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Analysts expect soy to replace much of winter wheat for 2015

 

By MICHELE F. MIHALJEVICH

Indiana Correspondent

 

WASHINGTON, D.C. — With the latest round of USDA crop reports published, market analysts are now starting to focus on what farmers will plant in the spring.

The USDA’s National Agricultural Statistics Service (NASS) released crop production and winter wheat planting updates Jan. 12. The USDA also released its World Agricultural Supply and Demand Estimates (WASDE) report the same day.

Winter wheat acreage is down nearly 2 million acres, from 42.4 million last year to 40.5 million, according to NASS. Hard and soft red winter wheat each lost about a million acres, as farmers were expected to plant 29.5 million acres of hard red and 7.5 million of soft red. The question of what will be seeded in place of wheat is getting attention from the market. Darin Newsom, senior analyst with DTN, said soybeans are the most likely replacement crop.

"That area – the Southern Plains – is almost always water-deficit, and it’s very difficult to make corn work year in and year out on a lot of that ground," he explained. "Irrigation is becoming more difficult in that area, so it would not surprise me to see an increase in soybeans. I think across most of the winter wheat area, that’s what we’re going to see."

Rich Nelson, chief analyst with Allendale, Inc., expects the lost soft red wheat acreage to go into soybeans and the hard red wheat to be replaced by corn. AgResource Co. has started ratcheting up its new-crop corn seeding estimate in light of the drop in winter wheat acreage, said Dan Basse, the firm’s president.

"Overall, our studies show (farmers will plant) around 90 million acres of corn and 86 million acres of beans, which would be a record soybean total," Basse said. "(The lost wheat acreage) is mostly soft red winter wheat in the Midwest, so that can go somewhere else. We think corn or full-season beans."

Whatever crop producers pick to replace their wheat acres, market changes will impact decisions, said Virginia McGathey, president of McGathey Commodities.

"Where the market has been the last couple of years, it has been so high, and all farmers were just gnawing at the bit to try to figure out what they’re going to plant because there was so much premium to it," she noted. "But now that the markets are a little bit lower, everybody’s really tightening their belts and trying to predict what they can plant that will actually guarantee they’re going to make some money. They’re going to be very tight about what they put out there."

In its 2014 Crop Production report, NASS had corn production at a record high 14.2 billion bushels, and soybeans at 3.97 billion, also a record. Corn yields averaged 171 bushels per acre, and soybeans, 47.8 bushels; both numbers are record highs.

Generally, the reports were bullish to corn and bearish to soybeans, said Jon Cavanaugh, a private grain analyst. While the reports didn’t hold many surprises, he questioned the drop in corn yield.

"Market expectations were that it would maybe be up a bit," Cavanaugh stated. "I was surprised personally that it dropped. Many had expected a 175 to 176 (yield) or even higher. It doesn’t seem right to me."

Despite the lower yield number, the U.S. corn crop still has a chance to be a good one, if not a record, Newsom said. "We’ve been told the 2014 crop was a record, easily surpassing what we’ve seen in previous years," he added. "This is even with a backing off of the average yield down to 171 bushels per acre. But we had some room."

Ending stocks

 

Domestic corn ending stocks were 1.877 billion bushels, down from the December 2014 estimate of 1.998 billion, according to the WASDE report. Exports remained unchanged, while feed and residual demand dropped 100 million bushels. Ethanol demand increased 25 million.

Despite the higher ethanol number, Cavanaugh sees profits eroding. "The USDA number is based on what’s been used to date," he noted. "A lot depends on exports for ethanol, but there’s a chance to see the number being smaller."

Nelson also expects to see a drop-off in ethanol production. He attributes about 70 percent of the potential decline to lower energy prices and 30 percent to moderating corn prices. Lower gasoline prices are actually a benefit to ethanol, Newsom said, adding he’s in the minority with this line of thought. "Ethanol demand should go up if gasoline demand as a whole goes up," he explained. "Nothing does more to spur driving than sub-$2 gas after we’ve paid $4 or more for gasoline in the not-too-distant past.

"Now the fact that most of the U.S. is seeing prices below $2, that’s going to increase driving and demand, and if it increases demand for gasoline, in my mind and by my calculations, that should increase demand for ethanol."

The WASDE report put domestic soybean ending stocks at 410 million bushels, the same as December estimates. Growth is expected in exports and crush numbers. For wheat, domestic ending stocks were 687 million bushels, up from last month’s 654 million. Feed and residual use was estimated to be down, while exports remained unchanged.

1/21/2015