The Two Ways to Look at the Ag Outlook Numbers

March corn prices were up 4.25¢ and March soybean prices were up 6.25¢ for the week ending Feb. 19. March wheat prices were down 16.25¢.

Unprecedented U.S. weather conditions, export numbers and USDA’s Ag Outlook Forum all weighed on prices this week, says Jamie Wasemiller, market analyst with Gulke Group.

“Globally we are seeing other countries now becoming more price competitive than the U.S., such as Argentina and Ukraine in corn, Brazil in soybeans and the Black Sea in wheat,” he says. “We are also hearing analysts discussing how the crops in South America might not be as bad as some had anticipated.”

This is likely more due to an increase in acres instead of yield, Wasemiller says. 

“Weather premiums come and go and until we know more information about the South American crops the market will assume it should not get much worse,” he says. “Argentina’s forecast has changed to the drier, possibly helping soybeans move higher today, but they closed well off those highs. Also, the Chinese holiday likely slowed some business.”

During the Forum, USDA’s new chief economist, Seth Meyer, pointed out that the acreage picture largely hinges on weather, as it normally does. The first look at acreage shows 2021 planted acres as follows:

• 92 million acres of corn
• 90 million acres of soybeans
• 12 million acres of cotton

“The USDA gave pretty bullish numbers overall,” Wasemiller says. “In corn they stayed true to form on their yield projections posting a yield of 179.5 bu. per acre. We did have a yield of 176.6 in 2017/18 and 176.4 back in 2018/19 so let’s reach for the stars but that is a 7.5-bu. increase over last year and a 3.1-bu. increase from back in 2018/19.”

In soybeans, acres increased by 9% from last year.

“The big addition in acres and slight increase in yield and a minor reduction in exports increase the ending stock from last year by 0.6%,” Wasemiller says.

Wheat was the most interested, he says, with total supply was about the same due to a minor increase in acres and a minor decrease in yield. Exports were reduced by 6% resulting a 5.8% decrease in ending stock from last year and they are 15.9% lower than two years ago.

With this new round of information, Wasemiller says, the markets can look at this information two ways:

1. On the one hand we can say that the 2021/22 ending stock do not look much different than last year so we should expect to see the same sort of pricing opportunities as last year implying that current new crop futures should move higher to reflect a similar fundamental situation of last year.
2. On the other hand, we could say that although the fundamentals are still tight maybe prices did not need to get to the levels that we are or have recently been at suggesting a higher leg in prices may not be warranted unless we have issues with production or a surprise to the upside in demand.

“I do think these projections suggest that we need more global production in the pipeline, and we cannot afford issues here or abroad,” he says.

Planning for Crop Insurance

March 15 is the deadline for farmers to pick ARC or PLC for 2021. Wasemiller says current prices projections and fundamental news make it seems difficult to collect a payment using either program. 

“ARC may give you the best chance of the two as it depends on both price and yield but I still think that PLC is the way to go mainly because it lets you also utilize the insurance product called SCO,” he says. 

When comparing ARC to SCO, Wasemiller says these are the points to consider:

• SCO covers 100% of your planted acres and ARC covers 85% of your base acres. 
• For many, planted acres are much higher than base acres so even if ARC paid out more per acre in total SCO would likely pay out more.
• SCO is based on the Insurance Spring Price which with most crops is significantly higher than the farm programs prices. 

“Every producer has different paraments that affect this decision and thankfully there are calculators out there to help with this process,” he says. “If you are a producer that buys 85% crop insurance or has PP issues than ARC or event ARC-IC might make sense.”

Also, he says, do not feel rushed to make your selection even if the FSA is knocking at your door — you have until March 15.

Another new opportunity farmers can explore this year is ECO. 

“It is SCO’s big brother,” Wasemiller says. “ECO gives you the get coverage up to either 90% or 95% which is the first spring policy to let you do so. It is a policy that you buy in addition to your regular MPCI policy.”

The difference in ECO, he says, is it is based off county yields instead of individual yields. 

“Based on how variable your county yields are really like the guarantees if provide you versus the cost,” he says. “ECO premiums do get high in some counties so you can either buy it at the 90% level, lower your MPCI coverage or lower the ECO liability. If you only want to protect against your individual yields but like the idea of higher coverage levels, then you will have to look at private product which are unsubsidized.”

Speaking from personal experience, Wasemiller says, they are still definitely worth considering. “There are many ways to incorporate them and still stick to your budget.” 

Read More

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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.