Don’t expect a fifth consecutive year of record world crops in 2017.
That’s according to The Money Farm’s Mike Krueger, who adds that world demand has been keeping pace with massive production.
“High prices didn’t kill demand at all, but high prices did bring us a lot more acres,” he said at the recent CropConnect conference.
And growing conditions allowed for those planted acres to shatter previous bests.
“We had just basically near-perfect weather almost every place on Earth. We really haven’t had a significant crop problem anyplace for the last four years.”
- Read more: Soybeans poised to beat out wheat, barley
- Read more: Wheat acreage decline connected to demographics, economics
Krueger, however, doesn’t foresee a fifth straight record year, with dry, cold conditions across western Europe, Ukraine and parts of Russia, and flooding in Brazil and Argentina.
Moreover, the U.S. is set to experience major acreage changes.
Krueger sees a shift away from corn and wheat acres to oilseeds in 2017, with an extra four million to five million acres going to soybeans. (He predicts a similar shift in Canada, with less wheat and more canola and pulses.)
Although he predicts over four million more planted soybean acres in 2017 at 88 million, he also believes average yields will decline by four bushels an acre, resulting in production actually declining to almost 4.18 billion bushels — a drop from 4.33 billion in 2016.
But a high carry-in will push ending supplies up to 488 million bushels from 420 million the previous year.
“We’re still going to have just shy of 500-million-bushel bean carry-out. Now everybody’s tried to make a number that big look bearish for the last four or five years, but it hasn’t been.”
Krueger points out that despite four previous record crops, demand has kept pace.
“We’ve popped off enormously big crops, and yet, we have for the most part managed to consume those crops.”
And China needs to be credited for weathering any economic problems it’s had and expanding its soybean appetite.
“You go back just 10 years ago, they were importing 25 million to 30 million tonnes of beans. Most people think they could be at 90 million tonnes of soybean imports this year: phenomenal increase.
“Despite every year worrying about China’s economic growth and stories about poor soybean crush margins within China… everybody continues to underestimate what goes on there.”
He believes the bulls are returning to market.
“Some of these big banks put out these quarterly commodity outlooks, and all of them have started to turn just a little more positive than they’ve been recently,” Krueger says.
The other key to watch is what the big speculative funds are doing, especially as they’ve managed to get the market right more than grain companies and just about everybody else, he says.
“If you look from a fundamental standpoint at the numbers, they look bearish, but the big funds have just continued to pile in to the long side of soybeans, soybean meal, soybean oil.”
Meanwhile, the funds were also short corn for a long period of time, but weeks ago turned the corner to become small longs. And they’ve also been whittling down their short positions in Chicago wheat.
“So I’m not so necessarily bearish (soybeans), but I do think oilseeds have probably the greatest downside (risk).”
Corn and wheat
More soybean acres will partly come at the expense of corn.
“We’re thinking we’ll see probably maybe four million acres less corn in the U.S.; that’s kind of what everybody’s thinking.”
Corn Belt rotations are pretty well set, so the big shift in acres to soybeans will happen in “fringe” states: western Minnesota, the Dakotas, parts of Nebraska, Kansas, and Missouri, Krueger says.
With a projected 90.3 million acres of planted corn in 2017, and a five-bushel-per-acre yield cut to 2016’s record, he forecast 2017 U.S. corn output to reach 14.28 billion bushels, or close to one billion bushels less than 2016.
The U.S., however, is far from the only corn player.
“There’s certainly much bigger supply choice in the world, mainly because Brazil and Ukraine have come on as bigger producers of corn.”
And then there’s China. Nobody knows for sure the quantity it has available or the quality. Previous public auctions, however, suggest the quality was poor.
As for demand, ethanol remains a major consumer. At its peak, ethanol consumed roughly 45 per cent of U.S. corn production.
“We’re now roughly consuming in the neighbourhood of 35 per cent in ethanol. Not because ethanol has dropped off, it’s just that our crops have got so much bigger.
“Week after week after week, we’ve been setting new ethanol production records, mainly because our exports have been so good on ethanol. We’re kind of at that ‘blend wall’ they call it, we’re not using any more gas in the States, but exports have been good.”
But the market with the most bullish potential may be wheat.
“I think wheat could be the sleeper,” says Krueger.
He predicts a massive reduction in U.S. wheat production in 2017-18.
“I think the U.S. wheat crop is going to be probably 500 million bushels smaller than (the previous) year just because we’re going to plant four million-plus fewer acres. That’s a pretty significant change in one year.”
Forecasting slashed planted acres at 46.3 million, and yields of 45 bushels per acre – well off 2016’s record 52.6 bushels – Krueger estimated U.S. wheat production would reach 1.79 billion bushels, down significantly from the previous year’s 2.31 million.