Next year could prove a "turning point" for grain and
oilseed prices, MetLife said, saying that official estimates for the latest US
harvest may be too large, and foreseeing a global production "pullback".
The insurance giant, whose agriculture division is one of North
America's top farm mortgage lenders, said that market ideas of this year's
record corn and soybean harvests appear "too high", questioning some of the assumptions
behind US Department of Agriculture's estimates.
While the USDA has estimated this year's US corn yield at a
record 175.3 bushels per acre, and the soybean result at a record 52.5 bushels
per acre, "we view that smaller-sized ears and pods could trim final yields",
Downgrades could "bring the size of the 2016 harvest only
slightly above the 2015 record".
Another potential spur to prices could come from the dent to
sowings programmes from weak prices, with MetLife forecasting that US plantings
"should pull back in 2017 leading to lower excess supplies of major crops".
Indeed, the insurer forecast US corn sowings falling some 3.5m
acres next year, after rising to 94.5m acres in 2016 on USDA estimates.
The MetLife estimate is in fact a little more sanguine on corn
area than figures from some other forecasters, with Informa pegging US corn
seedings next year at 90.8m acres, and the USDA itself putting sowings at 90.0m
acres in outline data released two weeks ago.
However, on soybeans, MetLife's estimate that "acres are likely
to remain flat", after reaching a record 83.7m acres this year, was well below
expectations from these observers.
Informa pegs US soybean area next year at 88.6m acres, while
the USDA has put it at 85.5m acres.
MetLife added that "an acreage pullback is unlikely to be an
isolated US event.
"Other major crop producing countries… are also likely to
pull back on planted acres."
The outcome could be that after "four successive years of supply
increases, next year could prove to be the turning point with a global supply
pullback leading to improved pricing".
The group forecast that "grain and oilseed [prices] will
start to recover in 2017."
Cattle, milk price
However, MetLife was less sanguine on cattle prices, flagging
the boost to herd numbers helped by "drastically improved" weather since 2014, which
has boosted pasture condition, besides weakness in values of feed grains.
"The national beef cow herd has grown 5% since 2014 and is
forecast to rise 8.3% and reach a peak of 31.5m head by 2018.
"The current consensus is that cattle prices will enter a
cyclical low through 2020."
The insurer, which last month issued downbeat forecasts for
US farmland values, was cautious on prospects for US milk prices too, citing
weight from resilient output in the country, which relies more on grains for
feeding cattle than competitors such as New Zealand and the European Union.
"Milk production in the US will continue to increase as low
feed prices encourage dairy farmers to increase output.
"This suggests the US will regain market share in export
markets, but without significant price increases in 2017."