As we approach the spring planting season, all eyes in the market shift to planting intentions, both in the United States and globally.
Last year, farmers in the U.S. planted 91 million corn acres, 83 million soybean acres and 44 million acres of wheat. While these are in line with recent years, they may not be enough to satisfy projected usage this coming marketing year, especially for soybeans. Soybean inventory in the U.S. is forecast to drop to a historically low volume this year, and without a build in production will likely remain critically low next year as well. It is currently thought we will need to see 6 to 7 million more soybean acres next year, which may be difficult to source.
The easiest way to source acres is with higher futures, but at current values, it is unlikely we will see much shifting, especially between corn and soybeans. Right now, the new-crop price ratio between corn and soybeans is at 2.6:1 which does not indicate a push by either side. This means it will take 2.6 bushels of corn to equal the values of 1 bushel of new-crop soybeans and is not conducive to an alteration of plantings. Given the high volume of fall applied fertilizer, it may be even more difficult to sway acres to soybeans from corn.
The most watched of these regions from the global side is in South America, particularly in Brazil. Brazil has several million acres it can bring into production with little effort. These are not rainforests, as many believe, but rather arid plains and pastures in the western part of the country. The reason these acres have not been farmed up to this point is logistics, as not only is the region very difficult to get the crops out but to get inputs delivered. Brazil has announced it will be building rail lines to this region and record returns are making this more likely to happen.
Not only is Brazil looking at expanding acreage in futures years, but their current production as well. Brazil is well-known for planting two corn crops a year – the first crop that is used for domestic needs and the safrinha crop that is where most exports come from. In recent years, Brazil has started to produce a third corn crop in the northern regions of the country, making it a perpetual corn producing country. While this crop has been small, elevated values and better infrastructure will allow the planting of this crop to expand as well.
China is promoting these elevated Brazilian plantings, along with those in other countries as well. China is well-known for being the world’s largest commodity importer and most of its needs come from two sources, the United States and Brazil. China wants to expand its buying from other sources in the global market, though, to help reduce its risk. Not only does a larger supply lower costs, but it also reduces the chance of major losses from weather issues.