One of my favorite magazines (outside of CSD, of course) is an entertainment weekly that offers previews of new books, movies and recordings. I like previews because anticipation creates excitement. Let’s preview some ag-related drivers in 2016 and see if we can’t create a little excitement in the midst of a bear market.
Planted acres. The first step in building a balance sheet in the year ahead starts with planted acres. In mid-December, USDA released its Long-Term Agricultural Projections, projections to be expanded upon and refined at the February Outlook Conference (think of this as a preview to the preview). In corn, the early call is for 2 million more planted acres in 2016. Wheat acres are expected to decline by nearly the same amount, while soybean acres are also expected to be trimmed by 1 million acres.
A quick review of Minnesota cash grain bids shows wheat and soybean prices down 20% and 17%, respectively, from a year ago. Corn prices are down just 5%. Let’s not be surprised if the swing toward corn and away from soybeans and wheat is even greater than suggested by USDA.
Yields. From planted acres we develop a sense for harvested acres. Take yield per acre and multiply by harvested acres to get production, and a firm handle on price expectations in the year ahead. The last two years have given the U.S. above trend-line and record (or near record) yields in corn and soybeans. The USDA early projection pares corn and soybean yields by 1.2 and 1.6 bushels per acre, respectively. Trend-line yields are statistical estimates — they are based on the expectations of a normal growing season. While trend-line yields may vary modestly between USDA and other professional analysts, they generally don’t change until the growing season arrives, when normal expectations meet growing-season reality.
Unlike corn and soybeans, USDA has trend-line wheat yields at 2.3 bushels per acre higher than a year ago. It is difficult to swallow the reality that we reached a glut in the world wheat market as the U.S. — a major exporter — was delivering subpar yields in 2014 and 2015.
The value of the dollar. No preview here — just a wish. While a strong dollar speaks well of our economy relative to other economies, it is crushing our ability to compete as an exporter. As hard as it is on grain markets, it might be hurting livestock and dairy even more. I’m wishing for a modestly weaker dollar by year-end.
Summer weather. Speaking of growing-season reality, did you catch the video released in early November by a company called WeatherTrends360? (Google “Seeds of Success — A Farmer’s Guide to the 2016
Crop Outlook and Maybe $7 Corn.”) The weather forecasters I watch have a hard time getting next week right. With very little equivocation, this firm is predict- ing drought in 2016. If a strong El Niño swings back toward a strong La Niña, it could happen. I think it’s a big “if.”
But if you’re going to make a prediction, you might as well make it a bold one. If you’re right, you’re a genius. It also makes for an exciting preview. Stay tuned.