Economists: 2020 growing season looks to have numerous surprises

The U.S. Department of Agriculture released the perspective planting report and its grain stocks report and two economists offered their insight as farmers prepare head to the fields.

The Center for Commercial Agriculture at Purdue University hosted its 2020 Spring Crop Outlook webinar, April 1, with James Mintert, director, and Michael Langemeier, associate director and professor at the center. The pair discussed the planting report and grain stocks and what affect the coronavirus pandemic has had on the market.

Mintert said there were some surprises relative to trade in the reports.

“The corn stocks estimate was smaller than the trade expected,” Mintert said. “They came in with an estimate of 7.95 billion bushels. That was about 184 million bushels smaller than the USDA, or than the pre-release estimate of a wide variety of analysts across the industries were expecting.”

That’s likely due to the overestimated size of the 2019 crop. The data on that remains to be seen and the USDA will release an updated number later this spring after harvest finally is completed for those in the northern Corn Belt states.

“But, odds are pretty good that that kind of a magnitude of a shift in grain stocks is probably associated with overestimating that 2019 crop and we’ll see how that plays out later this spring,” he said.

Corn planting intentions were somewhat larger than expected, coming in at 97 million acres.

“That was almost 3 million acres more than the average pre-release estimate,” Mintert said. “Most people were expecting a number somewhere close to 95 million acres. So that was a bump relative to what the trade was expecting coming in.”

Soybean planting intentions were somewhat smaller than expected, at 83.5 million acres.

“That was about one-and-a-half million acres below the average pre-release estimate,” Mintert said.

Historically, the corn numbers released in the reports reach those record large corn acreages seen in the post-World War II era at 97 million acres and maybe even at 2012 numbers. And they were up substantially from 2019, when they reached 89.7 million acres.

Langemeier said corn was actually up in all the major states with the exception of North Dakota, where expected corn acres were lower than prospective plantings last year.

“One of the things that was very evident from this report—if this plays out—there’s going to be a substantially more continuous corn, particularly looking at the western Corn Belt in Nebraska, Iowa and Minnesota,” Langemeier said. “Than there has been in recent years.”

Mintert said that’s a good point, especially when looking at the relationship between corn and soybeans in places like the eastern Corn Belt. Soybean planting intentions saw an increase of 7.4 million acres compared to 2019

“(It was) a little bit less than people were expecting,” Mintert said. “People are expecting that number to bounce back closer to about 85 or so million acres. So it remains to be seen whether or not that’s going to materialize.”

Mintert and Langemeier took the numbers pretty much at face value when they analyzed them.

“That’s going to be one of the debates going forward as to whether or not farmers actually shift their planting intentions,” Mintert said.

As things move a little deeper into spring, and planting season gets under way, the pair often get asked if the numbers make sense. When the corn, soybean and wheat acres are on a combined basis, and evaluated from a longer-term perspective to see how the acreage numbers match up, it helps see a clearer picture.

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“When you do that, I think the numbers make a lot of sense,” Mintert said.

As for corn production in 2020, Mintert sees a new record near term and a pretty sharp decline in ethanol demand that will probably linger until the economy starts to show signs of recovery.

“We’re cautiously optimistic that that might start to show up this fall,” he said. “But that doesn’t give us much help between now and the end of this crop year.”

Exports were running behind USDA forecasts before COVID-19 hit and they think the global recession that’s already under way means exports are unlikely to catch up.

“If you think about what that means, the weak ethanol and export demand means carryover from 2019 into 2020 will increase more than we thought it was going to be just a few weeks ago,” Mintert said. “The only bright spot is the feed demand side and that’s not going to be enough to offset those big negatives coming out of the export side and that large decline in ethanol demand that we’re seeing.”

As for grain marketing, the pair didn’t have any magic bullets.

“If you look at it from a seasonal perspective, there’s a strong tendency to see a spring planting season rally in both corn and soybeans and, if that materializes, take advantage of it. That’s your opportunity, potentially, to make some cleanup sales in the 2019 crop, and perhaps make some sales on the 2020 crop as well,” Mintert said.

Mintert doesn’t know if that’s going to happen this year since it’s such an unusual year. The eastern Corn Belt did benefit from some “really strong corn basis for most of the 2019 crop year so far.”

“But weakened ethanol demand has really changed that dramatically,” Mintert said. “I don’t see basis bids strengthening unless something changes from now as we head into the summer months. Our normal pattern sees some seasonal strengthening on those basis bids. I don’t think that’s going to take place this year, unfortunately.”

Soybean basis, however, has remained strong.

“I would encourage people to think about taking advantage of that basis strength and lock some of that in as you look at the 2020 crop,” Mintert said. “That basis strength goes away and is really tied to what was taking place in the 2019 crop. Don’t let that get away from you.”

When looking at the futures market currently, he said there’s really no carry in the futures for corn or soybeans, at least not significantly.

“So not much incentive to continue storing,” he said.

Langemeier said when it comes to finances, it becomes very important to have marketing strategies in mind.

“Of course it’s very important to look at working capital—do some contingency planning. Do some use of pro forma financial statements,” Langemeier said.

That means to figure out what the prices mean to the working capital next fall.

“Use that along with your marketing strategy to make sure that your liquidity doesn’t get very weak as a result of these low prices,” Langemeier said. “Another reason to do some contingent planning or do some using some pro forma financial statements, is to take a look at your ability to repay debt and think ahead of time.”

Plan ahead for the ability to repay debt—principal and interest payments.

“Do I have a plan if these prices play out?” Langemeier said. “This is a very important environment to do some financial projections, and it’s not only marketing strategies, but take a look at your working capital; take a look at your ability to repay debt and update those projections as we proceed through the year.”

Mintert said it’s important to update projections periodically during the course of the year.

“This is a case in point if you put together some projections back in December, January, early February, things have changed a lot,” Mintert said. “You need to take a look at that and see what that looks like today.”

And for those thinking about holding on to their 2019 crop thinking prices might get better, Langemeier advises against it.

“If you think about the risk associated with holding that crop longer because—I don’t want to be Dr. Doom here—but there’s a potential for some below $3 corn,” Langemeier said. “If I hold my grain and corn is below $3, what does it do to my working capital? Can I afford to do hold on? Do I need to market that crop now to preserve my working capital?”

Kylene Scott can be reached at 620-227-1804 or [email protected].