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Purdue economists on why markets making shift to soy
Indiana Correspondent
WEST LAFAYETTE, Ind. — The world’s markets asked for more soybeans and U.S. farmers have obliged, according to veteran Purdue University agricultural economist Chris Hurt.
If the USDA’s forecast for the upcoming growing season is realized, farmers will plant 89.5 million acres of soybeans, up 7 percent from last year. For corn, producers are expected to plant 90 million acres, down 4 percent. Acreage devoted oats and barley is also projected to drop.
The agency released its Prospective Plantings report on March 31.
“We’re shifting out of feed grains and toward soybean oil,” said Hurt, a professor of agricultural economics at Purdue. “That’s what the world says we’re short on. What’s causing these shifts? It goes right back to prices. Prices are sending signals to producers that we need more beans.
“There’s a reason for that. The growth of Chinese purchases of beans continues to be relatively strong, and that annual increase as a percentage increase is greater than the relatively minor growth we’re seeing in corn at this point.”
The amount of acreage devoted to corn and soybeans has been changing over the last few years, he noted. Corn acreage has fallen from nearly 96 million acres in 2013 while soybean acreage has increased from about 74 million acres. Wheat acreage has declined from 56.8 million acres in 2014 to a projected 46.1 million for 2017.
“This is a lot of drama for a mature industry like agriculture,” Hurt stated. “We’ll normally only see a 1 to 2 percent change a year on some of these numbers. One of the things going on is that soybeans have been higher-priced this last year relative to corn, so we see that shifting. We’ve also had major surplus problems in the U.S. on wheat and that’s reflected in low prices.
“Low prices for corn, low prices for wheat, shifted into soybeans.”
Hurt and two colleagues participated in an April 3 webinar from Purdue’s Center for Commercial Agriculture. The industry is responding to the changing economic environment, said James Mintert, director of the center.
“As corn became a lot more profitable, we boosted corn acreage pretty dramatically,” he said. “Now we’ve been in a period for at least several years where soybeans have been more profitable than corn for many producers. It’s taken a while to get that shift but boy, we saw it in spades (in the USDA report).”
Purdue is projecting a 2017 corn crop of 14.1 billion bushels, based on trend yield of 170 bushels per acre on 82.7 million harvested acres. The production figure would be a drop of about 1 billion bushels from last year’s crop. Corn ending stocks are projected to be 1.9 billion bushels, down from last year’s 2.3 billion. U.S. average corn prices could go from $3.75 for the 2017 crop to $4 by 2019, Hurt said.
“We know futures can change on a daily, hourly or minute-by-minute basis,” he explained. “But I think this is the best outlook we can give right now. I think there’s some perspective here. Are we suddenly going to bounce back to price levels that will cover all costs of production? The current outlook tends to say no.”
Farmers do have some options when it comes to trying to reduce their costs, said Michael Langemeier, associate director of the center. “There are two big sources we’ve been talking about this winter,” he noted.
“One of the sources is cash rent. I don’t think all of it can come from cash rent, but there’s still a need to reduce that cash rent, particularly on low- and average-productivity ground. “Also, look at what you can do with respect to seed costs. Look at seeding rate and look at the price you’re paying for seed corn. Can you make some sort of adjustment there? Is there also some way you can look at your fertilizer program and make some adjustments to reduce that fertilizer cost per acre?”
Despite more acreage devoted to soybeans, Purdue is projecting a smaller crop because yields aren’t expected to be as high as they were last year, Hurt explained. The university is anticipating a yield of 47.7 bushels per acre on 88.7 million harvested acres. Purdue’s estimate of a 4.2 billion-bushel crop is down from last year’s 4.3 billion.
U.S. average soybean prices are projected to fall from $9.60 last year to $9.10 by 2019. Wheat prices are anticipated to rise from $3.85 last year to $4.85 in 2019.