The total planting area of eight staple crops in the United States will decline almost annually through 2026, with acreage that year about 4% lower than in 2016, according to projections released Nov. 29 by the U.S. Department of Agriculture.
Individual crops will fluctuate. Soybean acreage is expected to rise by 2% in 2017 before falling off for two years and finally settling at 1.6% over the 2016 amount. Wheat and rice acreage will drop in 2017, by 3.4% and 15.6% respectively, but then will climb slightly and remain steady over the long term.
Meanwhile, prices of all eight mainstay U.S. crops will rise — modestly for the most part — through 2026. On the high end, soybeans will remain at more than $9 a bushel, and rice will move from the $10 range to more than $12. On the low end, the price for U.S. cotton will decrease from 67 cents to 64 cents a bushel in 2017, then increase to 68 cents in 2026.
Global land-usage and price projections mirror those in the United States. Growth in overall crop production will continue to slow through 2025, at about 1.5% annually, according to the 2016 Agricultural Outlook by the Organization for Economic Co-Operation and Development and the Food and Agricultural Organization of the United Nations.
Prices will remain flat globally, although unforeseen policy changes in individual countries are wildcards, the OECD-FAO report says.
“The long-term trend is always land coming out of production,” says Dr. Seth Meyer, World Agriculture Outlook Board Chairperson at USDA’s Foreign Agricultural Service. “Crop area tends to decline ever so slightly over time because some of that land is being diverted to non-agricultural uses.”
U.S. planting area is trending downward, Meyer says, partly because farmers are operating on tight profit margins. That in turn might affect manufacturers and distributors of crop protection products, as farmers look for ways to cut expenses and choose crops that are less expensive to plant.
“The input market needs to brace for that,” says Chris Hurt, professor of agricultural economics at Purdue University. “Crop prices have already been coming down, and that would also weaken fertilizer prices.”
On the other hand, the OECD-FAO report says that much of the projected growth in global crops will result from yield improvements. Meyer says that, among other factors, better crop management, advancements in seed genetics — and crop protection — can boost production.
“Those things are all part of the tool box to achieve greater yields,” Meyer says. “Farmers are making choices to cut costs and improve yields so they can improve their margins.
In addition to wheat and rice, four other U.S. crops will fall in acreage in 2017, according to USDA projections: Oats will drop by 10.7%, sorghum by 7.4%, barley by 6.5%, and corn by 4.8%. Acreage for the four crops will remain relatively even or decline over the next 10 years.
Todd Davis, extension agricultural economist at the University of Kentucky, agrees that tighter margins are contributing toward less land usage. He says farmers are tightening their belts because it’s harder for them to secure loans.
“I’m reading more how lenders are monitoring cash flows more than in previous years,” Davis says. “And it will depend more than before on how much collateral (farmers) have.”
Weather also will play a role in the 2017 U.S. production rate. Meyer says weather was exceptionally good in 2016. Farmers shouldn’t expect a repeat in 2017, when unfavorable weather will likely take more land out of production. Only soybeans and cotton are projected to increase in area in 2017.
Hurt says soybeans are the hot 2017 crop. Compared to two other major Midwest crops, wheat and corn, soybeans will be more profitable for farmers, with a price of more than $9 a bushel. In comparison, corn is more than $3 a bushel, while the USDA predicts that wheat will hit $4.
“The price of corn would have to be over $4 to compete with soybeans, or soybeans would have to drop to below $8, for the two to be competitive on average-quality soils,” Hurt says.
Wheat prices are relatively low due to large wheat supplies. According to the USDA, the stocks-to-use ratio for wheat is 50.4%, meaning that half a year’s usage is in stock.
“That’s the highest wheat inventory in 30 years, going back to 1986,” Hurt says. “Those are burdensome supplies, and it’s a signal to wheat producers to look to something else to produce.”
The corn stocks-to-use ratio is 16.5%, which Hurt says is the highest corn inventory in 11 years. For soybeans, the stocks-to-use ratio is 11.7%, the lightest in 10 years.
Meyer says U.S. farmers, in addition to crop selection, are considering other ways to reduce costs. For example, new tractor sales have fallen. Crop protection is also in the mix, and is another reason why soybean acreage will climb next year, according to Hurt.
“Soybeans cost less to plant than corn and wheat,” Hurt says. “They don’t require added nitrogen. We will see a larger percentage of soybeans next year — a shift of 3% to 5% — compared to recent history, and it will weaken demand for fertilizer, primarily nitrogen.”
Davis says that when crop prices are high, like they were three to 10 years ago, farmers might not scrutinize how much they are spending on crop protection.
Now they are watching each line item in their budgets.
“Farmers are discriminating,” Davis says. “If diseases show up, they will probably use (crop protection). But they are trying to use more intensive analysis and observations of crops, and use fungicides only if they have a problem, and don’t use it if they don’t have a problem.”
Rising Global Stocks
Although overall production growth is slowing and prices are flattening worldwide, some countries and crops will stand out over the next 10 years, according to the OECD-FAO report.
Latin America will lead the way in agricultural land expansion through 2025. The region will increase its planting area by 24%, and soybeans will fill most of that new space. By 2025, Brazil will become “the single most important” soybean grower in the world.
According to the OECD-FAO, soybean acreage in Latin America and the Caribbean will see a nearly 30% increase between 2015 and 2025. Land area for wheat will grow by more than 20%, and maize, along with other coarse grains, by 5%.
Hurt says to look for corn production to jump next year in Argentina. That’s because the Argentine government has eliminated a corn export tax, which will encourage farmers to plant more corn. Argentina will keep an export tax on soybeans.
This comes after a rough weather year in Argentina, Davis says, where flooding hurt the bean crop, which in turn helped drive up bean prices in other countries, including the United States. Brazil suffered a drought that affected both its corn and bean crop.
Also in Argentina, apple and pear production is projected to increase slightly in 2017, although production of table grapes will plummet by 33%, according to a November report by USDA Foreign Agricultural Service.
Meanwhile, in South and East Asia — already the world’s largest producer of agricultural products, according to the OECD-FAO report — production will climb by nearly 20% over the next 10 years. About 89% of projected increases in global rice production will take place in South and East Asian counties, mostly in India, Indonesia, and Bangladesh. The region is expected to see an increase in rice yields of about 15% by 2025.
Also in South and East Asia, maize yields will expand by about 12%, and soybean yields by about 16%, although soybeans are not a huge crop there now.
Global cotton production will increase slower than the consumption rate in the first few years of the 2015-2025 period, due to a hefty inventory. The projected 2025 stocks-to-use inventory for cotton is more than 40%.
As for global prices, the OECD-FAO report says all main-crop rates fell in 2015, “signaling that an era of high prices is likely to be over for all sub-sectors.” The report cites several reasons for price stagnation, including burgeoning global supplies.
Such supplies are accumulating as certain regions break records. According to a November USDA World Agricultural Production report, Russia, Ukraine, and Kazakhstan experienced record productions or yields in wheat in 2016. The Russian corn crop was expected to reach record levels in area, yield and production. And the United States and Argentina achieved record corn production.
Another factor in price stagnation is slowing demand, due to economic sluggishness, reduced population growth and weak income growth in developing countries, the OECD-FAO says. About 80% of any increased demand will be handled through yield improvements and only slight expansions in crop acreage.
Regardless of overall price stagnation, the world can expect at least one significant price swing over the next 10 years. Weather might play a role, as climate change continues to cause extreme weather events, the OECD-FAO says.
Also, as in Argentina, policy decisions by some governments are hard to forecast. For example, China recently announced a revision to its grain policy, including the control of domestic prices and release of stocks.
Sandrick is a freelance writer based in Cleveland, Ohio. Contact him at: [email protected]