One of the core fundamentals of understanding the grain markets is that prices are always reacting to the crop ahead and not the inventory that’s already in storage. Over the next few weeks, the pricing mechanics of the commodities futures is going to forget about the crop that we’re harvesting, and become all about the one that we’ve going to plant next spring.
While it seems premature to focus our marketing attention on the 2019 crop prospects while the 2018 crop is still coming in from the field, it’s clearly time to change our focus before we fall behind.
The worst-kept secret in North American agriculture is that we are likely to see much smaller soybean acreage planted in the spring of 2019. That’s really important, not just for what it means in terms of pricing opportunities for the 2019 soybean crop, but also the negative price pressure on the crops whose acreage is expected to rise as they take up the crop land abandoned by soybeans.
There is really no doubt that North American soybean production has some room to shrink. In 2018, American farmers planted 89.56-million acres of soybeans, and in 2017 they seeded a record 90.10-million acres of soybeans. The 10-year average for U.S. soybean acreage is 81.29-million acres, which means that for the past two years American soybean production area has been more than 10 % bigger than average. It’s entirely likely that American farmers are going to have an unlikeable experience selling soybeans this fall into a market that really doesn’t want them, and as a result, their wintertime seed orders for 2019 are going to include a lot fewer soybeans. It’s that anticipated behaviour of American farmers that gives Canadian grain marketers reason to strategize.
Crops most likely to rise up in production area to cover off the acres not going into soybeans next spring are winter wheat, and corn. Forward thinking growers may want to move pretty quickly in adding to their 2019 and 2020 sales before the market realizes that supply of these crops is likely to rise in the year ahead and force prices lower.
We’ve just come through an extended period of historically high prices for wheat and most farmers have taken advantage of the solid values in order to lock in a portion of their new crop sales. It’s also likely that these higher wheat prices in a depressed soybean harvest will result in more winter wheat being sown into soybean stubble this fall. Anticipate an upward shift in 2019 winter wheat acreage and adjust your forward marketing strategy accordingly.
Another crop where we expect to see significant growth in planted acreage for 2019 is corn. Historically, American farmers love growing corn and there have only been two years in history where the United States planted more acres of soybeans than acres of corn. Those two years, 2017 and 2018, were also the two record-area soybean plantings. Corn planting intentions will be a key market driver by mid-winter.
The 10-year average for corn-planted area in the United States is 91.1-million acres. If we shift two-million acres of America’s soybean production over to corn this coming year, the corn crop will be back in line with the average planted acreage. While two-million acres sounds like a big adjustment, it’s actually like a farmer who normally grows 100 acres of corn, planting 102 acres next spring. On an individual farm scale, the acreage shift is essentially imperceptible, but aggregated over an entire continent, it’s an extra 356 million bushels of production. You might not be able to see the difference driving down a gravel road but you will see it in the CBOT futures price.
There’s a football analogy for everything. Quite often in a football game, you’ll hear the quarterback vary the cadence in his snap count in order to see if he can observe a shift in the defender’s stance. Picking up the shift early enables him to make some adjustments in the play actions based on being able to predict how the defence is going to move. Essentially, that’s what we’re trying to do in grain marketing: Detect the shifts as far in advance as possible in order to capitalize on opportunities and avoid the pitfalls.
The shift that we’re seeing as we watch the 2019 grain market develop is towards a decrease in soybean planting and an off-setting increase in winter wheat and corn acres. Now that the market has hinted towards its shift, we simply need to adjust our marketing plan in order to be ready to react.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.