In many parts of the country the weather just isn’t cooperating for farmers. All across the farm belt record-breaking precipitation has been causing headaches for farmers, with flooding of fields and excess soil moisture.
As a result tractors are becoming stuck in mud and fields are completely underwater. Mother Nature is doing her very best to keep crops from being put into the ground. The U.S. Department of Agriculture released May 28 the latest Crop Progress report. It shows historic delays in corn and soybean plantings across farm country. Many acres are, or soon will be, eligible for prevented-planting payments through corn crop-insurance policies.
We are looking at the biggest event for grain and oilseed markets since the drought of 2012. The combination of record-breaking extreme weather alongside continued policy uncertainty has agricultural economists across the board scratching their heads. They’re trying to figure out how everything will shake out. At this point the only thing for certain is that nothing is known with any degree of certainty.
for corn, soybeans
USDA’s Crop Progress report showed historic delays in corn and soybean plantings across the country. Looking at the five-year average, typically at this point in the year corn planting would be 90 percent complete. But this year farmers have only planted 58 percent of their intended acres. That translates to nearly 39 million acres of corn still waiting to be planted. That’s an astronomical number, especially at this point in the year.
We talk about corn experiencing historic delays in planting, but to put that in perspective it’s helpful to look at some of the worst years in planting delays. Figure 1 shows 2019 planting progress for corn alongside the five-year average as well as 1993 and 1995, two years that are widely cited as being some of the most delayed in corn planting.
This year started relatively in-line with 1993 and 1995, even performing better through week 18. But in the past three weeks this year’s progress has fallen further and further behind, with the most recent week at 13 percentage points behind the next-worst year for corn planting. Some states are certainly hit worse than others, with South Dakota, Illinois, Indiana and Ohio being hit particularly hard with planting delays.
Soybeans are planted later than corn but so far are showing a similar pattern, largely falling behind the five-year average. The United States is only 29 percent complete on planting soybeans, while the five-year average is 66 percent. As of this week there are still 60 million acres of soybeans that farmers intended to plant that are not planted.
Some in the industry have argued that farmers are doing the math between prevented planting and current corn prices to see which option is more economical. They are looking at historical years of Crop Progress reports and extrapolating those results on this year’s progress. But that may not apply here. It might come down to whether or not farmers can even physically go out there to plant the crop.
We are sitting on record floods. Many states in the Corn Belt are looking at record levels of topsoil measured at a surplus moisture level. There would need to be several days of sun and no rain in order to have the fields close to where they need to be for those looking to plant in the next week. But the current forecast doesn’t seem to be cooperating.
Uncertainty, Uncertainty, Uncertainty
Right now weather is the primary driver of uncertainty in planting progress during the next few weeks. But the political realm is doing its best to compete and add another layer of uncertainty around farmer planting decisions. If Mother Nature cooperates some farmers still have time to plant corn before they begin to lose a share of the crop-insurance coverage.
If this weather were occurring in a normal year many farmers would take the prevented-planting payments on their crop-insurance policies. For many farms corn prices have not increased enough to push net returns from planting to more than net returns from prevented-planting payments. What makes this year so challenging to predict is uncertainty surrounding two policy provisions – assuming of course Mother Nature even gives farmers a chance to plant.
In its original announcement of another round in the Market Facilitation Program, USDA Secretary Sonny Perdue said payments would occur with a single county rate on crops that are planted in 2019. He didn’t say what the payment rates would be. He emphasized the program should not influence planting decisions.
But despite his best efforts, the announcements of direct payments tied to planting decisions are very likely impacting grower decisions. The USDA has not announced the rates for the payments. But many farmers who may have otherwise taken the prevented-planting option may look to plant something in order to participate in the Market Facilitation Program. That’s because Perdue said payments would only be paid on planted acres.
The decision is further complicated by ad hoc disaster-assistance legislation just approved by Congress. That bill ostensibly enhances the prevented-planting payment factor on crop insurance. But there is uncertainty about whether that would be applicable to many counties in the Midwest or in federal disaster areas only. And in the Midwest is where the majority of those planting decisions are being made.
Adding additional uncertainty to the planting decision, Perdue hinted there is still a possibility that farmers who file prevented-planting insurance claims may still be eligible for payments under the new Market Facilitation Program. The justification is that acres prevented from being planted have a lesser insurance value due to the adverse impact of retaliatory tariffs on spring crop-insurance prices.
Prevented-plantings scenarios considered
Now that we have all the uncertainty we can handle, we are able to move on to the fun job of trying to calculate a few scenarios of how that all may translate to the balance sheet for 2019.
- Scenario A – In our first scenario we take a somewhat conservative estimate of a decline of 5 million acres of corn, and a yield decline of 4 bushels per acre from the USDA’s latest World Agricultural Supply and Demand Estimates report. It conservative especially considering some of the numbers being talked about in the trade.
- Scenario A results in total production of 13.83 billion bushels. With my assumptions on consumption changes, that takes our carryout to 1.66 billion bushels, or 11.6 percent stocks-to-use ratio.
- Scenario B – We use a similar yield decline, but a bigger hit to acres with a 10 million decline.
- Scenario B results in a total production of 12.97 billion bushels. With my assumptions on demand rationing our carryout decreases to 1.38 billion bushels, or 10 percent stocks-to-use ratio.
In either circumstance a lesser stock-to-use ratio is sure likely to lift new-crop corn prices to more than the current projection of $3.30 per bushel. The USDA’s June 28 Acreage report will provide the first survey-based estimate of crops that were actually planted in 2019.