One of the most interesting things about the January USDA Report is that in addition to the ordinary supply and demand estimates for major field crops in both the United States and other parts of the world, it also contains information of the winter wheat seeded area from this past fall. It’s important for Ontario farmers to understand this information because not only is it the first firm indications of what the market might expect in terms of 2018 wheat production, but it reveals an interesting insight into what else North American farmers are planning to do in their fields this coming spring.
One interesting thing about American farmer behaviour is that there’s a strong correlation between the area which they plant to winter wheat in the fall, and how many acres get sown to soybeans the following spring. For example, in 2015, American farmers grew 39.461-million acres of winter wheat, and 82.650-million acres of soybeans. The following year in 2016, they planted 36.609-million acres of winter wheat and 83.433-million acres of soybeans. Last year, U.S. winter wheat acreage dropped to a record low of 32.696-million acres and soybean planting moved to a record high of 89.513-million acres.
The sum of the land area planted to these two crops typically comes in at about 122 million acres per year, so when the USDA forecasts a record fewer winter wheat seeded acres in its January 2018 crop report, we should have a fairly high degree of certainty that we’re going to see the biggest ever North American soybean crop planted in the coming spring. Likely very close to 90 million acres.
That one piece of information contained in the USDA report provides farmers with two insights which are important for marketing this coming year’s crop. The smaller winter wheat production has implications for wheat marketing, and a larger soybean crop means that growers will have to be more methodical and disciplined about their soybean marketing.
In the case of winter wheat, a slightly smaller crop in 2018 is useful in terms of giving the market a chance to grind through the extremely large ending stocks which have built up over the previous years. North American winter wheat production has actually been on a consistent decline in area for a few years now, but due to increased wheat production in other parts of the world (particularly eastern Europe), global supplies of wheat are anything but scarce. The slight decrease in 2018 winter wheat acreage to 32.600 million acres is not going to suddenly slash world wheat supplies but it certainly won’t exacerbate the situation either. It’s not reasonable to expect a sudden jump in prices due to a relatively small acreage reduction, but even a small tightening in potential new crop supply makes price more sensitive to weather issues or quality concerns as the growing season unfolds.
Of perhaps greater concern to Ontario soybean farmers is that it would appear that we are headed towards a record for the most soybean-seeded area for the second year in a row. Bigger crops and bigger inventories make it hard for prices to rally, so growers are going to need to develop some pretty sober price expectations for 2018 crop soybeans, and get serious about marketing some of this year’s production while there is still some opportunity for risk.
There’s an old saying, “sell the rumor, buy the fact.” In this case, that means that selling some new crop soybeans this winter while it’s still just a rumour that 2018 might be a really big soybean crop is going to turn out better than waiting until next October when the combines are in the field and a 91-million acre soybean harvest is a reality.
New crop soybean prices are going to bounce around a little over the winter, and weather worries will provide some rallies in the spring and early summer, but just like it was in 2017, the highest-priced soybean sales are going to have been contracted before mid-summer. Hoarding simply doesn’t work when supplies don’t get tight. The really important clue about the soybean market hidden in the January USDA report is the information about winter wheat acres.
Nine months before the next harvest, we have a pretty good signal about the size of the soybean market which we are stepping into.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.