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Last week the United States Department of Agriculture presented its view of the commodity markets. Todd Gleason has this review of the numbers.
Thursday USDA Acting Chief Economist Robert Johansson made a plenary session presentation on the current agricultural landscape. Interestingly, he set the tone by showing how commodity prices have been trending downward for more than 60 years.
The next slide in the set showed how Americans have steadily spent less on food over the past 9 decades. Nearly 25% of disposable income was used to purchase food in the 1930’s. This number has now dropped to about 10%.
The Acting Chief Economist took up commodity crops in detail. He explained global supplies of wheat, corn, and soybeans are plentiful. The planet will have more than 113 days of soybeans at the end of the marketing year. This is a record supply. However, demand for the miracle crop remains very strong with most of the world’s soybean exports going to China. These are primarily supplied by the United States, Brazil, and Argentina.
The U.S. is expected to be the planet’s largest exporter of soybeans for the 2015/16 marketing year, but Brazil should take that title for 2016/17 and beyond. USDA projects Brazil’s market share of soybean exports will grow to 46% by 2024 while the U.S.’ share is expected to fall to 33%.
The U.S. is expected to remain the world’s largest exporter of corn with its share of the global corn trade growing from 40% in 2015/16 to 45% over the next 10 years.
This year the Agricultural Outlook Forum projects U.S. farmers are likely to plant 89 million acres of corn and 83.5 million acres of soybeans. Analysts have rolled those numbers into their 2015/16 marketing year supply and demand tables. They could produce a 13.6 billion bushel corn crop and result in an ending stocks figure of about 1.7 billion bushels.
USDA’s planting estimate of 83.5 million acres for soybeans is low by comparison to the trade expectations. It might mean next year’s ending stocks figure would be about the same as this years. That is 385 million bushels.
USDA Acting Chief Economist Robert Johansson says the marketing year average cash price for fall 2015 corn is expected to be $3.50 per bushel. The MYA soybean price is forecast at $9 per bushel.
Winter wheat seeding was projected down 1.9 million acres from last year. USDA sees an increase in spring wheat seedings. This should offset some of the decline. All wheat seedings are expected to decline 1.3 million acres.
The number of acres sown to coarse grains like barley, oats and sorghum are expected to go up based on strong demand from China. Chinese demand has propped up sorghum prices and export demand for these feed grains.
USDA reports overall acreage at about 255 million, down 3.3 million from last year. CRP acreage is also expected to decline.
2015 USDA Agricultural Outlook Forum highlights follow;
Total meat and poultry production at 95 billion pounds in 2015 would be a record setter with pork and poultry making the greatest gains.
Farm equity (assets minus debt) on average is the highest since USDA began reporting on profitability in 1960.
Land values are expected to decline by less than 1% in 2015. However, it is important to note data from the Chicago Federal Reserve Bank indicates year-over-year declines of 7% for farmland values in Iowa.
China is expected to purchase 60% of the U.S. 2014 soybean exports. Its purchases of DDGs should reach 5 mmt and, as presented in the baseline projections last week, sorghum buying is expected to continue.
When farmers go to their federal crop insurance agents in March they may have a new decision to make. The new Yield Exclusion option may allow some producers to increase their covered yields.
Yield Exclusion, or Y-E, will not be available in every county or on every covered crop. We’ll explain how the availability is triggered in a moment. It was created in conference on Capitol Hill as part of the 2014 farm bill. Consequently, says University of Illinois ag economist Bruce Sherrick, it is a little quirky, but really valuable.
Quote Summary - The Yield Exclusion is really important because it provides the ability to drop a yield out of the APH calculation based on conditions triggered by the county’s experience, or the experience of a contiguous county.
Here is how Y-E allows a producer to exclude a yield from their APH calculation. If the farm is in a county or contiguous to a county that had a prior year yield less than fifty percent of its prior ten year average then the farm is eligible for a yield to be dropped from the APH calculation.
The yield dropped is from the year the county experienced the fifty percent or greater decrease. Because the database used to calculate rates still contains the original ten years of data the rate yield does not change, but the coverage amount does change.
Quote Summary - This is primarily explained by RMA as a change in the effective coverage. Instead of picking 65, 70, 75, 80, or 85 percent coverage of a number, you are picking bushels and calculating what the implied coverage would have been. It is not a very complicated program if you think about it in those terms.
However, while most might see this as a way to increase APH and consequently the revenue guarantee, it can sometimes have a detrimental impact.
Quote Summary - You can lose part of trend by electing to exclude a yield. This could be really important. Especially as a farmer picks up new ground. Maybe this ground was in a unit structure that makes the APH history unavailable. Farmers want to be careful about the impact of dropping a yield to increase APH because it could lose trend on all yields in the database.
The decision can be changed, and or updated in future years. However, like other crop insurance decisions, previous year’s decisions remain in play until a change is requested.