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Views and opinions: Acreage debate continues even this late in the season

Even though we are now well into the domestic growing season, acreage remains a market factor. For one, trade is disputing the planted and harvested acres the USDA is currently using in balance sheets.

Many analysts and producers alike are expecting to see decreases in these numbers as the market year moves forward, but that is questionable. Historically, we have seen little in the way of acreage declines from July forward. The delays to planting and prevent plantings this year may change that trend.

Not only is trade still debating this year’s acreage, but we are already starting to see attention on what we may expect for next year’s acreage. We have recently seen the new-crop price ratio tighten to 2:1. This means it only takes two bushels of corn to equal the value of one bushel of soybeans, and is historically associated with elevated corn plantings.

This ratio has widened slightly in recent weeks, though, as trade is less worried over a small corn crop from this year. The concern in the corn complex has been a small 2019 corn crop and how it would drop corn reserves to a minimal level.

These fears have eased, especially following the heavier late-season corn planting that took place. Even if this corn is used for feed, it will still make more corn available for other needs.

Another factor being monitored as we look at next year’s corn production in the United States is inputs. We have already started to see a firming of fertilizer values, as it is believed that elevated acres will create more demand. There are also some concerns over seed availability if production from this year is not as much as in a normal year.

Acreage is not just a factor in the domestic market. Soybean harvest has just concluded in Brazil, and we are already hearing reports of elevated plantings for this coming year. Sources in Brazil claim the country will expand soybean planting by 2 million acres this coming year.

One reason for this is the elevated values Brazilian farmers are seeing, but also from demand prospects. Brazilian exporters do not see a quick end to the trade dispute between the U.S. and China and feel they will see elevated soybean demand, as a result. Brazil has also been steadily increasing its soybean production in recent years, so to see another 2 million brought into production is not uncommon.

We are also hearing of elevated wheat planting in Argentina. Argentine officials believe the country will expand wheat seedings by 1 million acres this year. While this does not seem like a significant amount, when added to larger crops out of the Black Sea and Russia, it further cushions a global wheat supply.

We need to remember there are several factors that will ultimately impact acreage next year, though, with weather being the primary one. While these are in fact moving numbers, trade will monitor them as the market evolves into one with perpetual production and supplies coming from the global market.

When we think of market uncertainty, we immediately think of production, especially at this time of year. This is even greater in today’s market, where we are not only trying to determine yields, but acreage.

The USDA has stated it will issue more data than ever in the August supply and demand report, but ahead of this, trade is even more confused. Analysts are trying to determine production and usage in a market that is based on nothing but variables. As a result, we have seen a build in market volatility and a choppy pattern in futures values.

One of the greatest unknowns from the demand side is China. The U.S. and China have been at odds when it comes to trade for the past several months, and it has taken its toll on U.S. balance sheets. While talks have taken place, both sides remain divided on their stance, with little progress seen.

Chinese officials have announced the products they wish to buy, but are unwilling to do so until the U.S. relaxes its tariffs on China’s imports. As a result, we have seen U.S. trade with China drop to minimal levels. The greatest concern with this is now that China is importing its products from other sources with little issue, it may be difficult for the U.S. to get this business back.

Adding to the uncertainty in the global market is the rise we have seen in production. Many of the world’s commodity suppliers are producing larger crops than in recent history.

The main one of these is South America, where record crops are again being forecast, not only on soybeans, but on corn and now wheat, as well. This rise in production may only increase the volatility in the U.S. market.

 

Karl Setzer is Commodity Market Analyst for AgriVisor. His market commentary can be found on Twitter via @ksetzergrains

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.

8/16/2019