Dicamba herbicide products designed for use with GMO cotton and soybean have been pulled from the marketplace, or at least are in the process of being pulled. This is the result of a lawsuit filed by plaintiffs including the National Family Farm Coalition. Todd Gleason talked with the president of NFFC about the reasons why the farmer organization felt compelled to go to court to keep Dicamba, in this latest form, off the market.
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University of Illinois ag policy specialist Jonathan Coppess and ILLINOIS Extension Farm Broadcaster Todd Gleason discuss the USDA CFAP coronavirus direct payment announcement.
CFAP payments for corn and soybeans max out at 1/2 of total production and are subject to other payment limitations. The calculation compares 1/2-of-total-production to 100% of total-unpriced-inventory on January 15th. The smaller of those two numbers is multiplied by the payment rate to attain the full CFAP payment. FSA will provide a spreadsheet for the calculation and other related paperwork starting May 26, 2020.
$0.33.5 for corn
$0.47.5 for soybeans
CFAP funds will be distributed in two checks. The first will be 80% of the full amount. The second will be up-to-the remaining 20% depending on available funding. It could be prorated to a smaller amount.
This payment rate schedule was developed by University of Illinois Ag Economist Gary Schnitkey. The payment schedule is not Illinois specific or an all-inclusive commodities list. See farmers.gov for USDA CFAP details.
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That eight billion is a decline of nine percent across the nation and ILLINOIS Extension Ag Economist Gary Schnitkey says it does not include losses that have already piled up for corn and soybeans still in the bin from last year, "If you look at the 2019 crop, obviously there are losses on the 2019 crop from the sales value, we were looking forward at the 2020 crop and getting a feel for the losses on the 2020 crop."
That loss Gary Schnitkey is talking about is the difference between what farmers were expecting to make pre-COVID–19 and what they are likely to make post-COVID–19 on the 2020 corn and soybean harvest, "So we took the futures prices on that date to reflect what harvest prices would look like, projected forward the market-year-average based on that harvest price, and came up with estimates of losses given those futures prices today (May 5, 2020). We kept the trend-line yields the same, so the calculations would only show the (COVID–19) price decline as what’s happened to revenue."
The farmdoc Daily article shows these projected lost revenues by crop, but notes that, conceptually, this does not work in practice because commodity programs make payments on base acres combined not actual planted acres. Still, it provides an important guidepost. The per acre revenue difference for corn from February to May is $107 per acre. Again these are national averages and do not include any government payments. For soybeans, it is $36 per acre.
Combined the total nationwide loss from February to May is about $12 billion for the 2020 corn and soybean growing season. A projected PLC payment for corn covers about one-third of that loss says one of the articles co-authors, Ohio State University Ag Economist emeritus Carl Zulauf, "The eight-billion-dollar estimate in the article is after we’ve taken out our estimate of the PLC payment. The PLC payment right now is only for corn at the average. We do two estimates. One for a low price and one for an average price relationship. But the PLC payment at the average price relationship is covering about one-third of the total cost. So, in other words, it is around twelve-billion, but if you net it out you get to the eight-billion-dollars."
The eight-billion-dollar loss uses a basis calculation related directly to crop insurance. Stay with me here. It is the Market-Year-Average Cash Price minus the Crop Insurance Harvest Price. That’s 8 under for corn and 2 under for soybeans. If you use a wider basis under a low price scenario, say where there is a burdensome ending stocks number, those are 28 under for corn and 43 under for soybeans. In that case revenue loss is over $10 billion.
You may read the article summarizing the impact of COVID–19 on a corn and soybean farm on the farmDOC daily website.
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by Emerson Nafziger, ILLINOIS Extension Agronomist
March rainfall in Illinois ranged from normal to a couple of inches above normal, but the last week of March and first week of April have been relatively dry, and field operations are getting underway. The April 6 NASS report indicates that there were 3.1 days suitable for fieldwork in Illinois during the week ending on April 5, but no planting was recorded. As is often the case in early April, soils are wet over most of the state.
The 4-inch soil temperatures at 10 AM have been close to 50 degrees in southern Illinois, and over the past week they have increased from the low 40s to the mid–40s in central and northern Illinois. The forecast is for a return to cooler weather later this week, and possibly to wetter conditions as well. Such “yo-yoing” is normal for April, and it often brings up questions about what to do when the weather forecast is for conditions to deteriorate as planting approaches. Do we plant or do we wait?
There is no question that the ideal is for seed of both corn and soybean to be planted into soils that are relatively dry, and that are warm (and warming) enough to allow germination and emergence to get started quickly, and plants to grow steadily after emergence. The most recent example of the benefits of this was in 2018, when planting was delayed until May, then May weather was very warm, and the crops “never looked back” on their way to new yield records. In 2017, early corn planting was followed by a week of cool, wet weather, which led to a lot of replanting. The replanted crop often yielded more than the first crop, almost certainly because it had warmer conditions under which to germinate and begin to grow.
Having soils stay dry after early planting into cool soils is much better than having them turn wet: the germination process is very slow at low temperatures, so seeds will bide their time until soils warm up, and dry soils are a safer place to do that. If it turns wet, seeds will last longer in cool soils than in warm ones, both because low temperatures delay the germination process (and the demand for oxygen), and because colder water contains more oxygen than warmer water. Still, seeds that spend a week or more in wet soils at temperatures in the low 40s are subject to “imbibitional chilling injury” that can mean abnormal growth and poor emergence even if seeds survive. This is considered more of a problem in corn than in soybean, in part because more soybean seeds than corn seeds tend to die under such conditions and so don’t show those symptoms.
Now that we’ve passed the first week of April, plantings of this year’s corn or soybean crops from now on can’t be considered “very early”, but the message from some agronomists about the need to plant soybeans as early as March continues, and more producers are choosing to begin planting soybeans before they begin planting corn. With planting date responses for the two crops essentially identical on a percentage basis, which crop to start with is more or less a tossup. The deciding factor in that case should often be which fields are ready first. Fields where soybeans grew last year will often be in good shape to plant earlier than those where corn grew, and that may mean planting some corn first. It certainly makes little sense to plant soybeans when it’s too wet just to plant them earlier than corn.
I have mentioned before the possibility that soybeans planted very early—in March or early April—might occasionally yield less than those planted in late April or early May. I dug up some data from a study that we did back in 2001–2003 in which we started planting as soon as we could (without planting in mud) using different seeding rates and varieties with different maturities. Figure 1 shows yields from this study, with planting date averaged over sites. Yields were not as high as we’d expect today, but the earliest planting yielded the least of all the planting dates. This was not due to low stands, with the exception of the Urbana site in 2001, when it froze (temperatures in the upper 20s) just as the crop was emerging, and about half of the plants from the first planting date were killed. We had five sites in southern Illinois, where average yields were even lower, but the earliest planting there (average of April 15) yielded less than either the early May or late May planting.
Figure 1. Soybean planting date responses over nine trials in central/northern Illinois, 2001–2003.
While changes in seed quality, spring weather, and perhaps genetics have lowered the threat of such losses from very early planting, we can’t rule out the possibility that planting soybeans in March or early April may not always maximize yield. That’s not necessarily because of stand loss from frost or wet soils. Frost can typically kill soybean plants only in a one- or two-day window as the plants are breaking through the soil surface. Frost that occurs after the first two leaves unroll can kill the growing point, but then buds will break and form (usually two) new stems. Most low stands in soybeans follow heavy rainfall soon after planting, and chances of that happening are not closely tied to when the crop is planted. Instead, the evidence is that low temperature stress during early growth may limit node and seed number per plant, therefore limiting yield potential. The fact that the earliest planting in northern Illinois responded so much to seeding rate reflects the fact that these plants did not have as many seeds as those planted later.
One of the incentives to plant soybeans very early is that some seed companies provide free replant seed. I do not know if “free” includes the cost of seed treatments (for replant seed) that are commonly applied to soybean seed at the point of sale. Soybean seed meant for early planting is often treated with several plant protectants, including ILeVO® for decreasing the incidence of SDS. That disease is generally considered more likely to be a problem when soybeans are planted into cold soils.
The debate among agronomists regarding the merits of planting soybeans in March or early April—before the start of corn planting—is still alive, but focusing on “corn versus soybean” as if it’s a contest mostly misses the point. Both corn and soybean benefit from early planting most of the time, and both face similar risks when conditions deteriorate after we plant early. We shouldn’t decide when to start planting or which crop gets priority based on how “tough” each crop is or on trying to prove someone wrong. The goal instead is to minimize risk and to maximize yield potential. The 2019 growing season was such that that penalty from late planting was relatively less for soybeans than for corn. That doesn’t mean that corn should get first planting priority this year. Both crops should get priority, with actual planting order determined by factors such as logistics, how fast fields dry, and crop insurance.
Recent research on how both corn and soybeans respond to planting date in Illinois is summarized below in Figure 2. I’ve shown both lines on the same figure before, but here I’m including the actual data for both crops along with the curves in order to show how variability changes as planting is delayed. While we did not try to plant soybeans before mid-April in this study, note that hardly any of the April soybean plantings produced less than maximum yields in these trials. With mid-April plantings yielding the same as late-April plantings, it seems unlikely that yields from planting in March would have been higher than those from planting in April.
Figure 2. Corn and soybean planting date responses in Illinois trials. Each trial included four planting dates, and yields were converted to percent of the maximum yield in that trial.
Unlike soybean, the earliest planting dates for corn did not consistently produce the highest yields in the trials shown in Figure 2. This was not due to poor stands or frost damage, but was the result of growing conditions later in the season, and was more common when yields levels were lower. It’s difficult to untangle what happened in each of these, but in a few cases the early-planted crop experienced cool temperatures in May that might have lowered yield potential. The growing season was relatively dry in some of these sites as well, and small differences in rainfall timing could have favored the crop that was planted a little later. We added an additional planting date in mid-March in the very dry spring of 2012, and lost about half of the stand to frost during the second week of April.
Recent developments in automated depth and down-pressure controls on planters have brought new attention to the issues of planting depth and seed placement. While research done over a few sites often identifies a “best” depth, such results don’t very well predict what the best depth will be in a given field the next time. We can guess the best planting depth about as well as we can guess the weather, although the depth decision is easier in some soils than in others. Most studies include planting both too shallow and too deep, with a few depths in the middle, and results typically show, to no one’s surprise, that it is better to avoid planting too shallow or too deep.
An additional feature available on some planters is a sensor for soil moisture coupled with the ability to vary planting depth based on where in the soil there’s enough moisture to get germination started. This has potential for dry areas where soil moisture frequently is low during the planting season. But I think we need to be cautious with this in the eastern Corn Belt, where soils are heavier and where heavy rainfall after planting and before emergence is a much serious threat to stand establishment than dry soil at planting. Planting deeper means that emergence almost always takes longer, and that means more chances of having problems related to wet soils and surface compaction (crusting) as soils dry out after they get wet. In practice, I think this means that planting 3 inches deep or deeper in most Illinois soils (sandy soil is an exception), even if that’s where soil moisture is adequate, has a better chance of lowering stand counts than it does of increasing them. Most corn seed has the ability to emerge from 3 inches deep if soil conditions are good, but when soil conditions deteriorate after planting, those three inches can turn onto an obstacle course for seedlings. That can compromise stands and stand uniformity, both of which are needed for getting the highest yields.
Today’s planters do a good job of pressing soil against seeds for the sides and above, resulting in good seed-soil contact without compacting the soil above the seed. Good seed-soil contact forms a conduit by which water can move through the soil into the seed as germination begins. That effectively enlarges the soil volume from which seeds can draw water, which means that even soils with lower moisture content often have enough water to allow germination, especially in silt loam and silty clay loam soils without clods. Clods form when soil that was tilled when it was wet dries out. With less tillage and less time between tillage and planting today, soils often do not to dry out very much before planting. As a result, uneven stands due to uneven soil moisture is relatively rare in most Illinois fields. Those who can’t remember when they last saw uneven stands due to uneven soil moisture at planting—that is, times when some seeds had to wait for rain before they emerged—might have reason to question the advisability of having soil moisture determine how deep seeds are planted.
So where, between too shallow (let’s say one inch) and too deep (3 inches in most soils) should we plant? Soybeans planted in the first half of April with soil temperatures (2 inches deep measured at 7 or 8 AM) less than 50 should probably be planted 1.25 to 1.5 inches deep, and corn at least 1.5 inches deep. When planting into warmer soils later in April or in May, 1.5 inches is good for soybeans and 1.75 inches for corn. Manually changing planting depth on a 24-row planter is good exercise, but may not always be worth the time it takes. As long as we’re planting between 1.5 and 2 inches deep, it’s not clear that trying to fine-tune depth based on current and future soil conditions has much potential to improve stands.
Especially when planters move at speeds of 6 mph or faster and when the soil surface is not very smooth, some seeds end up shallower and some deeper than the nominal setting. Equipment and seed companies have looked at the effect of planting depth on stands and yields, and have in some cases managed to produce large yield differences by employing “mistake” settings. Measuring the uniformity of seeding depth by digging up seeds is difficult, but high-speed cameras can estimate depth as seeds drop and settle in place. One study done by digging up corn roots at maturity reported a standard deviation of about an eighth of an inch, which would mean that about 5 percent of seeds would be at least a quarter of an inch shallower or deeper than the average. That’s probably acceptable at normal planing depths. More weight and more uniform down-pressure have improved planting depth uniformity, and if 75 percent or more of plants emerge over a period of about 15 growing degree days (24 hours at average temperature, longer than that if it’s cool) and the rest within one more day, it’s unlikely that any yield has been lost due to non-uniformity of planting depth.
Uniformity of distance between seeds is good enough to maximize yield potential in most fields, and needs no further mention. Despite what yield contest winners say they do, there is no reason for most people to plant slower than they do now. If the monitor says enough seeds are being dropped, and either the monitor or previous experience (by seeing how stands look after emergence) say they’re spaced uniformly enough, they probably are.
Most people have decreased the number of soybean seeds dropped per acre over the past decade or so, but seed quality has also improved, and so the number of plants needed to maximize yield has probably not decreased as much as the seeding rate. We know that seeding rate responses are highly variable: in a series of 25 seeding rate studies in Illinois between 2015 and 2018, we found that the stand (not seed) numbers needed to maximum dollar return to seed ranged from 50 to 200 thousand, and there was no correlation between yield and plant stand needed to produce that yield. That means that the best way to set seeding rates is to average over seeding rate trials to get a best-guess prediction.
Averaged over the 25 responses, the plant stand needed to maximize the net return to seed was about 107,000 plants. At 80% stand establishment, that would require planting 134,000 seeds per acre. While that seems like a reasonable seeding rate, the “best” seeding rate was higher than that in about half of the trials and less than that in the others. Responses were fairly flat in most of the trials, though, which says that moving around within a range of 125,000 to 145,000 seeds per acre won’t miss the mark by much. If you expect emergence to be higher than 80%, seeding rates can be decreased. If you’ve gotten good yields planting only 100,000 or 110,000 seeds in the past, feel free to do that again. Keep in mind, though, that yield responses to seeding rate may not be very visible. So while 100,000 seeds might produce a good yield of 75 bushels, using 130,000 seeds might increase that by 2 bushels, which won’t look like much but would increase profits by $12–13 per acre.
The response of corn to plant population is much more consistent that for soybeans. Figure 3 below shows the response to corn plant population over 44 trials in Illinois between 2012 and 2018. Each trial included four to six hybrids, with planted populations ranging from 18,000 to 50,000 per acre. Final stand closely matched seeding rate, so they’re used interchangeably. The average yield at the 100% (of maximum) yield level was 237 bushels per acre. We used a wide range of seeding rates in order to produce visible responses, even though we know that this range extends far outside the range that producers might consider. Yields at 48–50,000 plants were lower than those at 34–36,000. So what we chose as the high end of the range ending up “bending” the curve, which changed where it reaches a maximum. The curve fitted to yields from the populations up to and including 42,000 shows that the maximum yield was produced at 36,900 plants per acre, and the optimum population—where the last seeds added were paid for by the increase in yield—was 33,400 plants per acre.
Figure 3. Corn plant population response over 44 trials in Illinois, 2012–2018.
It’s also worth noting that, although we find best returns from plant populations in the 32,000 to 35,000 per acre, having them a few thousand higher or lower is not going to change yields or net returns by very much. Yield level doesn’t make much difference: yields in 2012 were about 50 bushels lower than in the highest-yielding years of this study, but the population response was about the same as in other years. Going up to 40,000 isn’t very likely to increase yields, but it won’t increase costs much, either, so it won’t do much harm in productive soils. Marlin Jeschke of Pioneer recently reported that harvest populations for non-irrigated entries in the NCGA Corn Yield Contest over the past five years was 36,700, so it’s clear that current hybrids don’t don’t require unusually high populations to produce high yields.
If planting is delayed in 2020
Should management of corn or soybean change if planting is delayed in 2020 like it was in 2019? We’re certainly hoping that any delays are not on the scale that we saw in 2019, but we did not see many signs last year of things we should change if planting is late in 2020. That may have been because of good weather and good yields even after the late planting. About the only thing we might want to consider if corn planting is delayed into June is to move to earlier–maturing hybrids in the northern part of Illinois. Hybrid strip trials planted in that region in early June last year showed lower yield for hybrids later than 107–108 days RM. We did not see this with late-planted soybeans there, nor for either corn or soybeans in central and southern Illinois.
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link to farmdocdaily article
At its recent Agricultural Outlook Forum, the U.S. Department of Agriculture (USDA) released estimates of 2020 planted acres in the United States, with both corn and soybean acres increasing from 2019 levels (see Grain and Oilseed Outlook, February 21, 2020). When compared to 2018 plantings, USDA is projecting a 2020 shift to more corn acres and fewer soybean acres across the United States. Projecting this shift across the U.S. seems reasonable. However, most of those shifts likely will occur outside of the corn belt. Estimated 2020 profitability in Illinois suggests relatively even acres of corn and soybeans in Illinois.
A University of Illinois agricultural economist says corn is likely to be more profitable than soybeans this year across the state. However, as Todd Gleason reports, historical relationships do not suggest large acreage shifts in the state.
Projected Acreage Shifts in the U.S. For corn and soybeans, USDA is projecting higher acreages in 2020, partly because 2019 acres were reduced because of prevented plantings (see Figure 1). Corn acres are expected to increase 4 million acres from 90 million acres in 2019 to 94 million acres in 2020. Soybean acres are projected to increase by 9 million acres from 76 million in 2019 to 85 million in 2020. Wheat acres are projected to remain the same in 2019 and 2020 at 45 million acres.
Given the prevalence of prevented planting acres in 2019, comparing acreage shifts from 2018 to 2020 provide a better illustration of recent trade difficulties impacts on expected acreage. These trade difficulties lowered soybean prices while corn prices remained roughly the same. National Market Year Average (MYA) prices for soybeans reported by the National Agricultural Statistical Service (NASS) were $9.47 per bushel in 2016 and $9.33 per bushel in 2017, the two years immediately preceding trade difficulties. Soybean prices are not projected to average above $9.00 from 2018 through 2020: $8.66 per bushel in 2018, a projected $8.70 in 2019, and a projected $8.80 in 2020.
While soybean prices decreased, corn prices increased. MYA prices for corn were $3.36 per bushel in both 2016 and 2017. MYA price averaged $3.55 in 2018 and are projected at $3.80 in 2019 and $3.60 in 2020. These price changes caused corn returns to increase relative to soybean, leading to incentives to plant more corn acres. Between 2018 and 2020, corn acres are projected to grow 5 million from 89 million in 2018 to 94 million in 2020. Soybean acres are projected to decrease 4 million from 89 million acres in 2018 to 85 million acres in 2020.
Illinois Corn and Soybean Acres Because of prevented plantings, both corn and soybean plantings in Illinois were down in 2019 from 2018 levels. Corn plantings were 10.5 million acres in 2019, down from 11.0 million in 2018. Soybean planted were 10.0 million acres in 2019, down from 10.8 million acres in 2018.
Except for 2019, total acres in corn and soybeans in Illinois have remained about the same since 1990 at about 21.7 million acres. Prevented plant acres reduced this total in 2019 by 1.2 million acres. While total acres in corn and soybeans have remained the same, shifts in corn and soybean acres have occurred over time.
From 1998 to 2003, corn and soybean acres were relatively near one another, with corn acres exceeding soybean acres by less than 1 million acres (see Figure 2). During the 2007–2014 period, corn use in ethanol increased, resulting in higher corn prices relative to soybean prices, increasing the profitability of corn relative to soybeans, leading to more corn acres and fewer soybean acres. From 2007 to 2012, corn acres exceeded soybean acres by at least 2.0 million acres, with the largest difference of 4.9 million acres occurring in 2007. The build of ethanol capacity ended in the mid–2010s, while Chinese demand for soybeans continued to grow until 2018. Corn profitability fell relative to soybeans, and farmers switched acres from corn to soybeans. In 2018, 11.0 million corn acres were planted in Illinois, only 200,000 acres more than 10.8 million acres of soybean plantings. In 2019, corn acres were 10.5 million, 500,000 more than the 10.0 million of soybean planting. USDA has not projected state levels of corn and soybean production for 2020.
Profitability of Corn and Soybean in Illinois Historical shifts in corn and soybean acres in Illinois have been related to the relative profitability of corn and soybeans. Figure 3 shows corn returns minus soybean returns from Central Illinois farms having high-productivity farmland enrolled in Illinois Farm Business Farm Management (FBFM). Positive values indicate that corn was more profitable than soybeans. Conversely, negative values indicate that soybeans are more profitable than corn.
From 2000 to 2002, corn and soybean returns were roughly the same (see Figure 3). Corn-minus-soybean returns were $30 per acre in 2000, $13 in 2001, and -$6 in 2002. During this period, corn and soybean acres were relatively near one another.
From 2003 to 2012, corn returns exceeded soybean returns in all years, except 2009 (see Figure 3). Corn returns were over $50 higher than soybean returns in 2006, 2007, 2008, 2011, and 2012. During this period, corn acres in Illinois grew while soybean acres declined.
From 2013 to 2018, soybeans were more profitable than corn (see Figure 3). Soybean returns exceeded corn returns by more than $50 per acre in 2016, 2017, and 2018. During these years, farmers switched acres back to soybeans.
In 2019, corn was more profitable than soybeans by $34 per acre. Responses to 2019 profitability differences are somewhat clouded because of late and prevented planting. Both corn and soybean acres were down in 2019. In a late planting year, one expects soybean acres to increase relative to corn acres because soybeans traditionally have lower yield declines than corn in a late planting year. In 2019, corn acres may have declined more had not there been expectations of higher corn prices in June.
In 2020, corn is projected to be $21 per acre higher than soybeans. This difference between corn and soybean profitability is not large, suggesting that large acreage shifts will not occur. The $20 per acre projected difference in 2020 is roughly the same as realized differences from 2000 to 2002. During those years, corn acres exceeded soybean acres by only a small margin. Given 21.7 million acres of corn and soybean plantings in Illinois, having 11.0 million acres of corn and 10.7 acres of soybeans seems reasonable.
Summary At this point, corn is projected to be more profitable than soybeans in Illinois. However, historical relationships do not suggest large acreage shifts in Illinois. Corn and soybean acres in Illinois likely will be near one another. Major shifts in acres to corn from soybeans across the United States likely will come from outside the corn belt.
References U.S. Department of Agriculture. “Grains and Oilseeds Outlook.” Agricultural Outlook Forum 2020. Released February 21, 2020. https://www.usda.gov/oce/forum/2020/outlooks/Grains_and_Oilseeds.pdf
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The price of soybeans may have put in a seasonal low but there are a lot of factors at play. Todd Gleason has more on what farmers should do with University of Illinois Agricultural economist Todd Hubbs.
September 16, 2019
by Todd Hubbs, University of Illinois
Last week’s price rally in the soybean market relied on the prospects of easing trade tensions with China. The potential for soybean prices to maintain recent momentum depends on developments in trade negotiations and production prospects for both the U.S. and South America.
USDA’s September soybean production forecast came in at 3.633 billion bushels, down 47 million bushels from the August forecast. Yield per harvested acre fell by 0.6 bushels per acre to 47.9 from the August forecast of 48.5. Compared to the August forecast, yield prospects for the top ten states in soybean acreage increased in Missouri and Kansas. Yield prospects declined in Illinois, Iowa, Minnesota, Indiana, and South Dakota. North Dakota, Nebraska, and Ohio saw no change in expected yield from August.
The crop production report showed the lowest pod count for the 11-states in the objective yield survey since 2012. At 1,561 pods per 18-square feet, this year’s pod count led to an implied pod weight near 0.35 grams per pod. A pod weight at this level is the highest in a decade and led to speculation about potential lower pod weights in this late-planted crop. Over the last five years, pod counts increased from the September forecast to the final yield estimate. Pod weights over the same period fell in four out of the five years.
In conjunction with the lower production forecast, total supply for the 2019–20 marketing year dropped an additional 65 million bushels, to 4.658 billion bushels, on lower beginning stocks. Soybean crush and export estimates for the 2018–19 marketing year increased by 20 and 45 million bushels, respectively. The USDA left the 2019–20 soybean export forecast 1.775 billion bushels and the crush forecast at 2.115 billion bushels. Ending stocks for the 2019–20 marketing year fell to 640 million bushels, down 115 million bushels from the August projection. While expectations of strong crush levels remains in place for the next marketing year, the prospects of maintaining higher soybean prices fall on exports or production issues. The recent thaw in trade negotiations between China and the U.S. came as a rare positive development this year and prompted the rally in prices last week.
Soybean exports for 2018–19 came in down approximately 390 million bushels from the previous marketing year. Exports to China, using export sales data on accumulated exports, fell 544 million bushels from the previous marketing year and 835 million bushels from the 2016–17 marketing year. At around 490 million bushels, U.S. soybean exports to China have not been this low since the 2006–07 marketing year. The recent announcement of lower tariffs on soybeans and pork look to support soybean prices, but clarity on the level of tariff reductions and a guarantee of following through by Chinese buyers remain lacking. For the current marketing year through September 5, outstanding sales and accumulated exports total 39.3 million bushels. Recent reports place Chinese purchases in the range of 29.5 million bushels (804 thousand metric tons). Additional purchases may total between 37 – 110 million bushels. This amount of buying remains a long way from the levels of export needed to support prices in the long-term but provides a positive development on the trade front.
New agreements with Argentina and Russia on meal imports combined with an expanded emphasis to rebuilding the hog herd decimated by African swine fever point towards China preparing for an extended fight in the trade war. Additionally, Chinese soybean production sits at a forecast level of 628 million bushels, up 8 percent from last year. The lull in the trade fight may allow China to backfill soybeans and pork to alleviate domestic pressures and settle in for a protracted battle. While Chinese buying of South American soybeans may cool in the near term, the potential for U.S. soybean exports to remain at reduced levels from pre-trade war totals in the 2019–20 marketing year continues as a high probability. Soybean production prospects in South America will continue to be crucial over the next few months, particularly if the trade war rekindles.
The forecast of South American production for the 2019–20 marketing year came in at 7.03 billion bushels, up 2.4 percent from last year’s estimate. The projected size of the Brazilian soybean crop increased by 220 million bushels to a production level of 4.52 billion bushels. The soybean production forecast for Argentina decreased 84 million bushels from last year’s estimate to 2.032 billion bushels. Some early season dryness in southern Brazil and Argentina merits monitoring. A continuation of the current dryness may delay planting in some areas. However, it remains too early to forecast any definitive change in soybean production in those regions.
If production issues do not materialize, the status of the trade war will be paramount. Current U.S. crop prospects point to maintaining some of the recent price gains. A failure of trade negotiations in October may push prices back to ranges seen in early September. Marketing soybeans on price rallies associated with trade negotiations and weather may be prudent. The uncertainty related to production levels and trade remains exceptionally high.
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by Todd Hubbs, University of Illinois Extension
link to farmdocDaily article and video
On June 28, the USDA released the Acreage and Grain Stocks reports. While the Grain Stocks report provided support for both corn and soybeans, the Acreage report indicated higher than expected corn acres and lower than expected soybean acres. The acreage numbers injected a substantial amount of uncertainty into both markets that appears set to stay in place throughout the summer.
The 2019 June USDA Acreage Report rocked the corn market. University of Illinois Agricultural Economist Todd Hubbs explores those numbers in this interview with ILLINOIS Extension Farm Broadcaster Todd Gleason.
A dramatic drop in principal crop acreage provided one of the many surprises in the Acreage report released on Friday. Driven by much lower soybean and wheat acreage, total principal crop acreage came in at 309.3 million acres, down 6.1 million acres from the March Prospective Planting report. Principal crop acreage estimates decreased by 10.3 million acres from 2018 totals. Significant increases over last year’s acreage occurred in corn (2.57 million acres) and barley acreage (314,000 acres). The vast majority of crops witnessed acreage decreases from last year. Soybean acreage led the way with a 9.2 million acre decrease. Wheat acreage came in down 2.19 million acres.
An extraordinary year for corn production took another unexpected turn on Friday. Corn producers reported they intended to plant 91.7 million acres of corn this year. Corn planted acres came in 1.1 million acres lower than March planting intentions, but well above expectations due to delayed planting. When compared to March planting intentions in major producing states, the June survey revealed higher corn acres in Kentucky (220,000 acres), Kansas (200,000 acres), and Nebraska (300,000 acres). Acreage lower than March intentions in South Dakota (1.2 million acres) and North Dakota (350,000 acres) offset gains seen in other areas of the western Corn Belt. Surprisingly, the major producing states in the eastern Corn Belt saw slight to no changes from the March intentions.
The USDA reported 16.7 percent of the corn acreage (15.3 million acres) remained unplanted as of the survey period and indicated an intention to re-interview 13 of the 18 major corn-producing states in July for the August production report. The prospect of considerable prevented planting acreage in the eastern Corn Belt places the 91.7 million acres reported in the June report in question. The shift out of soybeans and most feed grains may indicate an expansion of the base corn acreage intended for planting in 2019. A lack of clarity about prevented planting acreage reported in the June survey window remains a concern and points toward further downward revisions in the August Crop Production report.
The corn stocks report provided some positive news for corn use. June 1 corn stocks came in at 5.2 billion bushels, nearly 103 million bushels lower than last year and 130 million bushels smaller than the average trade guess. Estimation of total disappearance during the quarter is 3.41 billion bushels. Estimated third quarter feed and residual use come in at 1.13 million bushels. Estimates of feed and residual use during the first three quarters of the marketing year sits at 4.615 billion bushels. To reach the projected 5.3 billion bushels of corn projected for feed and residual this marketing year, feed and residual use in the fourth quarter must equal 685 million bushels. Based on current stocks estimate, it appears feed and residual use this year is on track to hit the current USDA projection.
Soybean producers intended to plant 80 million acres of soybeans. The soybean acreage intentions came in below market expectations. Soybean planted acres fell by 4.6 million acres from the March planting intentions. At the time of the survey in early June, producers indicated that 41.2 percent of the intended soybean acreage (33 million acres) remained unplanted. Soybean acreage came in lower than last year’s totals in every state that reported in the June survey. The most substantial adjustments came in South Dakota (1.25 million acres), North Dakota (1 million acres), Iowa (900,000 acres), and Minnesota (900,000 acres). The substantial drop in soybean acreage may indicate issues with planting, but the large totals left to plant place the soybean acreage estimate in question as well. USDA plans to re-interview 14 of the 18 major soybean-producing states in July.
The June 1 soybean stocks estimate indicated a record 1.79 billion bushels, up 571 million bushels from last year. The stocks estimate came in 71 million bushels below market expectations. To meet the current USDA projection for soybean ending stocks, 720 million bushels of use is necessary for the fourth quarter. Despite the continued uncertainty in trade negotiations and record stocks, June 1 soybean stocks are neutral for soybean prices as soybean consumption maintains a pace to meet USDA projections for the marketing year.
Corn futures prices saw a dramatic drop with the release of the Acreage report. Soybean prices drove higher on the lower supply expected under reduced acreage. Uncertainty regarding corn and soybean acreage looks to continue through the August production report. If the corn acreage total ends up at the reported level in the June Acreage report, the prospect for corn yield moves to the forefront of supply expectations this year. By re-interviewing many major producing states for both corn and soybean acreage, USDA may be signaling revisions to come.
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by Todd Hubbs, University of Illinois
link to farmdocDaily post
Corn futures prices rallied about $0.90 per bushel since the beginning of May. The rally reflects expectations that planted acreage will fall well short of March intentions and on yield concerns associated with wide-ranging late planting. Demand weakness continues to emerge in the export market, but supply issues look to overwhelm any decrease in demand. The release of USDA’s Grain Stocks and Acreage reports on June 28 looks to set the tone for summer corn prices.
The end of the month USDA Grain Stocks and Acreage reports are less than two weeks away. Todd Gleason talks with University of Illinois ag economist and commodity marketing specialist about the projected numbers and how farmers should set this self up for marketing this year’s corn and soybean crops.
The reduction in corn planted acreage by three million acres and corn yield by 10 bushels per acre in the June WASDE appears to be a harbinger of things to come this year. The June estimate of planted acreage of corn is generally expected to be far less than intentions of 92.8 million acres reported in March. The only question remaining is the scale of acreage loss. The magnitude of prevented planting acres this year looks to eclipse the previous record of 3.6 million acres in 2013 by a wide margin. As of June 9, 14.5 million acres remained unplanted in the 18 states reported in the Crop Progress report. The amount of prevented planted acreage in those estimates remains uncertain, but the prospect of planting more than 14 million acres of corn after June 10 seems daunting.
Additionally, some acreage may have been switched to soybeans due to delayed corn planting over large areas of the Corn Belt. Recent wet weather brings soybean acreage planting into question as well. However, the prospect of a new round of Market Facilitation Payments provides a strong incentive to plant soybeans in the second half of June if weather permits. The June acreage estimate will probably not be changed until FSA certified acreage data becomes available in October. The final acreage estimate released in January tends to be less than the June estimate. Since 1996, the final estimate averaged 626 thousand acres less than the June acreage report in years when prevented planting acreage exceeded one million acres. This year may see a substantial drop from the June acreage estimate due to the uncertainty about planting during the survey period.
While the supply situation looks increasingly supportive of corn prices, current levels of corn use show weakness; particularly in the export market. The estimate of June 1corn stocks will reflect the recent decrease in consumption and reveal the pace of feed and residual use during the third quarter of the marketing year. The expected size of June 1 stocks can be calculated based on consumption data that are currently available and on the assumption that feed and residual use is on pace with the USDA projection of 5.3 billion bushels for the year. Based on the USDA’s Grain Crushings and Co-Products Production reports for March and April and on the EIA weekly estimates of ethanol production during May, corn used for ethanol production during the third quarter of the marketing year is estimated at 1.347 billion bushels. Corn used for other domestic industrial products is estimated at 362 million bushels.
Cumulative export inspections during the first three quarters of the marketing year totaled 1.549 billion bushels. Through April, Census export estimates exceeded export inspections by 149 million bushels. If that margin continued through May, exports during the first three quarters of the year totaled 1.698 billion bushels and indicated exports during the third quarter at 566 million bushels.
For the marketing year, the USDA projects feed and residual use of corn at 5.3 billion bushels. Feed and residual use during the first half of the year totaled 3.487 billion bushels. Use during the last half of the year needs to equal 1.813 billion bushels for total use to reach the USDA projection. Third and fourth quarter feed and residual use vary substantially over time. Feed and residual use near 954 million bushels during the third quarter this year sits close to the center of the range based on the historical data. With March 1 stocks of 8.605 billion bushels and imports during the quarter of 8 million bushels, the estimates of consumption during the quarter point to June 1 stocks of 5.384 billion bushels, 79 million larger than stocks of a year ago. A deviation from June 1 stocks less than 100 million bushels from the current estimate will not engender much price movement. The Acreage report on June 28 should overwhelm any information in the stocks report.
Uncertainty about corn acreage looks to remain in place through the summer. Weakening demand should not be a hindrance to a continued price rally since the supply situation is quite dismal. Strengthening corn basis and futures prices point to marketing strategies involving delayed pricing of the new crop. Price objectives need to be set to take advantage of current corn market dynamics. Managing crop price risk can be accomplished with a variety of marketing strategies. It is essential to have a marketing strategy since supply shocks provide a limited time frame to take advantage of pricing opportunities. The strategy probably should include plans for pricing some of the 2020 crop.
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The agricultural sector is caught up in a storm of change. Political and economic forces have been squeezing trade on the global front and U.S. farmers have been leaning into the winds. We take up a few of these topics in this edition of the WILLAg Newsletter.
- Trade with China
- Profile of USTR Lighthizer
- USDA Ag Outlook Forum
- Corn Acreage in 2019
- Expected Corn vs Soybean Returns
- 2018 Ethanol Plant Losses
Tickets are available online or by calling 800–898–1065.
Hope to See You There!
Todd E. Gleason, Farm Broadcaster
University of Illinois Extension | WILLAg.org
Trade with China
Friday the Chinese trade delegation gathered in the Oval Office with President Trump. A letter from President Xi was read out loud. It urged a continued push toward a final trade deal. The only firm detail to come out of the week’s worth of talks in Washington was a commitment to purchase 10mmt of soybeans. USDA issued an official release on the announcement. It did not include a timeline for the purchases. CNBC reported the Chinese had offered to guarantee purchases of $1.2 trillion dollars of U.S. goods. Again, there was no timeline issued and this point has not been confirmed by any other outlet, the White House, or the Chinese.
During the week the trade discussions in Washington, D.C. pointed to five MOU’s. These Memorandums of Understanding included one on agriculture and were how U.S. Trade Representative Robert Lighthizer had decided to break down the issues in order to tackle them; agriculture, non-tariff barriers, services, technology transfer & intellectual property.
President Trump during the Oval Office meeting Friday pushed aside the MOU’s. He interrupted Trade Representative Lighthizer in front of the Chinese. Lighthizer was trying to explain how the MOUs would build the foundation of a trade deal. Mr. Trump stopped him and said, “I disagree. I think that a memorandum of understanding is not a contract to the extent that we want.” Lighthizer agreed that the term MOU would not be used again.
The important point in this exchange is likely not the MOU discussion. The President interrupted and corrected his lead trade negotiator in front of the Chinese delegation. Clearly, if a trade deal is to be struck it can only be done one-on-one between Presidents Trump and Xi. They may meet next month at Mar-A-Lago.
Mr. Trump has long focused on closing the trade gap with China. The other issues have not been of very much importance to him although he does mention China stealing and intellectual property rights. A trade deal with China is one of the President’s campaign promises. The dazzling $1.2 trillion number CNBC reported might be very enticing to a man who has had a habit of fulfilling his campaign promises.
If it is completed in this fashion, without enforcement mechanisms or real intellectual property rights protections, then as President Trump has said recently Democrats won’t go along. Republicans are likely to stay mum as the deal sets idle in Congress and simply becomes a presidential election year rallying cry. Presidents negotiate trade deals. Congress approves them.
Profile of USTR Lighthizer
NPR profiled Trade Representative Lighthizer this week. Please take six minutes to listen. It’ll be worth your while to know a whole lot more about the man leading the trade negotiations with China.
USDA Ag Outlook Forum
This week USDA put on its 95th Annual Agricultural Outlook Forum. It provides some initial numbers the trade uses to project the 2019 growing season into the markets until official USDA reports are issued. The first supply and demand report for the 2019/20 growing season will be issued in May. The March 29 Prospective Plantings report will provide survey results of what farmers think their acreage mix will look like this year. Here you will find some of the powerpoint slides U.S.D.A. Chief Economist Robert Johansson presented in the opening session and the full supply and demand tables presented Friday morning.
You may watch the full opening session of the 2019 USDA Agricultural Outlook Forum. It took place in Washington, D.C. February 21 and 22.
Corn Acreage in 2019
read farmdocDaily article
The number of acres of corn planted this spring will be a key factor in determining where the price of corn goes. University of Illinois Agricultural Economist Todd Hubbs took up the issue in this week’s farmdocDaily article.
He starts with a historical graph. It shows the principal crop acres in the United States and how those have changed since 1997. Both corn and soybean acreage have increased. Combined they’re up about 10 percent over the past two decades.
Illinois’ Todd Hubbs uses that history to help put the number or corn and soybeans acres into perspective, “When we look at the harvest month corn to soybean futures price ratio this year it has been about 2.37. There is a definite signal in this graph from about 2006 to 2018 that if you are above 2.4 in that ratio, there will be less corn acreage. If you are below 2.3 there will be more corn acreage. We are, today, sitting right in between those. We’ve seen problems with field work in large parts of the corn belt. We’ve seen fertilizer and other input costs go up on corn. So, the idea that we are going to see a massive increase in corn acreage could happen, but under the current price structure we might not see the kind of corn acreage we think we are going to see.”
Hubbs says he used the 2019–20 futures prices to forward calculate a seasons average cash price for new crop corn. His calculation points to $3.81 per bushel. He then figured a stocks to use ratio that would fit that number, “I think an 11% stocks to use ratio in 2019–2020 would give us $3.81. If consumption is constant at 14.8 billion bushels from this marketing year to the next, that would put corn acreage around 91.7 million at a national trend line yield of 174.6 bushels to the acre.”
Finally, Hubbs says there isn’t a lot of weather premium priced into new crop corn futures. He also says there isn’t much of premium built in for a possible trade deal with China. Hubbs thinks that may be just as bullish for corn as it is for soybeans. Right now he thinks the 2.37 soybean/corn ratio feels high if the expectation is for a substantial increase in corn acreage.
Expected Corn versus Soybean Returns in 2019
by Gary Schnitkey, University of Illinois
see full farmdocDaily article and video
Two factors have changed between the planning periods in 2018 and 2019. First, expected soybeans prices are lower in 2019 as compared to 2018. A reasonable way of forming expectations of cash prices at harvest is to use current bid prices for fall delivery of grain. In 2018, fall delivery prices for soybeans in the month of February averaged about $9.80 in East-Central Illinois. In 2019, fall delivery prices are roughly $.75 per bushel less at $9.05 (see Table 1). At the same time, fall delivery prices for corn are roughly the same at $3.70 per bushel. An $.75 decline in soybean price reduces expected soybean returns by $45 per acre given a soybean yield of 60 bushels per acre ($45 = .75 lower price x 60 bushels yield).
Second, costs have increased, with a primary contributor being increases in nitrogen fertilizer prices. Throughout much of 2018, anhydrous ammonia prices were in the low $500 per ton range (see Table 2). So far in 2019, anhydrous ammonia prices have averaged $607 per ton in January and $613 in February (see Table 2). Fall applications of nitrogen were limited in 2018 due to wet soil conditions, leading many farmers to have to price nitrogen in 2019. These farmers likely will pay around $100 per ton more for anhydrous ammonia in 2019 as compared to 2018. If 220 pounds of anhydrous ammonia are applied per acre, leading to an application of 180 pounds of elemental N (180 = 220 pounds x .82 N analysis of anhydrous ammonia), nitrogen fertilizer costs would increase in 2019 over 2018 levels by $11 per acre ($100 price increase per ton x 220 pounds of anhydrous ammonia per acre / 2000 pounds per ton).
The decrease in soybean price increases the relative profitability of corn. The increase in nitrogen fertilizer price decreases the relative profitability of corn, partially offsetting the impacts if the soybean price increase.
2019 Corn and Soybean Budgets
Table 3 shows 2019 corn and soybean budgets for high-productivity farmland in central Illinois (see farmdoc for 2019 Crop Budgets). These budgets incorporate price and cost changes between 2018 and 2019. Two notes about these budgets:
- Yields are 213 bushels per acre for corn-after-corn and 63 bushels per acre for soybeans-after-corn. These are trend yields. In recent years, yields in Illinois have been above trend. Corn yields averaged 20 bushels above trend from 2014 to 2018 (farmdoc daily, January 3, 2018) while soybean yields have averaged 6.5 bushels above trend (farmdoc daily, December 11, 2018).
- Prices used in budgets are $3.60 per bushel for corn and $8.50 per bushel for soybeans. The corn price is near fall delivery bids while the budgeted soybean price is about $.55 per bushel below the fall delivery bid. The lower budgeted soybean price reflects a general pessimism about soybean prices resulting from expected large supplies relative to demand (see farmdoc daily, January 28, 2019). This lower soybean price will decrease soybean profitability relative to corn, suggesting more of a shift to corn than a higher soybean price.
Operator and land returns are $188 per acre for corn and $180 per acre for soybeans, suggesting that corn will be more profitable than soybeans. However, this difference in profitability does not suggest a large shift in acres to corn. Most farms in central Illinois have a corn-soybean rotation, necessitating a move to corn-after-corn to grow more corn. Corn-after-corn returns are projected at $137 per acre, which are less than the $180 per acre soybean-after-corn return. These lower corn-after-corn returns suggest maintaining a corn-soybean rotation.
Other Budget Values Operator and land returns shown in Table 3 were recalculated for two different scenarios. First, a $9.00 soybean price was used to calculate soybean returns. The $9.00 price is close to fall bids. Given that corn prices do not change, operator and land returns for corn remain the same as those shown in Table 3:
- corn-after-soybeans: $188 per acre, and
- corn-after-corn: $137 per acre,
- soybeans-after-corn: $211 per acre, and
- soybeans-after-two-years-corn: $229 per acre.
The second scenario maintains the corn and soybean prices at $3.60 and $8.50, respectively, but increases corn yields by 20 bushels per acre and soybean yields by 6 bushels per acre. This scenario reflects a situation where budgets are more optimistic than trend yields due to high yields in recent years. In this case, operator and land returns are:
- corn-after-soybeans (233 bushels per acre): $260 per acre
- corn-after-corn (223 bushels per acre): $209 per acre
- soybeans-after-corn (69 bushels per acre): $231 per acre
- soybeans-after-two-years-corn (71 bushels per acre):$248 per acre
Summary and Conclusions
Current fall delivery prices do not suggest that switching to more corn away from soybeans will result in higher profitability on high-productivity farmland in central Illinois. Due to high relatively corn yields, central Illinois is one of the most profitable areas to grow corn relative to soybeans, If central Illinois budgets do not suggest a switch to corn, budgets in less productive areas likely will not suggest a shift from soybeans to corn.
2018 Ethanol Plant Losses
see full farmdocDaily article
University of Illinois Agricultural Economist and noted ethanol industry specialist Scott Irwin wrote an article detailing the financial losses the industry experienced last year. Use the link above to read the full article. Here’s the paragraph Irwin penned on the potential implications for ethanol going forward.
“The ethanol industry in 2018 experienced its first losing year since 2012, thereby ending a run of five consecutive years of positive returns. The estimated loss for a representative Iowa ethanol plant in 2018 was -$2.2 million. While large, the 2018 loss was still far less than the -$6.7 million loss in 2012. The evidence points to overproduction as the driving force behind the low prices and financial losses experienced by ethanol producers during 2018. The fortunes of the U.S. ethanol industry are unlikely to improve until production and use are better balanced. This will require shuttering some production capacity, additional demand, or some combination of the two. The most optimistic scenario is additional demand for U.S. ethanol exports as part of a trade deal with China.” - Scott Irwin, University of Illinois
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The price of soybeans rallied out of the October USDA Crop Production report. This is because it showed fewer acres of the crop would be harvested this season. University of Illinois analyst Todd Hubbs thinks the upside potential is limited, “I don’t know if this thing is sustainable. It doesn’t feel that way to me. Moving through the rest of the harvest year and towards the start of 2019, I think we are going to have to see some kind of production issues in the South American crop or if China breaks and doesn’t hold out completely on taking U.S. soybeans before we see a sustained upward movement. I think the upside potential is limited.”
Limited because, even if this year’s crop is hurt some by the poor harvest conditions so far it will remain a record breaker. Right now USDA has it at 4.7 billion bushels. There are plenty of soybeans in the world. That makes it a buyers market and price is going to depend a whole lot upon how many U.S soybeans can be exported says Hubbs, “Basically it doesn’t look like other importers are picking up the loss of the Chinese market like we would like them to.”
When you look at last year and the huge amount of exports Brazil did in the second-half of the marketing year, and even the strength in the latter quarter of the U.S. marketing year, you can see tariff action picking up in forward buying and movement of soybeans thinks the U of I number cruncher. So far in this marketing year we haven’t seen much Chinese movement. In the last export inspections report about 5 million bushels went to China. Still, they seem to be sitting it out and not buying soybean from the United States. This is happening even though the price of U.S. soybeans, when compared to the price of Brazilian soybeans delivered to China, are very competitive.
It all brings Hubbs back to that word “limited”. He sees the upside price potential in soybeans as limited by an enormous supply in the United States and around the world, “If you are thinking about marketing soybeans, I’d take a good hard look at the price we are seeing right now because ending stocks are set at 88 5 million bushels for the 2018/19 marketing year and barring some kind of uptick in exports from the U.S. that may be the low end of reasonable projections depending on what the crop ends up doing here in the U.S.”
You may read more about commodity marketing from Todd Hubbs on the farmdocDaily website.
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The President has been tweeting about agriculture. He says the potential deal with China will result in “massive” export increases for farm commodities. Most have taken this to mean, at a minimum, that the flow of soybeans will be increased. University of Illinois agricultural economist Todd Hubbs has been pondering the implications and the deal.
Todd Hubbs specializes is row crop commodity marketing at the University of Illinois. You may read his thoughts on marketing soybeans in today’s (this week’s) post to the farmdocDaily website.
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The price of corn and soybeans has been swinging on trade threats and changing acreage mixes in the United States. However, those price movements have yet to change the relative profitability between corn and soybeans writes Gary Schnitkey on the farmdocDaily website this week.
Soybeans remain more profitable than corn in the University of Illinois agricultural economist’s crop budgets, but the difference between them has narrowed. Schnitkey says the risks of significant price declines have increased, particularly for soybeans and that hedging a large percentage of 2018 expected soybean production seems prudent.
Current prices are higher than earlier in the winter. The central Illinois fall delivery bids on April 6, 2018 were $3.80 for corn and $10.00 per bushel for soybeans. Budgets based on these fall delivery bids are shown in Table 1.
Panel A shows budget for high productivity farmland in central Illinois. The operator and land return for corn is $256 per acre for corn-after-soybeans and $295 per acre for soybeans-after-corn, indicating that soybeans are projected to be $39 per acre more profitable than corn. Corn-after-soybeans is projected to be roughly the same profitability as soybean-after-soybeans ($256 per acre for corn-after-soybeans and $260 per acre for soybeans-after-soybeans).
In lower productive areas, soybeans dominate corn. In southern Illinois, corn-after-soybeans has an $84 per acre return at a $3.80 price compared to $141 per acre for soybeans-after-corn at a $10.00 per bushel price (see Panel B of Table 1). Soybeans-after-soybeans has a $101 per acre return, higher than the $84 per acre returns for corn-after-soybeans. These returns comparisons suggest having more soybeans than corn in southern Illinois. In recent years, southern Illinois farmers have been planting more soybean than corn. Recent price moves increased the profitability of corn relative to soybeans, but not enough for a budget to suggest switching to more corn.
Price changes have increased corn profitability relative to soybean profitability, but have not suggested shifts in acres.
Higher risks suggest a prudent risk management strategy is to forward price more of the 2018 expected soybean production. However, pricing more production introduces the possibility of hedging losses if prices increase. If farmers have purchased an insurance product with a guarantee increase such as Revenue Protection (RP), offsetting payments will be received in cases when prices rise and yields are below guarantee levels.
Farmers who purchased revenue crop insurance policies will have downside price production. Given the $10.21 projected price and yields at guaranteed levels, the harvest price must fall below the following levels for different coverage levels to trigger payments on revenue policies (e.g., Revenue Protection (RP) and RP with harvest price exclusion):
- $8.67 at an 85% coverage level ($10.21 x .85)
- $8.17 at an 80% coverage level ($10.21 x .80)
- $7.65 at a 75% coverage level ($10.21 x .75)
While these revenue products will offer downside risk protection, most farmers will face loss situations if prices fall enough to trigger insurance payments.
Low prices could also result in commodity title payments under Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC). ARC is a revenue program that makes payments based on county yields and market year average prices. Given yields near guarantee levels, ARC at the county level would begin to make payments around $8.70 per bushel for the 2018 production year. PLC has a reference price of $8.40. As a result, PLC will not make payments until MYA prices fall below $8.40 per bushel. The 2018 payments under ARC and PLC would both be made in the fall of 2019, a considerable distance into the future.
It is important to remember that ARC and PLC are based on base acres and not planted acres. As a result, planting decisions in 2018 will not impact ARC and PLC payments. Therefore, the size of ARC/PLC payments should not influence planting decisions.
Both crop insurance and ARC/PLC offer downside price protection if prices fall dramatically as the result of some event such as enactment of soybean tariff writes Gary Schnitkey. Still, he says, hedging a high percentage of production seems prudent, particularly given that a late planting season appears more likely now. The current cold and wet conditions could lead to later planting, and perhaps shifts to soybean acres. This switch could lead to further downward price pressures.
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. @SecretarySonny hopes agricultural commodities don't become the "tip of the retaliation spear" in a tit for tat trade dispute. He says countries should negotiate exemptions case by case with the Trump Administration.— Todd E. Gleason (@commodityweek) March 20, 2018
audio/video/photo courtesy @USDA pic.twitter.com/c9rChbVFj9
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It is likely the export markets along with South American production prospects will drive only periodic price increases for corn and soybeans says University of Illinois Agricultural Economist Todd Hubbs in this interview with Todd Gleason.
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The price of soybeans is being driving by supply side uncertainties.
The new crop November soybean contract traded at the CME Group in Chicago reached its current contract high price of $11.86 a bushel about a month ago. This is $3.22 above the low made last November. University of Illinois agricultural economist Darrel Good says as is typically the case this time of year, price direction will now be mostly determined by the estimated size of the U.S. crop, with the pace of consumption playing a minor role.
Quote Summary - Forecasts of an upcoming period of above normal temperatures in the U.S., a continuation of strong export sales, and a strong pace to the domestic crush have helped support the recent modest price rally.
While the strong pace of export sales and the domestic crush may have provided modest support for soybean prices, the major focus writes Darrel Good in this week’s Weekly Outlook found on the FarmDocDaily website has been and will continue to be on U.S. weather and yield prospects.
The main short term uncertainty surrounds the duration of an upcoming period of above normal temperatures for much of the soybean production area. With so much of the growing season remaining, however, yield uncertainty could persist for several more weeks. The resulting price fluctuations will provide opportunities for producers to make additional sales in the run-up to harvest.
There is enough time and enough uncertainty in the market at this point for rallies to still come. When this happens Darrel Good believes farmers should reward the market with additional soybean sales.
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The very low price of corn and soybeans, and predictions for even lower prices later in the year, has farmers worried. They’re wondering, even hopeful, if a summer weather rally could offer up a pricing opportunity. Darrel Good tries to answer this question in the May 23rd Weekly Outlook on the FarmDocDaily website.
Quote Summary - If a summer price rally does occur, producers will likely want to aggressively price the 2016 crop. In addition, history suggests that a weather market would also result in opportunities for pricing 2017 crops and beyond. A weather market would likely result in smaller price increases for those crops than for the 2015 and 2106 crops, similar to the recent price pattern. From the close on March 31 to the close on May 20, July 2016 corn futures gained almost $0.39, while December 2016 and December 2017 futures gained $0.31 and $0.24, respectively. From the close on March 1, July 2016 soybean futures gained $2.10, while November 2016 and November 2017 futures gained $1.79 and $0.88, respectively. Still, prices for those deferred crops could move to levels reflecting positive returns for most producers. How aggressively to price multiple crops depends on the magnitude of the price rally, should it occur.
Reasons to Price Soybeans Now …first, soybean acreage is likely to exceed intentions so that production could still be large even with a modest shortfall in yields. Second, soybean yields may be less vulnerable to stressful summer weather than corn yields. Third, soybean prices have increased more than corn prices in recent weeks and are now at a relatively high level compared to corn prices. Fourth, November 2016 soybean futures are now trading near $10.40, above the spring price guarantee of $9.73 for crop revenue insurance. Fifth, with trend yields, current new crop soybean prices are high enough to generate positive returns to owner -operators, those with crop share rents, and those with modest cash rents.
Reasons to Wait on Corn …acreage may be less than intentions, yields are more vulnerable to adverse summer weather, recent price strength has been modest, and December 2016 futures are currently trading only modestly above the spring price guarantee of $3.86 for crop revenue insurance. While waiting for a price that offers a positive return has some risk, the risk for corn seems limited over the next several weeks
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The ag economists at the University of Illinois have updated their work predicting the “New Era” long range cash prices for corn and soybeans.
Seven years ago Darrel Good and University of Illinois colleague Scott Irwin predicted the average cash price for central Illinois corn and soybeans would be $4.60 and $11.20. It started with a simple idea. The last time the price of corn and soybeans had really changed was during the 1972/73 crop marketing year says Scott Irwin.
Quote Summary - Right. The first era was a $1.28, the second era was $2.36. The price jumped about 90%. We took that as our starting point and then realized this magnitude of jump made some sense given the market and other modeling exercises. We decided it seemed a reasonable estimate and to go with them. The equivalent numbers now are $4.35 on corn and $10.44 on soybeans.
As it turns out, those are pretty close to the actual national average monthly cash price over the first eight years of the new era. Corn has averaged $4.39 and soybeans $10.61. The fundamental question today, says Irwin, is “are these numbers still good or was the ”new era“ a temporary uptick in the market”. He is confident the numbers are solid, but cautions it was a one time move up from the old era. Pragmatically he means farmers cannot market their crop today the way they did as the move was happening.
Quote Summary - And you were rewarded for waiting, almost all the time, to do your marketing as that curve shifting occurred. I think we see the kind of opportunities in the grain markets that might be presented as the more traditional short-crop long-market-tail. If you do get that situation emerging… say corn prices, and I am not forecasting this… but let’s say there is a substantial production problem in the U.S. and corn rallied to $5.00. We wouldn’t expect that to last a long time.
There would be a quick and decisive production response in reaction to such a move in the market. The higher price then, would need to be rewarded sooner rather than later. The current rally in soybeans could be indicating just such a move, however, it would be based on poor weather conditions in South America rather than in the United States.
Quote Summary - Warning lights are flashing, that there may be opportunity ahead. Be prepared with a marketing plan, where you have some really well thought through pricing targets for your operation and be ready to execute when those opportunities arise.
You may read about the new era cash prices Scott Irwin and Darrel Good are projecting on the Farm Doc Daily website. The address is www.farmdocdaily.illinois.edu.
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The price of soybeans have jumped in Chicago in part because of really wet weather in Argentina. That’s a done deal now says meteorologist Mark Russo of Riskpulse out of Chicago, Illinois.
Mark Russo follows agricultural growing conditions around the planet for Riskpulse. He made his comments during the Monday edition of the Closing Market Report from the University of Illinois, online at WILLAg.org.
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Each Monday afternoon during the growing season USDA releases the Planting Progress report. Todd Gleason files this report on how it is assessed by the trade; and how really it is summer weather that make the difference, not the pace of planting.