Grain Prices are Down but Planted Acres of Corn and Soybeans Aren’t Declining Along with Prices.
Rabobank anticipates more grain and oilseed acres planted in the next decade even though corn prices and soybean prices are likely to be low. In past periods of lower grain prices, planted acres would decline in response, bringing supply closer to demand. This time is different.
The Rabobank US Grain and Oilseed baseline model generates 10-year projections for supply, demand and grain prices. The model provides useful market analysis for understanding the potential outcomes on the grain market of a variety of shocks.
Trending Against the Traditional
Historically, lower grain prices have triggered a meaningful pullback in acres planted for both corn and soybeans. In the mid-2010s, corn acres fell nearly 10 percent and eventually stabilized 8 percent lower than their peak, reacting to declines in corn prices. This time around, planted acres have been less responsive to price declines. Planted wheat and soybeans will retreat to long-term levels, corn acres will remain elevated compared to the comparable depressed-price period of 2004-2010.
Structural forces are keeping acres planted from slipping in response to prices. Federal farm safety net programs like crop insurance and recurring ad hoc payments are providing capital to allow producers to keep planting even as margins decline.
Demand Stays Strong
Domestic demand for corn and soybeans looks to remain strong. The growth in the reduction of stored grain stocks has been fueled by increasing soybean crush, ethanol demand and feed demand, despite record-low beef cattle numbers. This continued demand helps give producers confidence to continue planting.
Domestic demand is strong but the export picture shows volatility across major crops. Corn has the strongest export prospects. Brazil’s growing ethanol sector has created strong domestic demand for Brazilian corn and tight supplies which limit export volumes. Soybean exports, however, are constrained both by trade uncertainty and increasing Brazilian soybean production.
Prices Will Continue to Soften
Rabobank’s baseline shows grain prices settling into a stable but lower range over the next decade as yields continue to expand faster than demand can match. The baseline shows corn settling in to 4.00/bu, aided by strong exports and with continued yield gains capping the potential for rallies. Soybean prices will remain near USD 9.50/bu in the early years of the outlook as a result of the expansion of crushing capacity, and then easing toward 9.00/bu in the second half of the outlook. The model assumes continued growth in Brazilian soybean production and trade policy volatility.
The price outlook overall is neither sharply contractionary nor supportive of a return to early decade highs. As a result, producers will operate in a range that encourages continued production but also heightens the importance of cost management, risk tools and disciplined rotation decisions in maintaining profitability.
The full report applies different scenarios to shock the baseline model and predict how the grain market might react.
Report Authors
Al Griffin
Senior Data Analyst, North America RaboResearch, Crops
Steve Nicholson
Head – North America RaboResearch, Crops
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