Inside the Market
Potential Sequel to a Most Unusual Year
Last year will long be remembered for the most difficult planting conditions in the era of modern farming, and for many in northern states, harvest conditions were nothing to brag about either.
Had U.S. soybeans not been under the plague of a Chinese tariff, planting reductions might have been split among corn and soybeans; but that's not how it went in 2019. Faced with muddy fields, late planting dates and a soybean surplus estimated near 1 billion bushels, U.S. farmers decided overwhelmingly to cut back soybean acres and hung on to whatever corn acres they could plant.
As I spoke to audiences about the situation last fall, my biggest concern was that if we saw more normal planting weather in the spring of 2020, and there was still no trade agreement with China, many of the 14.9 million acres knocked out of production in 2019 would come back and spike corn acres above 95 million -- a dangerously bearish scenario for corn prices.
I wasn't the only one with that thought. In November, USDA released its long-term projections for corn and estimated 94.5 million acres of planted corn in 2020, resulting in an ending corn stocks estimate of 2.754 billion bushels (bb) for 2020-21. If true, that large of a surplus would point to an average cash corn price below $3 a bushel, the lowest since 2006.
Fortunately for corn producers, that extremely bearish scenario looks less likely now. First of all, it is not clear yet how much planting will be able to rebound in 2020. In many areas of the Corn Belt, soils are still saturated, and we may see a hangover of acres that remain difficult to plant in 2020.
The more bullish change for new-crop corn prices should come from the phase one trade agreement with China, signed on Jan. 15. As I wrote to explain shortly after the signing, the agreement is not rock-solid, as there is a clause that acknowledges China's purchases will be based on "commercial considerations." That wording may give China an out from having to meet the agreed totals of $36.5 billion of U.S. ag purchases in 2020 and $43.5 billion in 2021.
Even so, those lofty goals don't have to be met for China's purchases to have a bullish effect on U.S. corn and soybean prices. In addition to increased exports, the big benefit for new-crop corn prices should come from a return of confidence in soybean prices providing greater encouragement for farmers to plant soybeans in 2020.
Corn and soybean prices will encounter other problems in 2020, such as increased competition from South America. U.S. planting decisions, however, are apt to see a healthier balance than what we witnessed in 2019. USDA's "Prospective Plantings" report on March 31 promises to be interesting and, as usual, we'll be keeping a close eye on the weather.
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