Prices For Key U.S. Crops Remain High, Supplies Tight

US - Prices for key U.S. crops such as corn and soybeans are likely to remain at high levels this year, as competition for acreage to plant these crops continues, according to the latest analysis of government data by the American Farm Bureau Federation.
calendar icon 31 January 2008
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“Crop supplies in 2008 will remain tight, prices will remain high and strong competition will continue between corn and beans for acreage,” according to AFBF Senior Economist Terry Francl. “The tight supply-and-demand balance sheet that’s been in place for nearly all crops will continue for at least another year.”

Francl analyzed the Agriculture Department’s Winter Wheat Planting Report, Grain Stocks Report and World Agricultural Supply and Demand Estimates (WASDE) report to develop his crop outlook.

"The outlook for soybean stocks remains extremely tight and very little improvement is anticipated for the already tight wheat balance sheet."
AFBF Senior Economist Terry Francl.

The WASDE report, in particular, is instructive. “Corn feeding rates were virtually at one of the highest levels recorded despite the recent high prices. Likewise, corn exports appear to be on track to set a new record,” Francl said. “The outlook for soybean stocks remains extremely tight and very little improvement is anticipated for the already tight wheat balance sheet.”

Demand for U.S. corn and beans shows no signs of slowing, according to Francl, and that means prices are likely to stay high. “There’s a 90 percent chance that corn prices may match or exceed the old record of $5.54 per bushel that was set in 1996, and there’s a 75 percent chance corn prices could reach $6 per bushel during the spring.”

Wheat, another traditional U.S. crop, is playing a more important role now than it has in years. “The outlook may seem somewhat of a repeat of what happened in 2007 when there was a bidding war between corn and soybeans acres, but in 2008 spring wheat acreage is another consideration,” Francl said. “This seems to assure that crop prices will remain high and volatile going into the 2008 spring planting season.”

The price of fertilizer and availability of soybean seed are other considerations, Francl said. Several seed companies have apparently exhausted their supplies of high-quality soybean seed. “This means that higher planting rates may be required and suggests that soybean yields may be impinged upon in 2008,” he said. A similar situation occurred with corn seed in 2007.

Weather, as always, will play a large role in what happens next. If the drought in the Southeast persists, Francl believes some farmers may plant more drought-tolerant cotton and fewer acres of corn and beans that have greater water needs.

Spring planting conditions, especially rainfall, also may affect the mix of corn and beans in the Corn Belt. “If weather is dry in the early spring, it means corn plantings will proceed at a good pace and result in slightly higher acreage,” Francl said. “If it is a wet, later-than-normal spring it likely will result in a little more acreage for soybeans.”

Given these issues, Francl believes corn acreage will decline, “but not as much as some people think,” to 89.5 million acres in 2008. That would be a decline of 4.4 percent from 2007. Soybean acreage will expand to 69.5 million acres, an increase of a little more than 9 percent from 2007.

Francl predicts wheat acreage will increase to 62 million acres, up almost 3 percent from last year, while cotton acreage will continue to decline, to 9.5 million acres, which would be a drop of a little more than 12 percent from a year ago.

“A continued tight balance sheet for corn and soybeans is ahead, with only slightly less pressure for wheat,” Francl said.

Francl’s crop outlook was included in the January 2008 Market Update published today by AFBF. Market Update is a monthly analysis of economic conditions affecting the farm sector.

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