Higher corn acreage, better weather will pressure prices
US farmers could switch more acres to corn from soybeans
Houston — Among different drivers for the US corn price in 2020, the acreage for the 2020-21 marketing year will be the main one to follow, sources told S&P Global Platts.
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The agronomic advantages of corn, such as its broader window of time to plant and harvest, as well as trade and price uncertainty in soybeans, can lead US farmers to continue changing acres from soybeans to corn, a risk management consultant said.
"After two consecutive years of weather issues affecting US corn crop yields, quality and harvest acreage, we have very good odds of seeing not threating weather for 2020-21 marketing year, which added to the higher acreage, could lead to higher production and lower prices in the US," the consultant added.
It is hard to understand how US farmers increase production even more when prices are low, but they have many bills to pay and they need to produce more to reach their break-even, the source explained.
"Part of this [increase in planted area] is due to the weather issues this year, but also, to some extent, the additional money given by the government will keep the farmer planting," another market analyst said. "Fully 30% of farm revenue this year will come from the government from various programs."
If there is no weather issues in South America, US corn prices will have tough time in 2020, the source added.
PLATTS ANALYTICS
Looking back to the US Department of Agriculture last Prospective Planting report, released in March 29, it showed US farmers intended to plant 92.8 million acres of corn in 2019. Now Platts Analytics sees US farmers intend to plant up to 94 million acres of corn, no more than 95 million, but no less than 92 million acre, said Peter Meyer, head of grain and oilseed analytics.
"The US corn acreage increase, as well as South American supplies coming online, will force a disconnect between the current CBOT corn futures curve and corn cash prices in the second half of 2020," Meyer said. "Old crop cash corn prices are forecast to range between $3.65 and $3.80 per bushel through the first half of 2020, then declining gradually to near $3.50/bu starting midyear given larger supplies."
Beside the Prospective Planting report to be released in late March, the USDA will conduct its annual acreage survey in the first two weeks of June 2020 to release its results in late June. However, the market will pay close attention to the USDA's Agricultural Outlook Forum to be held on February 20-21, 2020, where it will release the first estimates on US corn acreage.
EXCHANGE RATE, WEATHER, US DOMESTIC DEMAND
Regarding the US corn been competitive in the export market against other corn origins, the main drivers to follow, beside the acreage, are the exchange rate, weather affecting the South America corn crops and the US domestic demand, other sources added.
A strong US dollar index will make the US corn more expensive among the global buyers, while a non-beneficial weather for the corn crops in South America will make its product more expensive, sources said.
US domestic demand will be important to follow, in the form of corn use for feed and ethanol production. Feed demand in the US rose as the African swine fever outbreak in China forced that country to outsource animal protein. In addition, the market is closely following US ethanol demand, the principal single corn-use sector, via the US biofuels mandates or through lower import tariffs from China.
Stronger US domestic demand will pull out corn from exportsin 2020, but the key factor to follow will be the corn acreage, sources said.
-- Sergio Alvarado, sergio.alvarado@spglobal.com
-- Edited by Richard Rubin, newsdesk@spglobal.com
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