Oversupply of wheat could spark crop shifts

With wheat stocks at record levels, US farmers significantly reduced plantings in 2016, which could signal a potential shift for some farmers to other row crops.

In its monthly World Agriculture Supply and Demand Estimates report released last week, the USDA projected a 43 million bushel increase in US wheat stocks in the 2016/17 season to their highest levels since the late 1980s.

Meanwhile, the USDA’s Crop Production report showed that US farmers responded to the oversupply by planting 32.4 million acres of wheat for 2017, down from the 36.1 million acres planted in 2016 and below industry expectations.

The 2017 November soybean/December corn ratio stood at 2.70, a 20-year high in the differential, which could convince farmers interested in making up for lost wheat acreage to make a switch to soybeans.

Ivan Saval, managing director for food and agribusiness at National Securities Corporation, told Agri Investor in an interview that he believes this to be the case — and that it will be a boon for fertilizer companies.

“If I’m a private equity investor and I see this, and I know anything about [agriculture], I’m going to start looking at fertilizer companies because they are likely going to be the beneficiaries of an increase in soybean acreage,” he said.

However, others say that the challenging margin environment US farmers currently face could complicate that scenario, as commodity values remain under pressure and many farmers run desperately low on funds.

Many farmers will be forced to plant the crops with the lowest input costs this year, rather than those offering the greatest returns, MaxYield Cooperative market analyst Karl Setzer told Agri Investor.

In addition, the ability of farmers to respond to recent price signals between corn and soy varies regionally due to differences in production costs. For instance, Iowa corn farmers experiencing high demand and low input costs are unlikely to switch to soy, he noted.

Farmland Partners chief executive officer Paul Pittman told Agri Investor that the  majority of farmers make decisions based on longer-term considerations of soil health, climate and tradition, estimating that just 20 percent of US farmers have the capability to devote a portion of their acreage in response to price signals in the futures market.

“There is some very small percentage that are in some sort of financial distress where input costs become the deciding factor, but the overwhelming number of farmers are going to produce the crop that they think leads to best profitability given the decisions they’ve already taken,” he said.