A Summary of the USDA s Prospective Plantings and Grain Stocks Report

Transcription

1 A Summary of the USDA s Prospective Plantings and Grain Stocks Report March 31, Aaron Smith and Chuck Danehower Department of Agricultural & Resource Economics University of Tennessee Extension

2 A Summary of the USDA s Prospective Plantings and Grain Stocks Report March 31, Aaron Smith and Chuck Danehower Department of Agricultural & Resource Economics, University of Tennessee Extension Introduction On Thursday, March 31,, the USDA released its annual Prospective Plantings Report ( and quarterly Grain Stocks Report ( Below is a summary of the reports, futures markets price reaction, and profitability update for corn, cotton, soybeans, and wheat in Tennessee. Prospective Plantings The major surprise on the Prospective Plantings Report was corn acreage increasing 6.4% from last year to 93.6 million acres (Table 1). Most pre-report estimates anticipated corn planted acres closer to million acres. Cotton acres were up 1 million acres from at 9.6 million acres. This was up about 500,000 acres from the NCC survey released in January. Soybean acres were down 0.5% from at 82.2 million acres, which was slightly lower than pre-report projections; however, given the price reaction to today s reports soybean planted acreage will likely increase. Estimated spring wheat acres were down 14% and winter wheat was down 9% from. Combined all wheat acres were estimated down 5 million acres from last year (Table 1). Table 1. Estimated Planted Acres in the U.S for Corn, Cotton, Soybeans, and Wheat, - U.S. (million acres) Corn Cotton Soybeans Wheat March % Change from 6.4% 11.4% -0.5% -9.3% March March March March Average Change from the March Estimate to Final Estimate ( ) Source: USDA-NASS

3 In Tennessee, estimated planted acreage was close to expectations. Cotton acreage shows a 51.6% increase from. Last year was an all-time low for cotton acreage planted in Tennessee. This was largely due to low prices and a wet spring that prevented cotton acreage planting in several west Tennessee counties. A rebound in cotton acreage was expected. Corn acres were expected to increase slightly as price ratios had tilted in favor of corn (this was prior to today s price reaction). Soybean acres in Tennessee were estimated down 5.7% at 1.65 million acres (Table 2). Final soybean acreage will depend on planting conditions, crop rotation, weed control, relative prices, input costs, and access to credit. However, given today s price reactions, it would not be surprising to see soybean acres increase thousand acres in Tennessee from the March estimate. Winter wheat acres were revised up 40,000 from the Winter Wheat Seedings Report released in January. Table 2. Estimated Planted Acres in Tennessee for Corn, Cotton, Soybeans, and Wheat, - Tennessee (million acres) Corn Cotton Soybeans Wheat March % Change from 7.7% 51.6% -5.7% -3.3% March March March March Average Change from the March Estimate to Final Estimate( ) Source: USDA-NASS Grain Stocks Report The other and perhaps more anticipated report released on March 31 was the quarterly Grain Stocks Report. Most analysts were anticipating stocks to rise over last March s estimate, but the question was by how much? Corn and wheat were close to the middle of pre-report estimates at 7.81 billion and 1.37 billion bushels, respectively. Soybeans were at the lower end of the prereport estimates at 1.53 billion bushels, perhaps indicating stronger demand, however, the estimate was still well within the anticipated range. At the end of the day, estimated stocks for all three commodities continued their upward trajectories of the past three years (Figures 1-3).

4 Figure 1. March 31 U.S. Corn Stocks, - Stocks (billion bushels) Figure 2. March 31 U.S. Soybean Stocks, - Stocks (billion bushels) Figure 3. March 31 U.S. Wheat Stocks, - Stocks (billion bushels)

5 It is important to note that while stocks for all three commodities are building, demand and the source of demand is very different (Figures 4-6). For corn, over the past 16 years increases in demand have been driven by domestic use. Over this time period, domestic corn consumption has increased on average by 0.30 billion bushels per year (Figure 4). Corn Exports have remained relatively flat. Compared to corn, soybeans have seen almost the exact opposite circumstances in demand. From -, soybean exports have increased, on average, by 0.05 billion bushels per year and domestic consumption has been reasonably flat, increasing billion bushels per year (Figure 5). Wheat use, domestic consumption and exports, were almost completely flat from -, indicating stagnant demand (Figure 6). How demand increases/or decreases over time is equally as important as changes in supplies (stocks). To illustrate this relationship, we take the estimated March 31 stocks for all three commodities and divide by annual total use (Figures 7-9). This is a somewhat crude stocks-touse ratio, but one that provides additional insight into today s report findings. Similar to the trend in stocks shown in Figures 1-3 we can see an increase in March 31 stocks-to-annual use ratio since. Corn and soybeans, while trending upward the past three years, are muted compared to rising March 31 stocks, due to increases in annual total use (Figures 7 and 8). On the other hand, wheat shows the highest March 31 stocks-to-use ratio over the 17 year interval (Figure 9). Futures Markets Price Reaction Corn: May futures closed down 15 ½ cents at $3.51 ½ with a trading range for the day of $3.47 ½ to $3.67 ¼. December futures closed down 15 ¼ cents at $3.68 ¾ with a trading range for the day of $3.64 ¾ to $3.83 ½. Cotton: May futures closed up 0.77 cents at with a trading range for the day of to December futures closed up 0.32 cents at with a trading range for the day of to Soybeans: May futures closed up 1 ¾ cents at $9.10 ¾ with a trading range for the day of $8.96 to $9.14. November futures closed up 1 ¾ cents at $9.24 ¾ with a trading range for the day of $9.10 to $9.27 ¾. Wheat: May futures closed up 9 ½ cents at $4.73 ½ with a trading range for the day of $4.55 ¼ to $4.75. July futures closed up 9 ¼ cents at $4.80 ¾ with a trading range for the day of $4.62 ¾ to $4.82 ¼. Corn was the big loser for the day as the 5.6 million increase in planted acreage was the dominant market mover. On the other hand, the reduction in spring wheat planted estimates provided some upward movement for wheat prices. Perhaps the most interesting aspect of these reports will be how prices move forward, as today we saw soybean and corn prices move in opposite directions, thus providing a change in their relative price ratios. On Wednesday, the harvest futures price ratio (soybeans:corn) was 2.4:1 at the close on Thursday it was 2.5:1. Is this enough to move acres into soybeans?

6 Figure 4. U.S. Corn Use and Linear Trends, - Billion Bushels y = 0.27x R² = 0.78 y = 0.30x R² = 0.93 y = -0.02x R² = 0.10 Exports Domestic Consumption Total Use Figure 5. U.S. Soybean Use and Linear Trends, - Billion Bushels y = 0.06x R² = 0.74 y = 0.008x R² = 0.13 y = 0.05x R² = 0.81 Exports Domestic Consumption Total Use Figure 6. U.S. Wheat Use and Linear Trends, - Billion Bushels y = x R² = y = 0.001x R² = y = x R² = 0.01 Exports Domestic Consumption Total Use

7 Figure 7. U.S. Corn: March 31 Stocks-to-Annual Use Ratio, - March 31 Stocks-to-Annual Use Ratio Figure 8. U.S. Soybean: March 31 Stocks-to-Annual Use Ratio, - March 31 Stocks-to-Annual Use Ratio Figure 9. U.S. Wheat: March 31 Stocks-to-Annual Use Ratio, - March 31 Stocks-to-Annual Use Ratio

8 Profitability Update The projected profitability outlook for the crop has been updated after the release of the March 31, USDA Prospective Plantings and Quarterly Grain Stocks reports. Yields used for nonirrigated estimates are a 5 year Tennessee state average year plugging in the state average projection of 160 bushels per acre for corn, 46 bushels per acre for soybeans, 1,035 pounds per acre cotton, and 67 bushels per acre wheat. Prices used for are an average of prices currently offered for Fall delivery. Prices for harvest are 9 cents lower for corn and 35 cents lower for milo since the March 9 th USDA report. Soybean prices are up 26 cents per bushel with wheat prices up 7 cents per bushel. Cotton prices based on cotton buyer s pricing have stayed the same. Returns over variable expenses and returns over variable expenses and land costs are positive for all crops except milo. However, when fixed costs for machinery and equipment and a $15 per acre management cost are added then returns are all negative. Producers will need to look closely at their plans for the crop and make adjustments where needed. Please contact your local County Extension office or Area Specialist Farm Management for assistance in developing your own budget or farm financial plan. This table below should be used as a guide as yields, prices, and expenses will vary among producers and locations. Expenses will vary among producers and production systems. A cotton price of 72 cents is being used in the profitability outlook. The price of 72 cents is made up of a cash price of cents and gin rebates (seed & hauling) of 7-8 cents. The cash price of cents is composed of a loan rate of 52 cents or 53 cents with a slight premium and a cent equity from the buyer. When prices are low, cotton is redeemed out of the marketing loan program at the Adjusted World Price (AWP). This effect helps create the loan option or equity price that producers receive. Currently, this price is in a cent range. Basically, this is a result of the way the cotton marketing loan program works. My observations and discussions with cotton buyers would indicate that if futures move above cents, then the prices to the producers would start to move up penny for penny. Producers should look at these returns as what could be if no adjustments are made in their operation and consider it a warning sign that adjustments will need to be made in to be sustainable. These estimates do not consider any USDA or crop insurance payments from the new farm bill. Please contact your local County Extension office or Area Specialist Farm Management for assistance in developing your own budget or farm financial plan. This table below should be used as a guide as yields, prices, and expenses will vary among producers and locations. Expenses will vary among producers and production systems. Cotton prices include revenue for cottonseed and hauling. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: Cotton - $ 105, Soybeans - $38, Corn - $135 (includes 170 units of N), Milo - $87, and Wheat/Soybeans - $101. Weed control costs with resistant weeds have also been difficult to estimate. These costs will vary greatly among producers and individual fields. Production costs are estimates based on the University of Tennessee Crop Budgets with adjustments made where needed. An adjustment was made in March in cotton weed control as one chemical in our budget is reportedly priced 40%

9 less than our budgeted cost. Depending on varieties, soybean costs could also be reduced but based on our budget, I have not done so at this time. Hopefully, we will see other costs reduced or possibly suitable generic products available. Please visit with your farm supplier on estimated cost in your area. Producers with owned land and or cash rent can use Returns Over Variable as a guide in decision making. Producers with share rent ground should use Returns Over Variable and Land Costs as a guide with their appropriate share rent calculated. A land cost of 25% of revenue minus 25% of crop insurance cost is used in the table as a guide or method of comparison and should not be construed as the appropriate rent for a particular area. Producers who are not making major equipment changes can use UT budgets and this table as a guide in developing their own cropping decision budgets. If equipment changes are being made, then a whole farm financial plan would be better suited as a decision aid. Estimated Returns Cotton Soybeans Corn Milo Wheat/Soybeans Yield 902 lbs. 42 bu. 140 bu. 90 bu. 67 bu./30 bu. Price (as of 3/31/16) $0.72 lb. $9.21 bu. $3.45 bu. $3.14 bu. $4.86 bu./$9.21 bu. Revenue $649 $387 $483 $283 $602 Variable Expenses $403 $262 $349 $232 $417 Returns Over Variable $246 $125 $134 $50 $190 Land Costs (25% of Revenue-25% crop insurance) $161 $94 $117 $70 $146 Returns Over Variable and Land Costs $86 $30 $17 -$20 $43 Fixed Costs Depreciation & interest on machinery $126 $62 $56 $62 $99 Returns Over Specified Costs -$40 -$32 -$39 -$82 -$55 Breakeven Price at Average Yield and Specified Cost $0.76 $9.98 $3.73 $4.05 $5.45/9.79

10 Net returns are still negative considering variable, fixed, land and irrigation expenses. Please note that in March fertilizer costs were reduced slightly and cotton variable costs were reduced to reflect lower weed control cost. Producers should look at these returns as what could be if no adjustments are made in their operation and consider it a warning sign that adjustments will need to be made in to be sustainable. The table below is an estimate of returns for crops under irrigation. Since irrigated yields are not as of yet kept separate in Tennessee, yields below are an estimate of irrigated yields. Irrigation fixed costs and energy costs will vary greatly among producers and systems. These projections include in variable expenses energy costs for irrigation of $21 per acre and $11 per acre of irrigation repairs and maintenance. Fixed costs of $88 per acre for irrigation equipment are used. Please contact your local County Extension office or Area Specialist Farm Management for assistance in developing your own budget or farm financial plan. This table below should be used as a guide as yields, prices, and expenses will vary among producers and locations. Expenses will vary among producers and production systems. Cotton prices include revenue for cottonseed and hauling. A cotton price of 72 cents is being used in the profitability outlook. The price of 72 cents is made up of a cash price of cents and gin rebates (seed & hauling) of 7-8 cents. The cash price of cents is composed of a loan rate of 52 cents or 53 cents with a slight premium and a cent equity from the buyer.. When prices are low, cotton is redeemed out of the marketing loan program at the Adjusted World Price (AWP). This is effect helps create the loan option or equity price that producers receive. Currently, this price is in a cent range. Basically, this is a result of the way the cotton marketing loan program works. My observations and discussions with cotton buyers would indicate that if futures move above cents, then the prices to the producers would start to move up penny for penny. For reference, in variable expenses below, fertilizer expense per acre is estimated as follows: Cotton - $109, Soybeans - $38, Corn - $172 (includes 225 units of N), Milo - $114, and Wheat/Soybeans - $101. Cost of production will continue to be adjusted as information becomes available. An adjustment was made in March in cotton weed control as one chemical in our budget is reportedly priced 40% less than our budgeted cost. Depending on varieties, soybean costs could also be reduced but based on our budget, I have not done so at this time. Hopefully, we will see other costs reduced or possibly suitable generic products available. Weed control costs with resistant weeds have also been difficult to estimate. These costs will vary greatly among producers and individual fields. Production costs are estimates based on the University of Tennessee Crop Budgets with adjustments made where needed. Please visit with your farm supplier on estimated cost in your area. Producers with owned land and or cash rent can use Returns Over Variable and Fixed IR Costs as a guide in decision making. Producers with share rent ground should use Returns Over Variable, Fixed IR Costs and Land Costs as a guide with their appropriate share rent calculated. A land cost of 25% of revenue minus 25% of crop insurance cost minus 25% of the irrigation equipment fixed cost is used in the table as a guide or method of comparison and should not be construed as the appropriate rent for a particular area. A management cost of $30 per acre is included in Fixed Costs management labor, depreciation & interest on machinery. This is an additional $15 above the dryland crop

11 management labor. Producers who are not making major equipment changes can use UT budgets and this table as a guide in developing their own cropping decision budgets. If equipment changes are being made, then a whole farm financial plan would be better suited as a decision aid. Estimated Returns Irrigation Cotton Soybeans Corn Milo Wheat/Soybeans Yield 1100 lbs. 60 bu. 190 bu. 130 bu. 67 bu./45 bu. Price (as of 3/31/16) $0.72 lb. $9.21 bu. $3.45 bu. $3.14 bu. $4.86 bu./$9.21 bu. Revenue $792 $553 $656 $408 $740 Variable Expenses( include energy cost) $459 $294 $429 $292 $444 Fixed Irrigation Costs per Acre $88 $88 $88 $88 $88 Returns Over Variable & Fixed IR Costs $246 $170 $139 $28 $208 Land Costs (25% of Revenue-25% crop insurance-25% fixed irrigation costs) Returns Over Variable, IR Fixed Cost and Land Costs Fixed Costs- management labor, depreciation & interest on machinery $174 $114 $138 $79 $159 $71 $56 $1 -$51 $49 $151 $91 $86 $84 $122 Returns Over Specified Costs -$80 -$35 -$87 -$135 -$73 Breakeven Price at Average Yield and Specified Cost $0.79 $9.56 $3.82 $4.13 $5.45/$9.98 Conclusions The March 31,, Prospective Plantings and Grain Stocks Reports provided further insight into the planting intentions of farmers for and the estimated carryover of stocks into the next marketing year. Stocks for corn, soybeans, and wheat continue to build which will likely

12 limit any dramatic price improvements, baring a major weather event. With the divergence of soybean and corn prices, as a result of these reports, it is very likely that we could see acres move from corn to soybeans. For, at current prices, profits will be difficult for Tennessee row crop producers to achieve.