December 11, 2017

USDA Releases Early Look At 2018 Acreage Projections

USDA’s Office of the Chief Economist has released an early look at what the industry might see future crop years.  On Tuesday, the Office offered a peak at baseline projections to 2027, number that won’t be officially released until February at the USDA Ag Outlook conference.

The numbers held a few surprises: namely, soybean acres are expected to consistently outpace corn acres through the life of projection.  That’s largely due to corn yields increasing at a much faster rate than beans.  Additionally, wheat acres are expected to fall again in the coming year before climbing slightly through the 10 year horizon of the forecast.

Corn

For the 2018 crop years, USDA’s preliminary expectation is that acres will climb to 91.00 million with yields projected at 173.5 bushel an acre. If realized, that would put 2018-2019 corn production at 14.52 billion bushels and a small decline from the 2017 crop year.  Unfortunately, demand is not expected to keep pace and USDA ultimately sees carryout peaking in the coming crop year at 2.607 billion and a whopping 18% stocks to use ratio.  Regardless, price projections are basically unaffected; USDA projects the national average price at $3.30 per bushel, 10 cents better than this year.

Longer term, the low prices and high carryout are expected to push U.S. corn acreage steadily lower right through the end of the 2027 crop year.  At that time, USDA forecasts 87.5 million acres will be planted to corn, although a national average trend yield of 191.5 bushels an acre means total production remains above 15 billion bushels fairly consistently.  Accordingly, markets are likely to become “used to” large stocks: USDA’s project never falls below 17% stocks to use.

Soybeans

Soybeans are expected to keep pace with corn acres again in 2018 with USDA looking for 91 million acres planted to the oilseed.  Yields are initially projected at a trend 48.4 bpa for a total production in 2018 thats 65 million bushels less.  Acreage over the 10 year time frame creeps higher to peak at 92 million, although more generally the agency sees acreage hanging around the 91.5 million acre mark.  Yields slowly increase, peaking out at 52 bpa in the far extended term.

The difference with corn is that demand is expected to keep pace, growing by almost 12% over 10 years.  That means despite the climbing production, stocks to use ratios will have already peaked at 9.8% and are expected to continue falling slowly to around 7%. Exports and crush are nearly tied for percentage growth over that time, although in this release USDA does not provide detail on where those exports will be delivered to.

Wheat

Long the darling of the Northern Plains, USDA’s report seems to confirm that the cereal grain is falling out of favor.  The report calls for a continued decline in acreage to 45 million for the 2018 crop year, a loss of 1 million acres from this year.  That should be the worst of the declines, but acreage never really recovers to above 48 million, largely because carryout doesn’t get below 750 mbu until the 2020 crop year.  Interestingly, USDA is calling for a 7% increase in wheat yields over that time frame with a “trend” yield in 2027 of 50.9 on a national basis.

Demand will remain a challenge: USDA is projecting marginal increases in domestic use, largely due to food consumption.  Exports are expected to continue falling and total use 10 years out is actually just 54 million bushels higher than in the 2017 crop year.  Price, however, is expected to rise fairly steadily from $4.60 a bushel in 2018 to $4.80 in 2019 and $5.20 by 2027.

The office made several assumptions to arrive at these numbers including holding CRP acres steady throughout.  That seems to imply some support for the program politically, but things can change rapidly. Global population is expected to increase by around 1% per year with the Middle East and Africa showing the largest population growth as a percentage.  Asia remains the leader in GDP growth at around 4.5%, but the Middle East and Africa run just behind at 3.5% growth.

Winter Wheat Ratings Continue To Fall, South Dakota Tops The List

USDA issued its final Crop Progress report of the year Monday afternoon.  For the most part, numbers were uneventful. The agency showed corn harvest finally winding down at 95% complete. Thats just behind the five year average of 98%.  Soybeans, while late, are completely finished.  Sunflower harvest is almost done too.  USDA meteorologist Brad Rippey

Rippey 2

One number that is getting a bit more attention is winter wheat conditions.  Kansas City and Chicago wheat contracts both posted new lows Monday, but that doesn’t necessarily jive with what’s being reported in the field:

Rippey 1

That said, winter wheat is notoriously difficult to damage in a serious way, especially going into dormancy.  The struggling ratings do mean analysts may keep a close eye on things come spring.

 

 

Noble Group Sells U.S. Based Ethanol Production

Embattled Hong Kong based commodities trader Noble Group has announced its selling it’s U.S. based ethanol production to Michigan based Zeeland Farm Service.  The move is part of Noble’s ongoing effort to raise capital and slim down balance sheets in an effort to survive.

The sale, which carries a price tag of $12.5 million plus adjustments for working capital, debt, and inventory, is said to be a relatively cheap one, according to industry experts.  Noble’s ethanol holdings are run as a subsidiary of Noble America’s Corp, which was recently sold to Vitol U.S. Holdings.  That company had planned to sell off the ethanol business after closing but gave permission for the transaction.

This move marks the latest in a series of struggles by Noble, who announced earlier this fall that its trading business was stymied by liquidity concerns. The company also announced the surprise departure of its co-Chief Executive Jeff Frase, earlier this month, just days after it reported a third-quarter loss of $1.17 billion. It further warned that the operating environment remains challenging.

Noble Group shares were down 3.6 percent on Singapore Exchange. The stock has lost a whopping 17 percent since Friday’s close. The trader’s market capitalization, which once topped $10 billion, has shrunk to $168 million.