April 2018
The Business of Farming

Taking a Shot at This Year’s Crop Outlook

So, three economists are out hunting one morning when a big buck walks into view. The first economist takes a shot, but it sails by 10 yards to the right. The deer looks up, but doesn’t run off. The second economist gets a shot off that misses 10 yards to the left. They all cheer while the third economist yells, "We got ‘em! We got ‘em!" Now, I love a good economist joke, especially because there always seems to be a tiny shred of truth to them.

While there are a lot of trends and historical references to help predict what might happen with crop prices, there are also a ton of unknowns we never see coming. Sometimes, getting close to the mark is just as much of a win as actually hitting it.

One thing we definitely know is that corn prices are lower than we’d like to see and probably aren’t climbing back to equal those of a few years ago any time soon. (Although some catastrophic event could have changed everything by the time you read this.) Across the United States, corn acres in 2017 were slightly down from 2016, but there was record-high production per acre in several states adding to the already burdened ending stocks.

U.S. Department of Agriculture’s February production numbers showed increased corn exports because of weather issues in other parts of the world and the weak dollar … but don’t get too excited. We still have more stock on hand going into the 2018 season than a year ago and corn acreage is expected to be similar to last year’s. So, don’t plan for maintained prices above $4 any time soon.

Soybean prices, too, have seen better days. Last year’s harvested soybean acres were almost 7 million more than 2016 with good yield adding to stocks on hand. As of February, soybean exports were lower, mainly due to Brazil’s increased supply taking a share of the export market. Going into 2018 with a large carry-over, projected planted acres will be just as high as or higher than 2017. Heavy competition for exports doesn’t bode well for soybean prices moving much off last year’s prices, even with global demand growing.

As for peanuts, 2017 had record production in the United States with increased acres and average yield over 400 pounds higher per acre than 2016. This production has put a strain on storage capacity and contract prices even with increased use, both domestic and with exports. There are several factors that could affect the peanut acres this year, particularly trade agreements with our neighbors to the north and south as well as China. For 2018, contract prices are already lower than last year, and a substantial drop in exports would be more bad news.

However, let’s not get so caught up in watching how trade deals play out that we miss the other big player: cotton.

Cotton, where do I start? It’s been as unpredictable as my daughter’s mood swings. Every month, I’ve watched USDA adjust the ending stocks by a pretty substantial amount. In January, exports were projected up and stocks were lowered. Then the February report comes out and stocks have been adjusted back up due to lagging exports and lower world consumption.

With stocks doubling 2016 levels, you’d expect the market to respond with lower prices. Yet prices are better now than last year. So there’s more than numbers driving the price. To name a few factors: speculation over quality; China’s gap in production and use, and how it will be filled; and synthetic-fiber production costs.

Heading into the 2018 season, there’s a lot of uncertainty, but still a lot of interest in cotton. Projections for planted acres were 12.5 million to 13 million acres. And these projections were before the Bipartisan Budget Act of 2018 made seed cotton a covered commodity and removed the generic base.

Will we see more cotton acres now? Could more acres, and production, push prices down? And how many of those peanut acres will be returned to cotton? Will this help peanut prices? I don’t have the answers to any of these questions.

How does 2018 play out for commodity prices?

The only thing we know for sure is, across the board, prices aren’t where we need them to be. Any change from that, for better or worse, is just a guess. Hopefully, an educated guess, but subject to error nonetheless. And, let’s face it, economists will celebrate if reality is anywhere near what is predicted because close is all we can really aim for.

 

Jessica Kelton is a regional farm and agribusiness management agent for ACES.