. Crop Acreage - Wheat Down, Corn Down, Soybeans Up
I know it's early to speculate about the 2017 crop acreage in the U.S., but I have been asked in recent days about my thoughts on the next growing season in the U.S. It reminds me of what one of my clients told me years ago - "Michael we are in the futures market, not the past market, so tell me what the future will be," so here goes.
I think the first obvious thing that will happen this fall will be a reduction in wheat acreage. Wheat prices are very low and there is little prospect for significant improvement any time soon. The U.S. wheat acreage is already at a decades-low point and I think the 2017 U.S. wheat acreage might decline another 1.5 to 2.0 million acres. If verified, that of course would free up acreage for next spring.
The next crop planted will be the 2017 corn crop next spring and I think that the corn acreage could decline 1.5 to 2.0 million acres. Corn prices are terrible with little prospect of significant improvements any time soon. The main prospect for improved corn prices would be if the 2016/17 South American corn crop ran into trouble or if there were not as many corn acres planted in South America as anticipated. If either of those things happened, the corn price might improve somewhat, but I do not think it would be very dramatic.
Corn is the most expensive crop to plant and farmers are not going to come out of the 2016 U.S. growing season flush with cash. So the next question is where will the reduced wheat and corn acres end up? Some of the reduced wheat and corn acreage will probably go to grain sorghum especially in the southern and western plains. Some of the acreage might go to cotton, but I am not that familiar with the cotton market. I think that most of the switch will be into increased soybean acreage.
I think it is possible that the 2017 U.S. soybean acreage could increase 2.0 million acres or more. The 2016 U.S. soybean yield is expected to be an all-time record and the prices for soybeans are better than corn, relatively speaking. Soybeans are also cheaper to plant and require less capital outlays, so I think soybeans will have the advantage next spring.
Having said that, the start of the 2017 spring planting is still seven months away and a lot can happen in the meantime, especially in South America. What happens in South America could have a bigger impact on the soybean market than on the corn market because the world needs a record soybean crop every six months in order to keep up with the demand.
The U.S. is such a large corn producer that a record large corn crop in the U.S. takes a while to work through. The 2016 U.S. corn crop is now estimated at 383 million tons while the 2016/17 South America corn crop is estimated at 121 million tons. So the U.S. produces a little more than 3 times as much corn as South America. Therefore, a record large U.S. corn crop will weigh on prices for an extended period of time.
The scenario is much different for soybeans because South America is a much larger soybean producer than the United States. The 2016 U.S. soybean crop is estimated at 114 million tons while the 2016/17 South American soybean crop is estimated at 173 million tons. So South America produces approximately 1.5 times more soybeans than the U.S. Therefore, a burdensome supply of soybeans can more quickly be eliminated if there is a weather concern in South America.
As a result, soybean prices could more quickly rebound given a production problem in South America. Having said that, we know that the prices of corn and soybeans move in unison, but it is important which crop is leading the price change. If it looks like soybeans are leading the move higher in prices, it would give even more incentive for U.S. farmers to increase their soybean acreage at the expense of corn.
Therefore, what happens in South America will be the key for what might happen to the 2017 U.S. crop acreage. Stay tuned.