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Nebraska deficit puzzles brokers - and could be relevant to pricing

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Why Nebraska?

 

This week’s momentous report on US crop sowings - which in showing plantings of major crops below forecasts sent prices of corn soaring with particular gusto – provoked an array of questions among investors.

 

… such as whether the acreage figures might contain underestimates (with growers ramping up seedings after the early June timescale of the survey on which the report was based), and whether growers will now scale up seedings of second-crop soybeans, planted on land vacated by the ongoing winter wheat harvest.

 

And here’s another one. Why were farmers in Nebraska so quick to curtail their seeing plans.

 

The big four

Of the 7.21m-acre decline in US plantings of major crops revealed by this week’s briefing (ie comparing the area farmers actually seeded with that they said in a March survey that they intended to sow), 4.21m acres, or nearly 60%, was accounted for by just four states.

 

Three of those were easy to explain.

 

North and South Dakota - with plantings area down 1.40m acres and 880,000 acres respectively from March - are relatively low-yielding states, meaning that their farmers were among the first to see their crop economics destroyed as the coronavirus crisis sent prices tumbling.

 

Besides North Dakota growers faced the setback too of having a stack of corn left over from 2019 to harvest, after a wet autumn hampered combines – only for further wetness to setback early spring fieldwork too, keeping land tied up in standing crop.

 

Cotton hit

For Texas, where the June area figure was 1.13m acres below the March one, the shortfall looks straightforward to explain too, given that the state is particularly exposed to cotton – prices of which suffered in particular during the heat of pandemic panic.

 

Furthermore, conditions have been unduly dry in key cotton growing areas – many of which are unirrigated.

 

It is little wonder that 700,000 in lost Texan acres was accounted for by cotton alone.

 

Why Nebraska?

But for Nebraska, for which June sowings were 803,000 acres short of March intentions, more than that in, say, Iowa, Indiana, Illinois and Kansas combined, the deficit is more difficult to explain.

 

The state is an above-average yielding one, for both corn and in particular soybeans, protecting farm margins somewhat from weak prices.

 

Nor does it appear to have suffered from weather setbacks, with USDA crop progress data showing plantings achieved at pace, and condition ratings indicating crops bedding in well too.

 

In fact, brokers contacted by Agrimoney commented how widespread irrigation is in Nebraska, reducing weather risk.

 

Yield mitigation?

What they did not have was an explanation for the Nebraska deficit.

 

Suggestions included a perhaps tougher line taken by local banks in the face of weak crop prices, meaning farm funding was harder to come by in sowings time, or maybe a particular decline in local price basis.

 

Perhaps the spring collapse in the US ethanol industry affected Nebraska more than other states.

 

Whatever, the shortfall is of more than academic interest, in that one feature that could mitigate the impact on production prospects of the weak sowings figures, of which corn accounted for most, is that it is marginal, lower-yielding land which would have primarily been lost.

 

The loss of Nebraska land, which punches above its weight, would reduce that effect.

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