(Reuters) – U.S. revenues from corn and soybean farming look set to slump to their lowest levels in five years despite projections for record soybean production and the second-largest corn crop in history.
Lower corn and soybean prices are the chief driver behind the sinking sales receipts, with new-crop corn values recently slumping to their lowest levels since the summer of 2010 and new-crop soybean values at close to five-month lows.
These lower revenues may stand to have a significant impact on crop production prospects for the 2015/16 season, as 2014 production costs are projected to come in at their second-highest level ever and so will eat into producer profitability regardless of farm gate receipts.
Clearly, it is possible for prices to stage a rebound from current levels, either due to a potential crop production threat or an unexpected increase in demand. But it is also possible that prices slump further in the months ahead if U.S. growing conditions remain non-threatening and are accompanied by equally friendly weather in other major growing regions.
So for crop forecasters looking to estimate supply-and-demand balances beyond this year, current price and revenue values are the most reliable on offer, and right now suggest that corn and soybean production in the United States could contract for the 2015/16 crop year unless crop receipts surprise to the upside between now and the next planting season.
THE DOWNSIDE OF A GOOD CROP
Corn and soybean producers are usually delighted when their crops get off to a strong start to the growing season, such has been the case this year with both corn and soy ratings at their highest levels on record for this point in the year.
But with corn and soybean planted area this year at a record, and a majority of the crops grown thereon in robust shape, the prospects are good for a bumper crop of both commodities this year.
Normally, big crops are viewed as good news for growers, as demand typically expands under such an environment to guarantee strong revenues for crop producers.
But this year the hefty crops of North America are only part of the supply picture, as record harvests have already been seen this year in South America and a further production boom is on the cards in China, the No. 2 corn grower.
All told, large harvests in all major growing regions point to too much supply for the near to medium term, and account for why global crop prices have capitulated so strongly in recent weeks.
NOT MADE – OR SOLD – YET
As upbeat as current crop assessments may be, few agronomists will consider either the U.S. corn or soybean crop as “in the bag” just yet.
Indeed, both crops must still undergo their most critical developmental phases, and so are far from the finish line. And while the weather for the corn pollination window in late July looks fairly benign, the outlook remains highly uncertain for the soybean pod-fill stage, which takes place during what is traditionally the hottest part of the summer in August.
Still, following regular heavy rains across the heart of the U.S. growing belt, corn and soybeans can withstand a hot spell over the coming weeks and still fulfill production potential as long as an outright drought does not set in.
For growers who have yet to hedge or find buyers for this year’s production, this productive potential poses a conundrum as few growers can record profits if they sell at current market values.
But if those growers opt to hold off from selling till later they could be faced with even weaker prices, and at the very least will face more sell-side competition from growers in other regions who may also be taking a wait-and-see approach to crop marketing.
Late summer dry spells have bailed out such unhedged growers before, as new crop soybean prices have staged a rally during August in each of the past four years. December corn prices have pushed higher into September in two of the past four years.
Still, crop growers know better than most that both good and bad spells come to an end eventually, and so will be rightly nervous about holding off crop sales until the fall in case the current projections for a record haul in the fall come in even larger than projected.
