Corn: To plant or not to plant?

This is the time of year when farmers are meeting with bankers and ag credit officers to help decide how much corn to plant. While the decision is always a high-stakes one for farmers, trade uncertainty and controversy through 2019 over the U.S. Department of Agriculture corn estimates have raised the stakes.

Among the two most important contributors to that decision are the pending ratification of the U.S-Mexico-Canada Agreement and the Jan. 10 release of the USDA’s January World Agricultural Supply and Demand Estimates. The report was awaited with eagerness this year.

For corn growers, the WASDE report turned out to be “neutral or slightly bullish,” according to Chad Hart, a crop market specialist at Iowa State University.

The flooding and disruptions of early 2019 brought a price bump to corn through the growing season. “The corn market seemed to be in a state of flux as everyone tried to get an idea of what was happening in fields across the country,” said American Farm Bureau Federation economist Shelby Myers.

Corn uncertainty wasn’t all bad

In fact, it now appears that some corn farmers who planted benefitted from uncertainty about weather-related supply issues beginning in the spring. That uncertainty bumped prices up, and some farmers took advantage, planting more corn than was forecast, and also garnering higher yields than were forecast. According to Myers, some of that production occurred extensively in states outside of the Corn Belt.

Myers told High Plains Journal that there was “frustration” among some farmers over the corn estimates in 2019. The owners of about 20 million acres filed under “prevented plant” crop insurance coverage for corn, soybeans wheat and other crops. Even after the 10 to 15% “bump-up” to prevent plant payments authorized in August for holders of federal crop insurance, not all farms were able to break even, said Myers. Those payments began to go out in October. The Jan. 10 WASDE estimates shows total corn use up 155 million bushels to 15.070 billion. Corn production was estimated at 13.692 billion bushels, up 31 million higher “as a higher yield more than offsets a reduction in harvested area,” according to the WASDE report.

The short-term price opportunity and supply bump has left corn in the range of high $3 per bushel as of now, according to University of Illinois farm economics professor Gary Schnitkey. Although yields surprised forecasters by approaching yields of the previous year, 2019’s corn crop was much wetter than usual, meaning it costs more to dry and will not store as long.

Feed news is good and bad

The WASDE bumped up feed and residual use by 250 million bushels to 5.525 billion. According to Hart, the feed situation for cattle farmers and other livestock growers is complicated. On the one hand, corn prices are low. On the other, quality concerns and lower test weights for much of the corn crop mean cattlemen will either have to buy a bit more feed than usual, or pay a premium for higher-quality feed. “Not every bushel of corn is equal,” said Hart.

Thanks to the Market Facilitation Program of the USDA’s Farm Service Agency, farm income is slightly up this year. But farmers would much rather get back to the free market, said Myers.

Schnitkey suggested that if there’s too much uncertainty surrounding corn and its prospects this year, it might “shade” farmers toward planting more soybeans, since they require fewer inputs.

Back to trade concerns

Hart believes that now that the WASDE has been released and has no unwelcome surprises, the market’s attention will turn to the trade situation. If the credit situation for farmers is slightly tighter this year, that’s because of rising farm debt and years of low prices that have eroded farm balance sheets. On the other hand, farmers aren’t facing much interest rate pressure, so the cost of their debt is not going up.

Most farmers who plant corn also plant soybeans, so the fates of the two crops are intertwined. Soybeans are currently selling in the mid-$9 range on the strength of news of the China trade deal, which has been announced but not yet taken effect (and was not factored in the WASDE reports). The Canada/Mexico trade deal is more important for corn exports, which the China deal is more important for soybean exports.

The American Farm Bureau Federation last month cautiously welcomed the announcement of the Phase 1 deal with China on its website as a good first step. But when asked about administration claims that China has agreed to buy $50 billion worth of U.S. farm products, AFBF trade economist Veronica Nigh hedged: “Given that’s such a large expansion over where we were previously, the list of products and the variety of trade between China and the U.S. would have to expand pretty significantly. When you look at the total of what China is buying from the rest of the world, there’s probably room there.”

U.S. farm exports to China were about $24 billion in 2017, before the trade war began. It’s not clear that there is $50 billion worth of demand in the Chinese market, especially since swine flu that has drastically reduced Chinese swine herds. U.S. Agriculture Secretary Sonny Perdue said China has been reluctant to put that $50 billion promise in writing.

In other trade news, Iran has recently been threatening to cut off ag imports from Brazil, one of its largest trading partners. The latest Iranian threat came because of support expressed by Brazil’s popular president, Jair Bolsonaro, for U.S. President Donald Trump’s missile strike that killed Iranian Gen. Qassem Soleimani. The Tehran government summoned Brazil’s chargé d’affaires on Jan. 7 to be rebuked over the support, although no details of the meeting were released. Hart said any Iranian restrictions of Brazilian ag exports would be a relatively small move in the global markets, though.

Brazil is an important trading partner for Iran, exporting corn, soybeans and beef, and has become more so since the start of renewed sanctions against trading with Iran, led by the U.S. The sanctions have forced Brazilian exporters to reroute beef and other ag exports, increasing logistics costs.

David Murray can be reached at [email protected].