It might be comically early to start debating yield scenarios for a crop that is still several months away from planting, but the U.S. government’s early projections for 2019 and beyond hold some interesting ideas for the years ahead.
Each February, the U.S. Department of Agriculture publishes its long-term projections that provide a single representative scenario of the agriculture sector over the next decade. These predictions are both model and judgment based, and they assume no domestic or external market shocks. The latest data runs through 2028-29.
In November, the agency releases a collection of the tables that will be included in the full report due early the following year. These tables include U.S. and global macroeconomic projections, as well as balance sheets for the major U.S. crops, livestock, and dairy.
In those tables that were released earlier this month, USDA placed 2019-20 U.S. corn and soybean yield at 176.5 and 50 bushels per acre, respectively.
Many analysts will have immediate objections to these numbers, arguing they are too high or low, or have objections to discussing them due to the non-specific nature of the data. But like them or not, these are very close to the numbers that the market will continue to talk about for the next eight or more months, so it may be worthwhile to explore them further.
The baseline projections were prepared between August and October, and the short-term forecasts from October provide the starting point. For the trend yield, normal weather is assumed during the next 10 growing seasons.
USDA’s October yield forecast for the recently harvested 2018-19 corn and soybean crops was 180.7 and 53.1 bushels per acre, respectively. In November, those pegs were reduced to 178.9 and 52.1 bpa, therefore the predictions for 2019-20 and beyond may be slightly inflated as a result.
In early 2010, the initial 2019-20 projections suggested trend yield for corn would be 178.4 bpa, with the beans at 46.5 bpa. This is noteworthy because it implies that corn yields did not grow at the pace expected nine years ago, but soybean yields expanded by a much greater than predicted degree.
This may reflect just how much effort the United States has put in to the improvement of soybean yields in recent years, both from a technological and a managerial standpoint, and the advancements potentially outpaced those of corn yield.
In November 2017, the early-release tables showed 2019-20 soybean yield would reach 48.9 bpa, making the latest forecast of 50 the largest year-on-year jump in the series. A year ago, the 2019 corn harvest was predicted to make 175.5 bpa.
But looking all the way out to 2028-29, USDA’s trend assumptions do not have soybean yields making comparable strides with corn. That year, corn trend yield is expected to hit 194.5 bpa, some 7.6 per cent higher than in 2018, and beans are slated for 55 bpa, only 3.5 per cent higher than this year. Keep in mind that these percentages are considering USDA’s October yields for 2018.
A corn yield of 194.5 bpa in 2028 may seem mind-boggling today, but if 178.9 bpa holds for 2018, it will be roughly 15 per cent higher than yields from a decade ago. This means that 194.5 in 2028 is comparably not as much of a stretch as 178.9 in 2018 would have been 10 years ago.
Another noteworthy piece from the tables is the U.S. soybean carry-out over the next 10 years. USDA currently pegs U.S. supply to rise to 955 million bushels by the end of August, though last month that figure was 885 million.
Based off that number, USDA suggests it will take roughly five years under the business-as-usual scenario to cut soybean stocks back down to “normal” levels. Given the agency’s recent stock projections for the mid-2020s, that comfortable level seems to be somewhere in the low 300-million-bushel range. The associated stocks-to-use is around 7.2 per cent (tmsnrt.rs/2Q3t8cr).
In October, USDA was already assuming the trade war between the United States and top soybean buyer China would continue through 2018-19. But USDA cut exports in November to 1.9 billion bushels from the previous 2.06 billion on lower China demand.
With the higher stock levels in November, it may actually take longer than five years to whittle soybean stocks back to normal unless production is adjusted accordingly. USDA already made a drastic cut to soybean plantings assuming U.S. farmers would sow 82.5 million acres next year, down from 89.1 million this year.
USDA’s assumptions about the U.S.-China trade war in 2019-20 and beyond are unclear at the moment, but this should be cleared up when the agency publishes its full report in February.