Mecardo Analysis - Are we on the edge of the precipice
- By: "Farm Tender" News
- Cattle News
- Feb 14, 2019
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By Andrew Whitelaw | Source: USDA, NASS.
The USDA finally released their 2019 winter wheat planting estimates. The headline number is that US farmers are going to plant the lowest area to wheat since 1909. In this article, we delve deeper into the numbers.
In Figure 1, the US winter wheat planting is shown (green line) from 1909 to present (as far as USDA record go), with this year being the lowest since then.
Does this mean that we can expect high prices?
We have to maintain some perspective on these numbers. In each of the past two years, the US has planted historically low acreages to wheat. If we compare 1909 to 2018, yields have increased by 224% (Figure 1 RHS). This means that although the potential for the crop is reduced considering the available planted acres, they are still able to produce a reasonably strong crop.
We all know from painful recent experiences, that not all wheat planted will be harvested. In figure 2, the planted area, and abandonment rate (RHS) is shown as a five-year moving average. During the past decade, the average abandonment of winter wheat is 20%, with a range of 14-24%.
It’s common knowledge that there is a trend of decreasing wheat planting due to more profitable alternate crops available, however, it appears that the abandonment rate is increasing. I can only hypothesize about the reasoning. However, one potential hypothesis could be that US wheat is grown in increasingly marginal areas, with corn and beans being planted in the premium ground.
Key points
* The USDA 2019 winter wheat planting estimates 31,290,000 acres in 2019, the lowest since 1909.
* Reduced acerage is unlikely to see prices surge.
* In the event of high abandonment rates or low yields in the US, pressure will be on the rest of the world.
What does this mean?
The reduction in winter wheat acreage does not in itself point towards a surge in pricing, which is evidenced by the lacklustre performance on CBOT. It is, however, another symptom of a world with decreasing supplies.
If we see a major issue in the US causing high levels of abandonment/ low yields, the ability for the US to play a major role in the market is weakened, placing pressure on the rest of the world.
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