Strategize for larger 2020 crops, economists suggest11/27/2019 | Soybean Exports, Economics
By Bethany Baratta, ISA senior writer
Soybean and corn crops in 2020 are projected to be some of the largest U.S. farmers have ever produced. The yields won’t be just the result of higher-yielding hybrids, but also the return of acres back into production after floods inundated fields this year. More than 19 million acres of corn and soybeans were claimed under prevent plant this growing season, nearly four times the average.
With 14 million acres likely to return to soybean and corn production in 2020, this will continue to put pressure on prices, said Chad Hart, associate professor and crop marketing specialist at Iowa State University (ISU).
“The biggest issue we’re seeing in agriculture right now is not necessarily the trade dispute or worries about the economy,” Hart said during a Pro-Ag outlook meeting held in Altoona recently. “It’s what we’ve been dealing with since 2013: our ability to overproduce for the markets that we have.”
That’s what’s been driving the prices down for the past six years, he said.
“The challenges we’re seeing with this year’s crop—delayed planting, delayed harvest—has brought down yields, but not enough,” Hart said.
The U.S. Department of Agriculture (USDA) projects 84 million acres of soybeans will be planted in the United States next year. With a projected yield of 50.5 bushels per acre, that would be the fourth largest soybean crop ever produced, Hart said.
The wet spring knocked more soybean area out of production than corn, Hart said, and those acres will likely be planted to soybeans in 2020. The weather
The wildcard, he said, will be weather. The moisture last fall and winter set up a wet spring for 2019. Will 2020 be a repeat?
The USDA projects 94.5 million acres will be planted to corn in 2020. At an average yield of 178.5 bushels per acre, “that would put us staring at the largest corn crop the country has ever produced,” Hart said.
It would continue the trend set in 2013 of large crops, with 2020 being the largest.
Factors affecting sales
But what happens if demand for the grains continues to slow?
While it’s true that soybean export sales have fallen due to the trade dispute between the United States and China, Hart said China is still the top soybean market for the United States. Mexico and the European Union round out the top 3.
There are global headwinds which affect the 2020 crop outlook, Hart noted.
“We’re seeing the global economy slow down, and as it slows down, we’re seeing a pullback in demand for ag products,” Hart said
He’s concerned about the global slowdown—not a global recession—kicking in. That affects the world’s needs for proteins and feed.
The strength of the U.S. Dollar has continued to strengthen since the trade dispute with China began. This, combined with a weaker global economy, makes U.S. products more expensive and less economically attractive to world buyers. For example, other countries look to Brazil and other sources for more competitively-priced soybeans.
“We’re fighting upstream, and the current is pretty strong in the global marketplace,” Hart said.
The USDA projects a season-average price for soybeans at $8.85 per bushel in 2020. That’s 15 cents below the 2019 average price, Hart notes.
Corn prices are forecast at $3.40 per bushel, down 45 cents from the 2019 average.
Alejandro Plastina, ISU assistant professor and ISU Extension economist developed nine strategies to help manage margins:
- Revise production costs: Can you make changes that offset reductions in revenue?
- Actively manage risks: Know your break-even prices, set a target price and stick to it
- Limit working capital needs: Maybe this means revising your share of rented land or planting decisions in the least-productive parts of the fields.
- Diversify income: consider adding off-farm income.
- Revise family living expenses: Can big-ticket items like renovations or vacations be postponed?
- Secure repayment capacity: Work with your lender to extend repayment schedules.
- Revise growth strategy: Align short-term needs with long-term goals.
- Choose ARC/PLC program. Study the differences and understand the right fit for your farm.
- Develop a Plan B: Is it time to develop a transition plan or do something else?
Hart said farmers should take opportunities where they can to lock in profits for 2020.
“There’s always a time somewhere through the year where the market gives an opportunity to at least get a profit margin,” Hart said. “The question is, are we willing to take it when it does?”
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