The 2021 planting season is almost here. U.S. farmers have been blessed with a strong bull market and as soon as the crop is planted, risk will shift to growing conditions so that global food demand is met. For the most part, farmers have locked in their 2021 input prices and specifically fertilizer, but some spot fertilizer prices have significantly increased. Nitrogen prices climbed 26% to 34% in March, according to DTN. With fertilizer decisions and deliveries already made, it is difficult for U.S. farmers to swap acres from one crop to another, even in this bull market.
U.S. row crop
The March 31 USDA Perspective Plantings and Grain Stocks reports were both bullish for crop prices. Farmers are expected to plant 91.1 million acres of corn and 87.6 million acres of soybeans in 2021, which are respectively 1% and 5% higher than in 2020, but significantly less than analyst expectations. All wheat acres are also up 5% year-over-year and cotton acres are nearly unchanged from 2020. Although perceived as low, 2021 corn and soybean acres are only 3 million acres less than 2018’s record. The current bull market has been demand-driven, and if U.S. farmers hit trendline yields, expect corn balance sheets to remain tight, but soybeans to approach a negative carryout, which would further fuel a longer-term bull market. North Dakota farmers are expected to plant 69% more corn in 2021 than in 2020, although 2020 was low due to marginal planting conditions. Wisconsin corn acres are expected to be 4% higher in 2021 and Minnesota is unchanged. U.S. farmers can protect their 2021 revenue with favorable spring crop insurance prices. For 2021, corn is pegged at $4.58 per bushel, which is the highest since 2014. Soybeans are $11.87 per bushel, the highest since 2013. As of March 1, the soybean-to-corn price ratio was 2.59, which is the highest in over 30 years, according to Farm Bureau. Typically, the higher the ratio, the more soybeans U.S. farmers will plant based on economics.
U.S. livestock and dairy
Livestock prices increased throughout the bull rally in grains. Live cattle futures increased 4.7% since March 1, 2021, due to increased drought risk in the western U.S. Plains. Lean hog futures increased by 12.8% since March 1, due to a decrease in global supply and increase in demand. Pork cutout prices are 34% higher today versus in 2019. The increased feed prices will continue to restrict livestock producer margins. USDA estimated that U.S. farmers will harvest the least amount of hay acres since 1908, which may put strain on dairy feed prices. Class III milk prices increased 2.9% since March 1, 2021, on rebounding food service demand.
Ground-level insights from ag bankers
Pat Foley, Northeast ND – The weather has been mild, and farmers are looking at an early spring, but the area needs rain. We had a dry fall, and it is shaping up to be a dry spring. Farmers are optimistic about the commodity prices. There has been some selling, but with the dryness, nobody wants to get over extended. For 2021, farmers have been paying down more debt, but some have purchased additional equipment, beet stock, and/or land. Commodity prices are high and crop insurance prices increased which gives farmers fantastic protection. It helps here in the Grand Forks office to have our crop insurance team nearby. They do a great job of sitting down with each farmer and going over their coverage levels and determining what best fits their farm. Brett Starr, Southeast ND – We finished up 2020 better than anticipated with above average yields, higher market prices, and government payments that allowed borrowers to rebuild their working capital while making necessary equipment updates that prior years hadn’t allowed for. A majority of the 2020 crop is sold and borrowers have started contracting their new crop. Prices at the sale barn continue to hold and it appears the gap between the heifer market and steer market has narrowed, which is excellent for those that have held on to their calves. Despite the dry conditions and hoping for some timely rains this spring, we are still seeing a lot of optimism. The last couple of springs have been quite wet in our area and we’ve had a lot of prevent plant. To keep those affected acres eligible for USDA programs, they need to be planted one out of the last three crop years and local farmers may be able to achieve that this spring. With the uncertainty of what spring will bring, it doesn’t appear that farmers are marketing more than usual with the higher prices. Once we’re able to get the seed in the ground and those timely rains hopefully come, I think farmers will feel more comfortable forward contracting additional bushels, granted that the opportunity to lock in these prices is still around.
Global ag insights
South American farmers are busy harvesting the first crop of 2021. Although Argentina was very hot and dry throughout much of the corn and soybean growing season, substantial rains have hurt harvest conditions. Much of Argentina’s harvest will commence in the next week. Brazilian farmers are 60% complete with soybean harvest compared to 63% on average. Harvest was trailing upwards of one month behind due to late plantings and excessive moisture. The second crop corn planting is nearly back to average pace, but was also trailing one month behind. The crop risks missing the vital rainy season when planted late. Chinese agricultural commodity demand remains very strong, but the risk of African Swine Fever (ASF) remains elevated in their hogs. ASF cases are low, but continuously reported across the entire country. Further outbreak will lead to a decrease in the hog herd and eventually less demand for feed, primarily soybeans.
What to watch for
The heart of the Corn Belt has adequate moisture, but areas to the north and west are starting to show signs of prolonged drought which will impact both crops and livestock. The U.S. Drought Monitor will be an often-used resource post planting. Any downgrades to U.S. weather, or additional supply fears, will further fuel the grain rally. Global logistics may remain in chaos due to the ship that blocked the Suez Canal in March for nearly one week. Because 12% of all global trade passes through the Suez Canal, delays will be felt for months at ports around the world.