November 2, 2018
Let the games begin – the guessing games, that is.
USDA today released its first statistical guesses for crop and livestock supply and demand in the year ahead. Though the projections are based solely on statistical guesses at this point, the forecasts provide a clue about the agency’s outlook for 2019.
The government traditionally releases this forecast as a part of the federal budgeting process, to estimate farm program spending over the next decade. So, the tables released today include projections all the way out to the 2028-2029 fiscal years.
While the process is mostly mundane bookkeeping, it gives traders something to chew on as the market’s focus begins to shift towards what farmers are planning in the coming year. This year any forecast is riddled with uncertainty about how the trade dispute between the U.S. and China will play out. The government’s own agricultural policy remains in limbo as well with negotiations on a new Farm Bill stalled for the election.
USDA kicks the ball down the road by assuming that current policies, including the 2014 Farm Bill, stay in effect. The supply and demand numbers in the report are based on the agency’s last production, supply and demand report put out Oct. 11 – numbers likely to change Nov. 8 when those monthly forecasts are updated.
Today’s report expects farmers to boost corn plantings by 2.9 million acres in 2019 to 92 million, while slashing soybean seedings 6.6 million to 82.5 million acres. Wheat acres would grow 3.2 million, to 51 million. Perhaps most surprising, USDA said cotton acreage could fall slightly to 13.5 million, despite relatively good prices for the crop this year.
Even with the big cut on soybean seedings, the government said the nation’s surplus could remain fairly hefty at 723 million bushels as demand stagnates. The average cash price for the 2019 crop would go up just 15 cents to $8.75.
Corn looks a little better from a profit and loss standpoint, but would still bleed red ink. USDA said carryout would fall to 1.603 billion bushels, with the average cash price for next year’s crop up 40 cents to $3.90. If true, that suggests opportunities to hedge at a profit on rallies should develop at some point during the spring and summer.
USDA also forecast a small drop in wheat stocks, even with expanded production. Carryout would fall 23 million bushels to 933 million, raising the average cash price a dime to $5.20.
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