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US winter wheat area dip could be bigger deal for corn and soy

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The unexpectedly large drop in US wheat area may turn out to be more important for US corn and soybean harvests, than for production of the grain itself.

The US Department of Agriculture, in an annual assessment of winter wheat seedings, said that farmers had planted 40.45m acres.

Besides being down nearly 2m acres year on year, and the lowest since sowings ahead of the 2010 harvest, the figure confounded market expectations of a small rise in plantings.

The figure was below the most downbeat analyst estimate, of 41.0m acres, let alone the consensus figure of 42.56m acres.

Many variables

However, it is too early to get pessimistic about this year's wheat harvest, and think of injecting a stack of risk premium into prices. Especially when supplies abroad appear ample.

Sure, the acreage cut is hardly a bonus for wheat production prospects in the US, which is already expected this season to lose (to the European Union) its title of the world's largest exporter of the grain.

But there are plenty of other variables which go into make a crop. The weather is a big one, of course. Besides, cuts in crop area often have a lower impact than might be expected as it is typically the least productive fields which are ditched first.

Looking at the result of the 2010 harvest, the last time winter wheat area was lower than this time, when area tumbled 14%, yet production dropped by just 4%.

Factoring in spring crop, total wheat output fell by 2%, as farmers offset some of the cut in winter plantings with extra spring seedings.

Cotton factor

In fact, the spring sowings programme represents a chance not just to raise exposure to wheat but, signally, to corn and soybeans, more popular alternatives.

As 2010 also shows, the lion's share of area freed up from winter grains is likely to end up planed with corn and soybean.

Then, when winter wheat area fell by 6m acres, soybean sowings rose by 2m acres and corn seedings increased by a little less than that.

And that was when cotton was a big competitor, with its area rising by 1.8m acres.

This time, cotton area is seen joining wheat in seeing a plantings decline, forecast at some 1.2m acres to a 9.8m acres, giving corn and soybean growers even more to aim.

Price signals

There are alternative crops too, of course, for farmers to choose from. Or they could cut plantings altogether, and leave land fallow, or switch it to alternative users such as conservation programmes.

What the drop in winter wheat acreage means is that there is more to play for in the annual competition between crops for a place in farmers' spring sowings programme.

And with greater availability of land to aim at, corn and soybeans might be able to secure with lower prices the allocations likely to provide adequate supplies.

By Agrimoney.com

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