High soybean prices could prompt shift away from corn production in the US, economists say
Prices for corn and soybeans have increased rapidly in recent weeks on news that drought has damaged the South American harvest.
The U.S. Department of Agriculture (USDA) made minimal changes to projected corn and soybean supplies in the agency’s monthly reports, cutting world corn production by 2.7 million tons and soybean production by 8.7 million tons, with the largest cuts centered in Brazil. However, Brazil’s own agricultural agency, Conab, made far steeper cuts to its own harvest projections, reporting on Thursday morning that farmers are on track to harvest 125.47 million metric tons of soybeans.
Conab reported that severe drought, coupled with high temperatures, caused a significant reduction in crop yields in southern Brazil.
The new figures from Conab represent a 551 million-bushel cut in production compared with the 184 million-bushel reduction USDA reported for Brazil, according to James Mintert, director of Purdue University’s Center for Commercial Agriculture.
USDA, Mintert said, apparently opted to put out conservative projections. He anticipated the U.S. agency could make additional cuts, particularly to its corn stocks estimates, in the months to come.
Market prices, however, reacted more quickly to what Mintert described as concern about a “tightening of the stocks that USDA apparently hasn’t quite caught up with.”
July 2022 corn futures hit US$6.40 per bushel as of Thursday morning, while soybean futures were selling for US$16.15, according to Nathan Thompson, an associate professor of agricultural economics at Purdue University, representing 9-15% price increases since last months’ supply reports. Contracts for the sale of this fall’s harvest also saw price increases, with corn trading for US$5.89 and soybeans for US$14.58.
“That is a really remarkable change in a short period of time,” Thompson said.
The rapid rise in soybean prices, coupled with production cost increases in the range of 20% for corn, could prompt a significant shift in U.S. acreage toward more soybean production, potentially reducing the supply of corn later this year, Mintert said. But with such rapid changes in price in the mix, he said, many farmers may wait until the last possible minute to make decisions about what to plant.
“Probably as much as any year in recent memory, we have uncertainty about what the corn and soybean acreage numbers are going to look like,” he said.
