Market Production Analysis and Market Outlook – Planting Impacts on Markets by David Asbridge
The U.S. Department of Agriculture’s (USDA) Prospective Plantings survey conducted in early March shows that farmers plan to plant 88.8 million acres of corn, 53.8 million acres of wheat and 10.5 million acres of cotton this year. These numbers are all very close to what the market expected.
Soybean farmers indicated they would plant a record 78.1 million acres, a slight 0.7 percent increase over last year’s record of 77.5 million acres. However, if history provides any indication, actual planted acreage this spring could be lower than estimated. The overwhelming majority of times, farmers’ intentions are too high for soybeans and too low for corn. It all depends on the weather.
Planting Intentions by State
- Iowa – 9.9 million acres
- Illinois – 9.5 million acres
- Minnesota – 7.2 million acres
- Indiana – 5.5 million acres
- Missouri – 5.4 million acres
- Nebraska – 4.9 million acres
- Ohio – 4.6 million acres
- South Dakota – 4.4 million acres
- Kansas – 4.1 million acres
- North Dakota – 4 million acres
If farmers achieve this acreage, along with a trend yield near 42 bushels per acre, production may reach 3.23 billion bushels. This will be a decline of about 4 percent from the record 2009 crop. Overall use, however, is expected to decline due to lower exports as the South American crop hits the market and takes back some export markets supplied by the United States. The decline in use overshadows the decline in production, causing ending stocks to move higher and pressuring prices. Of course, this all depends on yield, which depends on the weather this coming year. Because world demand continues to grow, a smaller crop in the United States than I described above could cause some price fireworks this summer.
The record export pace continues for U.S. soybeans. We have now exported over 1.25 billion bushels of soybeans this year, which is very close to the record set for the entire 2008 crop year. And we still have nearly 5 months left to go in this crop year. Our exports from here on, however, are expected to drop sharply as the Brazilian and Argentine crops come online. USDA recognized this export pace by raising their estimate for this year’s soybean exports to 1.445 billion bushels in this month’s supply-demand report. USDA only made two other changes to the report for this crop year, raising the estimate for seed use and cutting the residual estimate. The cut in the residual usage was based on a lower figure in the recent Grain Stocks report for last quarter’s soybean use. They raised the seed use estimate based on the recent Prospective Plantings report discussed above.
USDA made few changes in the soy products’ balances except for an increase in the soybean meal export estimate. Similar to soybeans, soybean meal exports continue on pace to set a new record this year. The United States has already exported more than 7 million tons of meal, and USDA forecasts these numbers to reach 10.45 million by the end of this marketing year. Again, much of this increase is due to lower availability from the South American producers due to smaller crops.
Domestic use of soybean meal, however, continues to suffer from the decline in the U.S. poultry and livestock industry. Beef and pork production are both expected to be lower this year, with total red meat production down about 1.8 percent in 2010 compared to 2009. Broiler production is expected to increase slightly this year after a decline in 2009, but the increase is only expected to be about 2.3 percent, and production will still lag the 2008 level.
Soybean oil exports may hit a new record level this year based on the lower availability out of South America and growing world demand for vegetable oils. USDA now expects the United States to export 3.25 billion pounds of soybean oil this marketing year, an increase of nearly 50 percent from last year’s depressed level. This is 6 percent above the previous record set in 1997.
Domestic use, however, is expected to continue its recent downward trend. Domestic use other than for biodiesel will fall to only 14.0 billion pounds, the lowest level since 1995. This will be the fifth year in a row of declining usage, mostly in the food industry. The trans-fat issue has shifted much of this usage to other vegetable oils such as palm oil, despite the much higher level of saturated fats in that product. New varieties of soybeans such as low-linolenic soybeans should be able to regain some lost sales over the next few years as more varieties reach commercial markets.
Soybean oil use in biodiesel is expected to increase slightly this year after falling by over 40 percent last year due to higher prices for soybean oil relative to the diesel market and low or negative operating margins for biodiesel producers. The increase expected for this year, however, may be in jeopardy because the blenders’ credit program ended at the end of 2009 and has not yet been extended. It is expected to be restarted and even made retroactive to the first of the year, but that has not happened yet. Without that credit, biodiesel production in total and soybean oil use in biodiesel production could fall off dramatically for the rest of this year. This decline in use will hurt soybean prices – it was estimated that it could cost the soybean industry about $210 million in value for this year’s crop. The losses would continue into next year’s crop if the credit is not reinstated.
The market has been relatively stable recently despite the major reports. Cash prices in central Illinois are holding just below $9.30 per bushel, about 30 cents above a dip back in mid-March. This price level, however, is still about $1 per bushel below the peak hit at the end of November 2009. With record acreage expected in the United States following a record year in the United States, Brazil and Argentina, prices could be under some pressure this spring if the weather is good and farmers get a chance to get out and plant. Of course, summer weather is also going to be important, but a big crop could mean lower prices this fall. Keep in touch with what’s going on by checking back here each month, and, of course, don’t forget that you can leave comments on this article in the space below. Talk with you next month!
posted by Expert 2:28 pm