Last year was a rough one for U.S. agricultural producers. A strong El Niño cycle, extraordinary flooding, and U.S.-China trade tensions posed a collection of unique challenges. As a result, U.S. family farm bankruptcies jumped from 498 (2018) to 595 (2019)―a 20 percent gain and an eight-year high.
There was much hope in the ag sector that 2020 would turn out to be a better year. However, unprecedented issues threaten the global economy, namely the coronavirus (COVID-19) pandemic. In this article, we’ll take a look at projections from February’s USDA crop production report and discuss what 2020 may hold for American grain and oilseed producers.
The USDA Crop Production Report (2019 Summary)
Although unfortunate, the difficulties experienced in 2019 came as little surprise. An extremely wet year delayed plantings and caused widespread crop destruction. To make matters worse, Chinese tariffs took a large portion of demand offline. The U.S. government made efforts to mitigate damages by extending the scope of 2018’s farm aid package.
According to the USDA crop production report from Jan. 10, 2020, 2019 was an especially tough year for grain and oilseed producers. Here are several key points from the marketing year of 2019:
- All crops: Aggregate planted acreage fell by 16.7 million acres year-over-year. At 302.6 million acres, planted acres were at the lowest level in more than a decade
- Corn: Corn yields fell by 4.8 percent from 2018 levels. As a result, both production (-4.5 percent) and stocks (-4.6 percent) were much lower than in the previous year.
- Soybeans: Soybean plantings were reduced by 14.7 percent from 2018. Yields (-6.3 percent), production (-19.6 percent), and stocks (-13.2 percent) all came in much lower year-over-year.
- Wheat: Wheat crop production fell 8.7 percent from 2018 levels. However, all wheat stocks held relatively firm, coming in at 3.04 billion bushels—the highest level since the marketing year of 2016/17.
A quick look at the USDA crop production report for 2019/20 clearly illustrates what plagued the ag industry: Extensive flooding hampered plantings and rising tariffs decreased the incentive to produce. In short, farmers planted as much as they could and rising tariffs lessened the demand for U.S. ag products.
According to USDA statistics for December 2019, the average price of corn (+$0.17, $3.71 per bushel) and soybeans (+$0.14, $8.70 per bushel) came in well above 2018 levels. Conversely, wheat (-$0.64, $4.64 per bushel) depreciated substantially. On the surface, the corn and soybean prices gave producers reason for optimism, while wheat was a sore spot. However, given the tumultuous planting season and shifting U.S.-China trade dynamic, 2019/20 turned into a challenging year for a broad portion of the U.S. agricultural sector.
Will We See Improvement in 2020?
Going into the COVID-19 contagion, U.S. agriculture appears poised for dramatic improvement in 2020. According to the University of Illinois, Midwest corn and soybean yields dropped significantly year-over-year during 2019. The production slump led to a significant downturn in revenue, despite the higher prices. While speculators who were bullish corn and soybeans did well, producers faced a challenging environment. Before COVID-19 forced a broad economic shutdown, 2020 held promise for ag producers.
For 2020, the USDA expects plantings to come in strong, and producers are optimistic about the future of U.S.-China trade. Given a cooperative geopolitical atmosphere and a weather cycle absent of El Niño, there are good reasons for positive sentiment.
Nonetheless, the 5,000-pound elephant in the room is the COVID-19 pandemic. If it acts as the catalyst for a prolonged economic contraction, the harvest year of 2020 will become one to forget.
USDA crop production reports from March suggest variable performance in several key areas:
- All crops: U.S. planted acreage is projected to come in at 224.0 million acres for the marketing year of 2020/21. This represents a 13 million acre year-over-year increase. Although prices may be lower, revenues may be in position to grow from 2019/20 levels.
- Corn: Plantings are projected to be in the neighborhood of 97.0 million acres, up 7.3 million from 2019. The USDA’s outlook suggests record production and higher final stocks. However, COVID-19 will severely reduce use and potential exports. The rise in stocks and decline in demand is to drive a $0.20 per bushel annual price decline to an average of $3.40 per bushel for 2020/21.
- Soybeans: Planted acreage is expected to increase to 83.5 million for 2020/21, up 7.29 million acres from 2019/20. The soybean outlook is for higher supplies, exports, and crush. Subsequently, a decrease in final stocks is expected. Average farm prices are projected to rise slightly year-over-year to $8.80 per bushel.
- Wheat: Wheat plantings are anticipated to fall to 45.0 million acres for 2020/21, down 200,000 acres year-over-year. Accordingly, tighter supplies, lower use, and a decline in final stocks are expected. An average farm price of $4.90 per bushel is predicted, up $0.35 from 2019/20.
According to USDA 2020 crop production report estimates, the marketing year of 2020-21 will feature robust plantings and increased yields. Unfortunately, COVID-19 and plunging energy prices pose major questions to the demand side of the equation.
Getting Started with Agricultural Futures
If you’re interested in the possibilities of grain and oilseed futures, Daniels Trading can help. Whether you are an active trader or a producer, our comprehensive service suite is an essential resource for your journey into the ag markets.
* Updated – May 20, 2020 at 2:00 PM CT
