Low oil prices, an increase in the value of the U.S. dollar and record low numbers for the livestock industry all play key roles in determining what price commodities will trade and subsequently how many acres of which crop growers will plant, according to one industry expert.
Jim Sullivan, senior vice-president of Informa Economics, says the strengthening of the U.S. dollar is likely to drive corn exports down by as much as 35 percent in 2009. This is a primary reason many analysts have lowered corn acreage projections by 10-12 percent for 2009.
Continued economic troubles for major ethanol producers is another reason for lowering corn acreage estimates to 82-83 million acres nationwide. Despite the current woes, Sullivan says government mandates for ethanol blending to meet clean air standards will keep demand for ethanol good and likely force continuation of government support for ethanol production.
Speaking at the recent Virginia Soybean and Small Grains Association meeting, Sullivan says a combination of factors lead him to believe corn production in the upper Southeast and nationwide will both be higher than currently projected.
Virtually every corn input is directly tied to oil prices, and he contends oil prices are likely to stabilize over the next two years at $45-50 per barrel. Stability in oil prices will likely mean stability in livestock prices as investors move away from commodities, because of a lack of high profit potential.
Sullivan says for the first time in modern history all four major meat industries; beef, pork, chicken and poultry are in decline in terms of on-farm animal numbers. Broilers took the biggest drop in 2008, down 3.2 percent, followed by swine at 2.6 percent. Turkey and beef numbers both dropped about 1.5 percent last year.
Some analysts believe these numbers are likely to rebound somewhat in 2009, but Sullivan contends the decline is likely to continue into 2010.
In an effort to keep feeding costs in line, many large livestock operations have moved more to soybeans and wheat in their rations. Sullivan says there may be some continuation of switching from corn to wheat and soybean rations. However, stabilized corn prices and continued worldwide demand for soybeans may mean more corn-based rations will be used.
All these factors combined, he says, factor into his projections of more corn than is being projected in 2009. The driving factor for most growers, he says, is continued high prices, compared to pre-2006 levels and the prospect of lower input costs, compared to 2008.
Like it or don’t, Sullivan says China also will play a role in U.S. grain production in 2009. China’s industrial growth continues to slow and is not expected to reach double digit growth for the next few years. In the fourth quarter of 2008, the Chinese economy grew at only 6.8 percent and at only 9 percent for the year, compared to 13 percent for 2007.
In addition to coping with the same economic challenges that affect the global economy, China is in the midst of revamping its agricultural land use system. More and more farmers are being given control of their land as the Chinese move away from more centralized control.
The end effect of economic and structural changes in China will likely have the most profound impact on cotton growers in the Southeast, but will also have a significant impact on grain crops that are exported to China.
Technological advances, particularly triple stack corn varieties are playing a role in corn production in the Southeast and will continue to have an increasing impact, Sullivan contends.
Last year Virginia corn producers averaged 109 bushels per acre, compared to 160 bushels per acre nationally. In 2009, Sullivan is projecting Virginia growers will produce 123 bushels per acre, with the national average staying close to 160 bushels per acre. Continued improvements in corn varieties and continued improvement in no-till technology will continue to narrow the gap in corn yield in the Southeast versus Midwest, he says.
Nationwide, projections are for nearly 81 million acres of soybeans to be planted in the U.S. in 2009. In the Southeast acreage could be much higher as farmers struggle with continued low prices for cotton and a lack of any contract price for peanuts. Largely due to his projection on more corn acreage than is being forecast, Sullivan says he expects fewer acres of soybeans than projected.
University of Illinois Economist Darrel Good concurs with Sullivan’s projection for bean production in 2009. Both economists contend soybean acreage will be less than 75 million acres.
For soybeans, the USDA estimates that 75.718 million acres of soybeans were planted and 74.641 million acres were harvested in 2008. The difference of 1.077 million acres is slightly larger than the 5-year average of 895,000. If 75.718 million acres are planted in 2009, about 74.8 million acres would be expected to be harvested. The calculated trend yield for 2009 is 42.3 bushels per acre. No change in acreage and a trend yield in 2009 would point to a crop of 3.164 billion bushels, Good says.
“There appears to be no need for increased soybean acreage and a small decline may be warranted, depending on yield expectations. With winter wheat seedings down by 4.2 million acres, there does not appear to be a looming battle for acreage of spring planted crops in 2009,” Good adds.
The upper Southeast may well buck the national trend on both soybeans and wheat. A recent report by the North Carolina Department of Agriculture indicates North Carolina farmers plan to plant more soybeans and more wheat in 2009. The biggest loser in acreage in North Carolina is cotton, which may see its lowest levels in the past 15 years.
North Carolina growers intend to plant 1.6 million acres of soybeans this year, up 13 percent from a year ago and the highest acreage since 1989, according to North Carolina Agriculture Commissioner Steve Troxler.
Wheat acreage in North Carolina is now projected to be 820,000 acres, a record high. A USDA report last fall had projected 800,000 acres of winter wheat in the state.
“Soybean prices are strong, and it looks like many farmers want to plant soybeans after they harvest their winter wheat,” Troxler says. “If the weather cooperates, wheat and soybeans could be a profitable combination for North Carolina farmers this year,” he adds.
Farmers in the upper Southeast are coming off a good year in wheat production, in terms of yield, quality — and price. Nationally, projections call for a 1 percent to 2 percent drop in wheat acreage to 59 million acres. Again, Southeastern growers are likely to buck that trend.
On a global basis, wheat production is likely to be down significantly as weather and other production problems continue to plague major wheat producing countries worldwide. In the Southern Hemisphere, particularly in Argentina and Brazil, production has been dramatically reduced by drought.
The worst drought in half a century has turned Argentina's once-fertile soil to dust and pushed the country into a state of emergency. The country's wheat yield for 2009 will be 8.7 million metric tons, down from 16.3 million in 2008. Argentina has granted no new export applications since mid-January.
Brazil also has seen a drastic reduction in grain crop production. Brazil is the world's second-biggest exporter of soybeans and third-largest for corn. Including wheat, overall grain production in Brazil may fall by over 25 percent in 2009, compared to 2008.
Both national and international hard times for wheat may bode well for Southeastern producers. Again, technology and climate continue to provide many advantages for Southeastern wheat producers.
In Virginia, wheat yields continue to go up about two bushels per acre per year — a trend that started nearly 10 years ago. “Continued advances in wheat breeding that continue to generate new, more productive varieties for upper Southeast growers is the driving force behind the yield improvement,” according to Virginia Tech Small Grains Specialist Wade Thomason.
The growing strength of the dollar will further limit exports of U.S. wheat in 2009 and an excess supply of soft red winter wheat is sure to drive domestic prices down, according to Sullivan.
On the positive side, Sullivan projects that wheat for livestock feeding is likely to increase in the U.S. by 40 million or so bushels over 2008 levels.
While Southeastern farmers continue to wait to make planting decisions, the consensus seems to be that risks seem to be reducing in terms of input costs and prices seem to be stabilizing on all three major grain crops. “Watching oil prices, ethanol production and the price of the U.S. dollar are all good indicators of how well grain will fair in 2009,” Sullivan concludes.