It looks like 2017 should be another great year to be a protein feed ingredient buyer if Mother Nature cooperates. While U.S. markets last year benefited from a drought in Brazil that affected the country’s corn and soybean production, this year’s projections are for record crops that will affect 2018 markets. Current projections call for a continued excess supply of both corn and soybeans.
There is a record corn and soybeans carry over from 2016, but the soybean carryover is already sold. Corn has been planted on 83.5 million acres, down 4 percent versus the previous year and a record 88.9 million soy acres have been planted, bringing this crop up 7 percent from 2016. Despite the differences in planted acres, the overall supply/demand projections are relatively unchanged from the previous year.
Frequent reports this time of year on weather and acreage planted create large swings in the market so buyers and sellers must continue to look for their best opportunity to optimize transactions. There has been a shift of corn acres to soybeans acres as farmers are required to rotate their fields. Soybean yields improve and soybean demand improves. And, as always, nature — rain, drought, natural disasters — can change this outlook. The results of the June hailstorms and high winds across the Midwest have yet to be factored in to the overall numbers.
Internationally, there are reports highlighting millions of bushels of 2013 corn stockpiles in China that are in questionable condition and may be moldy and spoiled. Unanticipated world demand that consumes supply could change the market dramatically.
Our national snapshot is summarized in the June 30 U.S. Department of Agriculture (USDA) reports:
- Corn: Corn stocks totaled 5.23 billion bushels, up 11 percent from the same time last year. On-farm corn stocks were up 15 percent from a year ago and off-farm stocks were up 6 percent.
- Soybeans: Soybeans stored totaled 963 million bushels, up 11 percent from June 1, 2016. On-farm soybean stocks were up 18 percent from a year ago, while off-farm stocks were up 7 percent.
- Wheat: All wheat stored totaled 1.18 billion bushels, up 21 percent from a year ago. On-farm all wheat stocks were down 3 percent from last year, while off-farm stocks were up 28 percent.
When looking at the long-term pricing, historically we see that corn, soybeans, wheat and petroleum fluctuate within a range of each other. Using this as a barometer, we find the current inexpensive pricing of oil in the world will continue to push down the price of the feed and food grains globally. Long-term world demand will continue to increase for the entire grain sector but the current trends of oversupply at low prices will continue.
Outside of the U.S., farmers from markets in Brazil, Argentina, China, Russia, Ukraine, Australia and other grain-growing regions continue to increase their growing capabilities, yield and acres planted. They may take up some of the long-term slack of the global demands. Considerations for a long-term view of our U.S. market include several trends that need to be monitored to result in significant fundamental change in the farm belt:
- Farmers’ appetite for expensive farm equipment has continued even after prices and profits have been pushing significantly lower.
- After several years of unprofitable growing seasons, older farmers are finally retiring and it will be difficult to attract enough younger farmers to take their place. As the older farmer turns operation over to their kids, finding young family members willing to take on the hard work and narrow profits inherit to farming is going to become increasingly difficult.
- We’re also seeing an increase in bad debt and bankruptcies in the row-crop farm community.
As the older generations of farmers retire and Millennials take over the farms, 70 percent of all U.S. farmland will change hands in the next 20 years. This is a significant number that means there’s a climate of change that could result in a potential squeezing in domestic supply.
My advice to protein producers is to consider forming alliances with groups of farmers, guaranteeing supply at predictable prices — albeit perhaps smaller profits — creating a win-win for both parties. Short-term current conditions mean another good year for protein producers if we don’t get greedy and oversupply the market. NP