Every year presents its own challenges—but this year, farmers will likely face more of the same when it comes to crop markets and economics. Knowing what to expect influences decisions, big and small, from crop mix to inputs to machinery. Marketing experts urge farmers to continue to tighten their belts and create a plan to drive marketing moves this year. In addition to structure, flexibility will be key to capture even a small run-up in prices along the way. The following is a look at experts’ projections for the primary crops in 2016.
Expect $3 Corn to Persist
There’s little question corn will maintain its position as king of U.S. row crops in 2016. Just don’t expect the footprint or price point of corn to change substantially from 2015 levels amid a massive supply of grain and low commodity prices.
Some factors suggest corn acreage might slightly increase in light of low soybean prices and crop rotation.
“Land that was planted to soybeans could go back to corn simply because of agronomic practices,” says Brian Grete, editor of Pro Farmer. He predicts corn plantings will range from steady to up to 2 million more acres.
Pat Westhoff, director of the Food and Agricultural Policy Research Institute at the University of Missouri, agrees the corn–soybean relationship will factor into plantings.
“We do have a big shift in the relative prices of corn and soybeans [compared] to what we’ve seen the past two years,” Westhoff says. “We would expect that to result in a little more acreage back to corn.”
Although those sentiments aren’t particularly bullish, other experts think corn acres might move in the reverse direction.
“There will likely be a slightly smaller number of acres,” predicts Matt Stockton, ag economist at the University of Nebraska, about his state and the national projections. “The crop size will then depend on conditions.”
Gary Schnitkey, ag economist at the University of Illinois, says he doesn’t anticipate much change for 2016, either in acreage or yields.
“I expect 88 million acres of corn planted in the U.S. with a yield range in the high 160- to low 170-bu.-per-acre range,” Schnitkey says. “In Illinois, I expect 11.8 million acres with a yield range in the low to mid-170s.”
Prices in the high $3-per-bushel range are likely for 2016, say Schnitkey and other economists.
“We don’t see a lot of reason to expect much change in 2016/17 given what we know today,” Westhoff
agrees. USDA has projected a price midpoint of about $3.65 for the 2015/16 corn crop, and that number is projected to be similar for 2016/17.
Domestically, Schnitkey says, the biggest unknown that will impact prices is corn demand for feed. Globally, the biggest unknown is the economic outlook. If more economies enter a recession, demand for corn and soybeans could dip lower. Another wild card is Chinese demand for soybeans, Schnitkey says, which will impact planted acres in the U.S. Keep an eye on ethanol policy in Brazil, Stockton adds.
One region that could see more corn planted in 2016 is the South, where drought has evaporated, Stockton says. In the Corn Belt, planting trends should remain unchanged.
“At this point, I don’t expect much change,” Schnitkey says. “Prices are low, but they are low for all commodities. The comparative returns of crops have not changed much.”
Soybean Market Hinges on China
Ag economists are clear on the three biggest factors affecting the U.S. soybean market: China, China and China.
“First and foremost are the concerns about the slowdown in China,” says Chad Hart, ag economist at Iowa State University. “China represents a sizable majority of our soybean exports out of the U.S., so a slowdown in China definitely has a ripple effect in the marketplace.”
China’s economic growth rate shrank to 6.9% in the third quarter of 2015—a steep decline from the breakneck double-digit growth rate of prior years. Exporters are worried China’s slowing economic growth could translate into weaker food and industrial demand for soybeans and fewer imports from the U.S. In the 2014/15 marketing year, China represented slightly more than half of all U.S. soybean export sales.
Potentially weighing further on the U.S.’s competitiveness in the export market is the strong value of the U.S. dollar, says Chris Hurt, ag economist at Purdue University. The dollar index, as of press time, was valued at 99.168 versus 87.642 a year ago.
“Exchange rates look like they’re going to be difficult,” Hurt says. “There’s a higher probability the Fed will start increasing interest rates this year, which tends to push up the dollar.” (The Federal Reserve increased the interest rate by a quarter of a percent on Dec. 16.)
Meanwhile, in Brazil, the U.S.’s foremost competitor for China’s soybean business, its currency, the real, has weakened, which makes its exports cheaper.
“The real is down about 40% against the dollar versus a year ago. China’s currency, the yuan, is also about 40% stronger relative to the real, but it’s about 4% weaker relative to the dollar,” Hurt explains. “The dollar today buys 4% less in the U.S., but it’s actually a little over 40% more in Brazil. These are not just headwinds. This is a hurricane blowing in the face of U.S. soybean farmers.”
China also has plenty of places to buy soybeans, Hurt adds. With the world growing two back-to-back record soybean crops, the U.S. has more export competition. USDA figures world soybean production in 2013/14 was 318.95 million metric tons, with 319.61 million metric tons projected for 2015/16.
Meanwhile, domestic demand has been a bright spot for U.S. soybean farmers, with the expansion of livestock numbers in the U.S. increasing feed demand for soybean meal, Hurt notes. In addition, continual growth in biodiesel is increasing demand for soybean oil.
The wild card for 2016 remains El Niño, Hurt says. Warmer and drier weather could reduce South American soybean production or the Malaysian palm oil crop and send more export business to the U.S. Further out into 2016, El Niño could revert into La Niña and bring wetter than normal conditions to those regions, he adds.
U.S. soybean farmers have been reluctant to sell their 2015 crop at prices below $9 per bushel, so they are holding out for better marketing opportunities, Hurt says. The wait could be long because future prices aren’t much better in 2016.
“There are always uncertainties out there,” Hurt warns. “However, as some in the market say, hope is not a strategy.”
Bearish Supply and Strong Dollar Test Wheat Market
Analysts aren’t cheerful about wheat’s outlook for 2016, with a record world wheat crop hanging on the market like a wet blanket.
“In general, I’m awfully pessimistic,” says Darrell Holaday of Country Hedging in Frankfort, Kan. “My optimistic view is I think we will put some sort of long-term bottom in wheat in 2016, but unfortunately it will be lower than people can probably bear or think we could possibly go.”
Dragging down prices are two back-to-back record world wheat crops. USDA estimates the world produced 725.12 million metric tons in the 2014/15 marketing year, with another 732.79 million metric tons figured for 2015/16. World ending stocks are swelling to a record 227.3 million metric tons for the current crop year.
Casting an even darker shadow over the U.S. wheat market is strength of the U.S. dollar, adds Dan O’Brien, Extension ag economist at Kansas State University.
“I think we’re in a tough situation currently,” O’Brien says. “The dollar index is markedly higher and that has really affected our ability to export.”
The dollar index is on track to beat the recent high of 100.39 registered in March, which would make it the most expensive it’s been, in relation to other world currencies, since August 2003. A strong U.S. dollar makes U.S. goods more expensive on the export market.
With the dual headwinds of record world wheat supplies and a strong U.S. dollar, USDA currently figures total U.S. wheat exports for the 2015/16 marketing year will fall to 800 million bushels—the smallest export total in more than 40 years.
However, not all news is bad for wheat, says Steve Mercer, vice president of communications at U.S. Wheat Associates. World demand has kept pace with world production and is also the highest on record.
Potential supply shocks around the globe could also create more demand for U.S. wheat, Mercer adds. Crop production concerns in the Black Sea region, for instance, could send more export business to the U.S.
“If you look at the supply shocks during the past 10 years, they’ve all had a Russian factor, whether it’s drought, government intervention or some kind of hiccup,” he says. “So when they sneeze, we all get a cold.”
U.S. farmers will also likely harvest fewer wheat acres in 2016, Holaday adds. Total wheat acreage in the U.S. could drop by 1 million, he predicts, with most of the shrinkage coming out of hard red spring wheat and soft red winter wheat.
Holaday warns the decent condition of the current U.S. winter wheat crop foreshadows bigger yields this summer, which would only add to the bearish supply situation.
“There’s a good chance we could be trendline or slightly above trendline yield in 2016, and that will really bog us down and get us to extremely low levels,” says Holaday, predicting the wheat market could see another 70¢ to 80¢ to the downside from current levels by September 2016.
If the U.S. produces a healthy wheat crop this summer and if there are no major weather issues with other wheat exporters to disrupt supply, O’Brien agrees there’s little hope for the market to produce any major rallies.
“It’s just a matter of if we have a weather-driven shortfall with major wheat producers around the world,” O’Brien says. “Otherwise, it will take more of a steady [usage] pace for two or three years to work through our
supply situation.”
Cotton Is Stuck In a Rut
Cotton is caught in the doldrums with a demand creep showing scant signs of improvement. As projections forecast a carryover of 3.1 million bales, prices appear to be staying put at about 60¢. Cotton consumption rides in tandem with overall prosperity, but the limping domestic and global economies are likely to continue.
“Because of oversupply, I have a hard time seeing cotton prices getting out of the 60¢ range,” says John Robinson, Texas A&M University Extension cotton economist. U.S. cotton farmers are expected to plant 9 million acres again this year.
Pared down, he anticipates a 2016 similar to the dismal cotton year of 2015. “Farmers have a bad taste in their mouths from low prices and tough growing conditions. They aren’t thrilled and their bankers aren’t thrilled either. Such sentiment will keep a lid on acreage.”
An economic boom in key cotton-consuming countries carries the likelihood of a snowflake in summer. China is rubbing against a hard economy and holds huge cotton reserves. However, import increases in Bangladesh, Indonesia and Vietnam have helped offset the drop from China. Turkey is also a big U.S. cotton consumer, the second-largest customer in the past five years, but the current anti-dumping investigation could affect Turkey’s import status.
Soil moisture conditions, particularly in cotton-heavy Texas, are predicted to be better in 2016 than in previous years, but the El Niño effect might last into spring.
“If planting conditions are favorable, we should see an increase in cotton acreage in some areas compared with 2015,” says Jody Campiche, vice president of economics and policy analysis, National Cotton Council.
As far as acreage levels, feed grain prices are low, Campiche says. “Even sorghum’s favorable basis has declined. This could lead to more cotton acreage in 2016,” she adds. However, with a stagnant world market and record levels of cotton stocks, she, too, anticipates similar price conditions this year.
Plenty of Peanuts Pressure Already Low Prices
Peanut supply estimates point to 3.1 million tons for 2015. If that number holds, it will result in a carryover of roughly 1.4 million tons. That would place the U.S. peanut industry in an oversupply situation and press
against already low prices.
The price on peanuts can’t go much further down and still entice farmers to plant in 2016, says Tyron Spearman, executive secretary of the National Peanut Buying Points Association. “Prices have been running around $400 per farmer stock ton, but dropped to $380 per farmer stock ton. The price support is $355, and I don’t think farmers will plant at $355.
“In 2015, farmers planted at around $400 per farmer stock ton and then they received $75 from the PLC
program. That puts it at $475, so if you can average 4,000 lb. to 5,000 lb., you can stay alive, but you won’t be bringing in profit,” he adds.
Exports play an increasingly big role in the peanut outlook. “Our problem is Argentina and they’ve been successful in the European market by being priced lower than U.S. peanuts,” Spearman says. “They’re at $1,000 per metric ton, we’re at $1,100 and that’s the best we can do. Right now, we just have to be ready when Europe needs U.S. peanuts.”
Brian Williams, ag economist at Mississippi State University, says peanut demand has been strong, but not robust enough to keep up with the huge 2015 crop. “I suspect prices will drop with the big supply. At a minimum, profitable crop options will play at least a small role in 2016 peanut planting decisions,” he notes. “I think peanut acreage will have a slight drop in 2016 due to caps on total PLC payments and storage issues from the 2015 carryover.”
Spearman believes 2016 acreage will be lower than 2015’s 1.6 million acres, with the decline tempered by a lack of crop alternatives, cotton in the 60¢ range, corn below $4 and soybeans hovering near $8.50. If the alternatives remain unattractive, producers might fall back on peanuts again. “Getting close to planting time, peanut acreage will really play off the price performance of corn and cotton,” Spearman says.
Rice Market Holds Out For International Stars to Align
Based on the whims of 2015, rice acreage will be steady or down for 2016. A lot of rice is still in storage as producers wait for the price to improve. “If they can get close to $6 per bushel, they’ll pull the trigger. However, reaching such a price is unlikely,” says Jarrod Hardke, University of Arkansas rice Extension agronomist.
Rice growers won’t run to $8.50 soybeans. Ballpark input costs are $350 per acre for soybeans and $700 for rice. Soybeans are a safer bet, but rice’s yield potential can bring a windfall. “Beans in the teens would be a different conversation,” Hardke says.
As the No. 1 rice-producing state, Arkansas’ 2015 yield is estimated at 164 bu. per acre, compared with 168 bu. in 2014. Hardke believes yield will remain down and deliver a price bump, considering Arkansas’ rice footprint—1.3 million acres. “Ultimately, I feel yield will fall between 155 bu. to 160 bu. per acre. Move yield from 164 to below 160 and we’ll see an impact.”
Certainly, 2015 prices won’t motivate farmers to plant rice in 2016. Yet, Louisiana State University AgCenter economist Kurt Guidry doesn’t see a shift away from rice. “I think acreage will remain steady and might even come with a slight increase. We had 2.6 million U.S. rice acres in 2015 and I could see it getting to 2.8 million in 2016.”
In Louisiana, most of the rice crop is in the southern part of the state where there’s not many crop options. “It’s almost rice or nothing,” Guidry says. “With a short crop, maybe prices will strengthen. There has to be more than a small change to get producers excited about planting rice this year.”
On the export side of the table, Cuba’s historical demand for U.S. rice and its proximity bode well for rice farmers, Williams says. “Also, the Trans-Pacific Partnership will remove trade barriers. Despite the international benefits on the horizon, they probably won’t influence 2016 plantings.”
Cuba’s market would consume a significant amount of U.S. rice. China is also on the sidelines, and its purchasing power would pull a deep scoop from the U.S. marketing bin. If the international stars line up, rice acreage could break records in the near future. However, such conjecture might be empty in regard to 2016 plantings.
Place Your Bets on Grain Sorghum
Sorghum might have the best chance for profit, according to USDA data and industry experts. USDA is projecting lower sorghum exports for 2016, but also a sharp uptick in planted acres, from 7.1 million in 2015 to 8.7 million in 2016. China has emerged as a leading importer of sorghum, and USDA expects the country’s demands to increase by approximately 2% each year for the next decade.
Sorghum has also proven itself as a versatile crop rotation option in the Southwest and Midwest.
“Producers like sorghum, and if there’s a market, I think most will continue to produce,” says Carrie Knott, University of Kentucky grain crops Extension agronomist.
The bad news? Sorghum prices are currently low, decreasing the incentive to plant big acres for 2016.
“Currently, the grain sorghum price is slightly less than corn, as opposed to being about a $1 per bushel premium to corn at this time last year,” says Jason Kelley, University of Arkansas Extension agronomist.
A tiny pest could cause big ripples in 2016 sorghum acres, Kelley adds.
“The sugarcane aphid caused significant problems in 2015 and will likely be a problem again in 2016,” he says. “Recently, EPA canceled registrations for Transform insecticide, so we currently only have one insecticide for control of the aphid.”
Look to Local Markets for Oats and Barley
Oats and barley have been slowly slipping away from behaving like true commodity crops, says Jochum Wiersma, University of Minnesota Extension agronomist.
“Much of these crops are now sold on a contract basis, and I’m not expecting aggressive contracts next year,” he says. “My gut feeling is there’s not going to be much movement.”
USDA expectations are in line with that assumption, predicting flat acres for both barley (3.6 million acres) and oats (3.1 million acres) for 2016.
If you’re itching to grow barley in 2016, your best bet might be to pull a page from Jeremy Weaver’s playbook. The 2014 Tomorrow’s Top Producer Horizon award winner started selling his barley to nearby Indiana home brewers and breweries. Craft beer production continues to skyrocket. According to the Brewers Association, the number of breweries in the U.S. has more than doubled in the past five years.
