Steve Kell’s
Market Minute
One of the major forces that drives the grain markets through the late winter and early spring is speculation over how many acres of each crop are expected to be planted in the spring, and this year is no different.
Planting intentions are the first critical step in establishing new crop supply, so agricultural commodity prices actually move during this time of year partially in an attempt to influence a farmer’s planting decisions, (buying acres), and partially in a reaction to news about seeding intentions which is different than the market’s expectations.
Radically higher fertilizer costs have been a key talking point this winter as analysts speculate about the potential size of the 2022 crop. Since a corn crop consumes a lot more fertilizer than a soybean crop, there is widespread speculation that we will see a shift in acreage this year from corn to soybeans. S&P Global suggested earlier this winter that fertilizer costs could shift as much as 3-million acres of American cropland from corn into soybeans. If that estimate turns out to be correct, it would put the United States in an unusual situation in 2022 with more acres planted to soybeans than to corn, (roughly 90 million acres of corn and 90.2 million acres of soybeans). Arlan Suderman, chief economist at Stone X has projected that we might see as much as 89 million acres of soybeans in the U.S. this year. About 1.8 million acres more than last year’s 87.2 million.
The news isn’t only about increases in soybean acres either. Farm Futures has predicted a significant jump for corn acres in 2022, up more than 1 million acres to 94.3 million acres this coming year.
The pivotal day in the run up to spring seeding is March 31 when the United States Department of Agriculture releases its annual planting intentions report. What is critical to understand is that the information contained in this report is actually gathered from American farmers from a survey which is conducted in early March. In their monthly agricultural supply and demand estimates, the USDA is already making some estimates about how many acres of each crop is going to be planted in 2022, but those estimates are made by career staffers who evaluate trends and economic data to arrive at those projections. Since the March 31 report is based on survey results from grain growers, it can be radically different than in-house estimates. There’s always the potential for the price to react to radically different news when the planting intention report drops because it’s reporting news from an entirely different source: the farmer.
In our “local” market of the Great Lakes basin, we’re likely to see an increase in both corn and soybean acres for 2022 simply because the wet field conditions last fall prevented winter wheat planting. For example, Ontario only planted about 60 % of the winter wheat acres that it had in the fall of 2020, so there is about 400,000 acres of cropland in this province that are going to get divided up amongst corn, soybeans, and other spring planted crops because crop production prospects in 2022 are simply too good to leave those acres to lie fallow. Michigan’s fall weather was very similar to Ontario’s so it’s a pretty safe bet to assume that Michigan farmers are wrestling with the same decision as we are: what’s the best crop to plant on those acres that didn’t get sown to wheat?
The marketing decision that farmers need to make as we get closer to March is whether or not we’re going to land on the right side of the March 31 Planting Intentions Report. A parade of different private sector analysts will provide a clearer picture of what the 2022 crop size will be. Regardless of which crops you are most interested in forward contracting, having some pricing orders in through the choppy moves from now until the report day is likely a good strategy.
There are two things that experience has taught me about commodity markets at this time of year. The first is that none of the analysts or estimates are going to get it right, despite their best intentions, and the other thing is that price will overreact to one or more news stories about planting intentions and potential crop size before we get to the field. The overreaction is our win if we’ve got orders to place to book some crop. Placing some escalating open orders to sell both corn and soybeans in increments at 25, 35, and 45 cents above the market could turn into some great sales as a turbulent market nervously speculates its way to the start of spring seeding in April.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.
