Oil Crops Outlook: Spring Wetness Already Altering Trajectory of 2019/20 Crops

USDA lowered its 2018/19 forecast of U.S. soybean exports by 75 million bushels this month to 1.7 billion. Fewer expected exports raise the forecast of season-ending stocks by 75 million bushels to 1.07billion.

Despite a higher expected level of carryover stocks and no change for new-crop production, USDA raised its 2019/20 soybean price forecast to $8.25 per bushel from $8.10 last month. Recent strengthening in corn futures prices reflects market fears that the wetness has led to less corn planting this spring, which has buoyed soybean prices as well.

Only 60 percent of the U.S. soybean crop had been planted by June 9, lagging the 5-year average of 88 percent.

Domestic Outlook

Soybean Planting Trails Well Behind the Usual Pace

Croplands in the Midwest had little chance to dry out in May as precipitation continued at a record pace while temperatures were cooler than usual. Many crop reporting districts in the Midwest and Central Plains totaled 8-12 inches of rainfall during May—more than double the usual level. Difficult fieldwork conditions meant that only 60 percent of the U.S. soybean crop had been planted by June 9, lagging the 5-year average of 88 percent.

Indeed, this is the slowest pace of soybean planting since 1995. The delays are widespread. For all of the top 10 soybean-producing States, planting progress ranges from 5 to 57 percent behind their averages. Between June 1 and early July—when the planting window closes—farmers would have to sow an unprecedented level of soybeans (just over 51 million acres) to reach the March intentions.

Saturated soil conditions are forcing farmers into hard decisions on how to proceed with crop planting. Considerations include June weather developments but also crop insurance provisions, market prices, and government support programs. By the first week of June, most growers had passed the final planting date for obtaining full insurance coverage on corn. For planting beyond that date, producers will have to evaluate whether a higher market price justifies the risk of lower yields and acceptance of a 1-percent daily decline in the crop insurance guarantee.

Alternatively, a decision to take prevented planting payments indemnifies 55 percent of the full guarantee for the selected insurance level. After that, farmers may then only plant cover crops for hay or pasture on this unsown acreage. Eligible cover crops will count toward 2019 Market Facilitation Program payments that are based on a farm’s total sown acreage this year.

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A final alternative, provided that better soil conditions allow it, is to plant a soybean crop, which can still get full insurance coverage through mid-to-late June. In this case, farmers forego a prevented planting payment unless soybeans also cannot be sown prior to its final insurance date. Nevertheless, the extent of switching from corn could be constrained by the availability of additional planting seed for soybeans. USDA’s June 30 Acreage report will shed light on the intended response of farmers.

Recent strengthening in corn futures prices reflects market fears that wetness has led to less corn planting this spring, which has buoyed soybean prices as well. Despite a higher expected level of carryover stocks and no change for new-crop production, USDA raised its 2019/20 soybean price forecast to $8.25 per bushel from $8.10 last month. This presumes that the current rally may spur farmers to make more forward sales at this higher price level. The season-average price for soybean meal in 2019/20 is also forecast $5 higher this month to $295 per short ton.

Slower Soybean Shipments Raise 2018/19 Stocks Outlook

USDA lowered its 2018/19 forecast of U.S. soybean exports by 75 million bushels this month to 1.7 billion. Outstanding export sales commitments of soybeans are still record large for this time of year. Undelivered sales to China typically account for no more than 20-30 percent of total outstanding sales as of early June but this year represent 57 percent.

In May, half of all U.S. soybean export inspections were for China. Yet, by the end of the 2018/19 crop marketing year on August 31 (now only 12 weeks away), outstanding sales may not be drawn down to the usual level. This would take a sharp acceleration of shipments, which have been steady recently but not picking up.

While high transaction costs should discourage cancellations of favorably priced soybean sales contracts, rescheduling of contracted delivery dates for the 2019/20 marketing year might be more easily negotiated. The expectation of lower soybean exports for 2018/19 raises the forecast of U.S. season-ending stocks by 75 million bushels to 1.07 billion.

Export logistics also remain problematic. Flooding on the Mississippi River this spring is the worst since the historic 1993 deluge. Barge shipments on this main artery for soybean and grain exports continue to be disrupted. Major upstream locks between Wisconsin and St. Louis are currently closed by an unacceptably high water level. Southbound barge traffic on this upper part of the river has stopped for now.

A reopening to river traffic is not anticipated until mid-June, when the National Weather Service forecasts the water level to again recede below a major flood stage. On the lower Mississippi River, barge capacity has been reduced by restrictions on tow sizes. Only daylight operating hours are allowed under some bridges to prevent accidents.

USDA Implements Multiple Programs Aiding Oilseed Farmers

Oilseed producers and producers with historic plantings to oilseeds (“base acres”) may be eligible for several programs for the 2019 crop year. These programs include the Market Facilitation Program, disaster aid, and 2018 Farm Bill programs.

In May, USDA announced that it is initiating a second Market Facilitation Program (MFP) to assist producers impacted by trade disruptions from foreign retaliatory tariffs on their products. Most oilseed crops are eligible.

In aggregate, up to $14.5 billion will be available for direct payments to producers of 2019 crops including: alfalfa hay, barley, canola, corn, crambe, dry peas, extra-long staple cotton, flaxseed, lentils, long-grain and medium-grain rice, mustard seed, dried beans, oats, peanuts, rapeseed, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflowerseed, temperate japonica rice, upland cotton, and wheat.

Producers of these crops will receive a payment based on a single county payment rate multiplied by the farm’s total 2019 plantings of those eligible crops (but not to exceed 2018 plantings). The single payment rate per acre offers producers maximum planting flexibility, and addresses cross-commodity price impacts of tariffs. This is different from the first Market Facilitation Program—implemented after the 2018 planting season had ended–which paid on production of specific crops and commodities at national rates.

While the original MFP was more heavily oriented to compensation for soybean, cotton, and hog farms, funds from the second program will be more widely distributed among farms with a diverse crop output. Because more crops have been impacted by tariffs, more oilseed crops have been made eligible for the second Market Facilitation Program. For example, 2019 crops of canola, crambe, flaxseed, mustard, peanuts, safflower, sesame, and sunflowerseed are now eligible for the second MFP.

Payments will also be made available for dairy, hog, tree nut, sweet fresh cherry, cranberry, and grape producers. However, payments for these commodities will be based on a farm’s production at national rates—similar to the payment structure for the first MFP.

Further details on payment rates, schedules, and coverage limits will be released in the near future. The first payments will be made in late summer 2019, after crop reporting by USDA’s Farm Service Agency is completed (July 15). If market conditions dictate, two additional tranches of payments will be made in November 2019 and January 2020. Payments are still being made on the first Market Facilitation Program for 2018 crops. The deadline for applicants to report production of 2018 crops was May 31, 2019.

In addition, oilseed producers may also be eligible for payments for losses of stored crops or prevented planting losses through funds recently made available through the 2019 Supplemental Appropriations (H.R. 2157), commonly known as the Disaster Bill. Congress has made $19.1 billion in supplemental appropriations available to address natural disasters for both the 2018 and 2019 calendar years, of which $3 billion was made available to USDA. The funding will be made available in the form of block grants to States and territories.

As specified in the 2018 Farm Bill, participating producers must elect either the Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) for each covered commodity prior to the 2019 and 2020 crop years. For soybeans, USDA’s current 2019/20 forecast price of $8.25 per bushel is below the reference price of $8.40 established in the 2018 Farm Bill.

This means that producers with eligible base acres of soybeans will be eligible for PLC payments on soybean base acres if they meet all other program eligibility requirements and the final 2019 market year price is below $8.40 per bushel. Alternatively, producers with base acres may be eligible to receive ARC payments if revenue (price times yield) per acre at their county level is less than a guarantee based on 5 years of data for that county for that commodity. Eligibility for these payments does not require producers to plant soybeans on soybean base.

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