Farmers should plan for another year of tight margins in row crops in 2018, but Dr. Nathan Smith, a Clemson University economist, sees good demand for cotton, corn, peanuts and soybeans in the year to come.
“When you have tight margins and you have equity and investments that you have made, you are looking to protect that investment. Crop insurance certainly is more important at this time as well as farm programs. Both are more important with lower farm income,” Smith said at the SC AgriBiz & Farm Expo in Florence Jan. 17.
Smith sees global stock building for most commodities in the year ahead, but he says growing demand will help reduce the impact of higher stocks. A buildup in livestock numbers will help corn and soybean demand, while increasing consumer interest in cotton over manmade fiber will help cotton demand.
Generally, Smith expects an increase in cotton acreage both in South Carolina and across the United States in 2018. He sees an increase in soybean acres in South Carolina and nationwide and a slight drop in peanut acres across the country and in South Carolina. He expects a drop in corn acreage nationwide but believes corn acreage will stay about the same in South Carolina
For corn, domestic demand is strong with ethanol and feed use expected to grow in 2018. “Exports are a key driver and source of uncertainty with NAFTA (the North American Free Trade Agreement) and DDGS (distiller’s dried grains with solubles) a very important part of the export market,” Smith said.
Smith sees the potential for price improvement in corn if growers plant less than 90 million acres this year and have trend yields of 170 to 171 bushels per acre. Lower yields and less acreage in corn could help prices by lowering stocks, he believes.
“When you look at soybeans, you are basically looking at the U.S. and South America as the producers and you are looking at China as the buyer. China is projected to increase their imports from 93.5 million tons to 97 million tons this year,” Smith said.
China will buy soybeans from Brazil first then the United States. “China is indirectly sending a trade message by buying Brazilian soybeans when they are available," Smith said.
Smith expects more soybean acres in the U.S. as compared to corn. “I don’t think the supply is burdensome in soybeans. We would see much lower prices if it was. There is potential for some pricing opportunities in soybeans,” he said.
Smith is forecasting an increase in cotton acreage both in South Carolina and nationwide. A large crop will grow both global and U.S. stocks. He said the market is still bullish despite bearish World Agricultural Supply and Demand Estimates reports form USDA over the last three months.
“Fundamentals point toward prices eventually decreasing throughout the marketing year with increased U.S. production, but the market is not convinced,” Smith said. “Cotton acres should increase at current prices or hold at 12 million acres with cotton prices around 70 cents per pound.”
Smith said growth in world demand and declines in Chinese stocks are driving the cotton market. In addition, improved consumer demand for cotton over manmade fibers is helping. Additionally, increases in oil prices should raise the cost of manmade fibers. A lower U.S. dollar is helping exports too.
“Consumer preferences are beginning to shift some back to to cotton. Manmade fibers continue to grow more than cotton, but the tide appears to be shifting on the horizon. Cotton looks to be poised to make gains as world demand jumps this year,” Smith said.
If prices remain in the 72 to 75 cents range, Smith sees an increase in cotton acres. If they move to the 70 to 72 cents range, he expects cotton acreage to be stable in 2018. If prices drop below 70 cents, Smith sees a drop in cotton acreage, but he says prices that low are not expected given the market outlook.
For peanuts, there was a bumper crop and a big increase in acreage in 2017. “With the increase in production, I think we will see a strong increase in use and consumption of peanuts. Peanuts are a semi-perishable crop and the market is going to try to find a way to move those peanuts and sell those peanuts,” he said.
Exports continue to drive demand for peanuts and other crops, Smith said. If China enters the market, Smith said that will help U.S. peanut exports , but Smith still sees a buildup of peanut stocks this year. “China will help work some of the big 2017 crop down, but we should see several more peanuts carried over this year which means contracts could be a little less, but they could be the same depending on if cotton stays strong” Smith said.
If peanut buyers contract at the same price, it will be at reduced tons. "I don’t think buyers want to see the acreage we had last year. I think they would like to see a little drop in peanut acreage. The drop in acreage will likely come out of Georgia which will switch over to cotton,” Smith said.