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Will US soybean sowings really gain so much over corn?

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Don't be surprised if grain markets head into volatility later this week.

For Thursday and Friday bring a key event for investors in the first official forecasts, that really count, for 2017-18 US crop prospects – which in turn have a big say in the outlook for prices worldwide.

Sure, the US Department of Agriculture in November unveiled initial estimates for 2017-18 (and beyond) within its long-term "baseline" forecasts.

But the statistics revealed at this week's annual USDA Outlook Forum take the data from somewhere near the back of the envelope to good working assumptions.

They factor in the likes of Australian grains harvest results and stronger of ideas of South America's 2016-17 production of the likes of corn and soybeans, beside US winter crop plantings data - and latest price incentives to farmers being offered by futures markets.

And the Outlook conference area estimates, offering fewer assumption than those used forming forecasts for the likes of production and export, are viewed with particular interest.

Corn vs soybeans

Market price signals are being particularly closely watched as regards corn and soybeans – key competitors in the US spring sowings programme.

USDA 2017-18 crop sowings forecasts in baseline report, and (estimate for 2016 planting)

Barley: 2.9m acres, (3.1m acres)

Corn: 90.0m acres, (94.0m acres)

Sorghum: 6.3m acres, (6.7m acres)

Soybeans: 85.5m acres, (83.4m acres)

Upland cotton: 10.5m acres, (9.9m acres)

All-wheat: 48.5m acres, (50.2m acres)

Data for 2016 taken from latest USDA Wasde report

That would represent a fall of 4.0m acres on the latest area estimate for last year.

Just how big?

But many commentators have forecast an even bigger swing, given the elevated ratio of new-crop November soybean futures compared with the equivalent corn contract, for December. (Comments from observers from CF Industries to Societe Generale on US sowings prospects can be found by clicking here.)

At 2.59 on Tuesday, the ratio remained well within territory seen as encouraging farmers to plant soybeans over corn.

(A figure of 2.0 or below is seen by many investors as definitely favouring corn, with some debate over figures between there and 2.50.)

Informa Economics pegs US soybean sowings this year at 88.65m acres, and some observers have even seen them topping 90m acres to, unusually, exceed corn plantings.

Cotton, peanuts, wheat…

Still, US spring plantings programmes are not just about corn and soybeans but a plethora of other crops too, including cotton, which is itself seen fighting hard for farmers' attention through New York futures prices which remain close to the highest levels since July 2014.

Selected other forecasts for US 2017 corn and (soybean) sowings

AgResources: n/a, (86.7m acres)

AgriSource: 89.7m acres, (90.2m acres)

Farm Futures: 90.49m acres, (90.52m acres)

Futures International: 92.25m acres, (N/A)

Informa Economics: 90.489m acres, (88.647m acres)

Rabobank: 91.0m-91.5m acres, (86.4m acres)

And even that figure factored in strong competition the likes of peanuts in some states.

And then there is spring wheat too, popular in more northern states, and prospects for which as a sowings option had been looking much enhanced until a tumble in values late last week.

Extra area to play for

After all, overall US wheat production prospects have taken a large dent, with official data last month pegging winter wheat sowings at the lowest in well over a century.

At 32.38m acres, winter wheat plantings were down 3.75m acres year on year, and 1.76m acres below market expectations.

That has only added to the area in play for spring plantings programmes this year - and the uncertainty over what acreages will emerge.

And this as the US sowings programme is already beginning in some southern US states, ushering in the process of reality overtaking forecast.

But that is a whole different chapter of the estimates process, which will not start in earnest for some weeks yet.

By Mike Verdin

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