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First 2020 outlook is bearish

USDA’s long-term projections already look out of date

USDA’s first foray into the outlook for 2020 paints a bearish outlook for corn, projecting record yields and production – and plenty of red ink.

Futures traders, however, paid little attention to the agency’s sneak peak at its long-term projections through 2029. The full report will be put out in February, but today’s release includes 10-year forecasts for major crops and livestock, as well as assumptions about the economy. This early release comes out as part of the government’s budgeting process, which includes a mandate to forecast government spending, including farm programs, to show what the federal deficit will look like a decade down the road.

USDA economists based their outlook on the supply and demand estimates released Oct. 10. The agency updates those forecasts Nov. 8, so todays tables are already out-of-date. Indeed, the market may already be making the corn forecast obsolete.

USDA’s baseline says farmers will plant 94.5 million acres of corn next spring. That’s very close to the 94.1 million Farm Futures found in its first forecast of 2020 planting intentions released in August at the Farm Progress Show. But when we surveyed growers, soybean prices were up to $1 a bushel lower due to gloom over the trade war. The ratio of corn to soybean futures for 2020 harvest delivery favored corn.

Since then, the ratio has moved in favor of soybeans on hopes for a first phase of a trade deal with China that includes significant purchases of farm goods, including soybeans. So, farmers likely would be willing to plant more soybeans today and less corn.

USDA’s outlook today put soybean acreage next year at 84 million; our planting intensions survey in August was 83.6 million. USDA put wheat seedings at 45 million; Farm Futures was 45.1 million last summer.

The corn acreage assessment isn’t the only eye-popping number in the outlook. USDA put the 2020 corn yield at a record 178.5 bushels per acre, for a mammoth crop of 15.545 billion bushels. The agency typically uses a forecasting model that assumes normal planting progress and weather during the key month of July – something that didn’t happen this year, of course, after six years in a row of record yields.

Even with increased demand, the forecast says 2.754 billion bushels would be left over at the end of the marketing year Aug. 31, 2021, sending the average cash price down to $3.40 a bushel.

A return to normal soybean yields – 50.5 bushels per acre – would increase marketing year ending stocks from the 460 million forecast in October to 518 million, taking the average cash price for the crop down to $8.85. The outlook sees exports increasing modestly from 1.775 billion to 1.895 billion bushels, still well below levels seen before the trade war erupted.

For wheat the government said 2020 carryout would fall to 950 million bushels, just 3 million above the forecast we put out in the latest Wheat Outlook. USDA put the average cash price at $4.80, a dime above what it expects farmers to earn for the 2019 crop.

One other interesting number from the outlook was USDA forecast for crude oil, which is trading around $55.60 today. USDA said the cost for refiners would rise to $90.10 by 2029. Electric combines and tractors anyone?

Download Excel files for the tables released today at https://bit.ly/2NuNYxy

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