American grain farmers have had a difficult time over the past few months. Struggling to deal with cold, wet weather across the Midwest that’s not favorable to growing wheat alongside the escalating U.S.-China trade tensions, many of these farmers are considering opting out of planting more crops all together.
A number of farmers are choosing to instead take insurance payouts instead of planting new crops, something which could spell doom for next year’s U.S. agricultural supplies and the market at large.
With conditions being quite adverse to farmers, many are choosing to take out crop insurance that includes a prevent-planting clause, which promises a modest payout to farmers if seeds can’t be sown.
While these payouts don’t completely replace the income a farmer would make if they had sold their crops normally, these payments do give an incentive to farmers not to plant when conditions are too adverse to justify the effort.
According to agricultural research done by AgResource Co., as much as 4 million to 4.5 million acres of corn, as well as 1.5 million to 2 million acres of soybeans, could be taken out of the market this year as farmers take insurance payouts instead. That would end up quadrupling the level of corn claims as well as doubling the claims from soybeans made by farmers.
As such, this would lead to a significant drop in supply which would lead to a substantial increase in grain prices. Agricultural commodities have fallen since the start of the year but have recovered considerably.
July corn futures fell 12 percent before rallying 13 percent over the past seven sessions, while wheat and soybeans have gone up 14 percent and 4 percent respectively. Traders are speculating that prices could rise even further in the future, with some expecting prices for corn could reach as high as $4.50 per bushel, a level not seen in a year.
“If you consider a 4 million-acre drop in 2019 U.S. corn seeding and a 4-5 bushels-per-acre yield decline on late seeding dates, it amounts to 1 billion bushels of U.S. corn production that could be lost, or 40% of USDA projected end stocks,” said Daniel Basse, president at AgResource.
Bad weather in states such as Ohio has led to many farmers not even bothering to plant any crops in their fields at all. According to a USDA Crop Progress report, wet weather has contributed to many farmers being even further behind their planting progress then they ever have been.
As of May 20th, U.S. corn planting is only 49 percent, significantly below what the average for this time is, around 80 percent. Soybean planting progress has also fallen, with only 19 percent of the soybean crop having been planted as compared to the five-year average of 47 percent.
Iowa has traditionally been the leader in the nations corn production, recording around 2,508,800 bushels of corn with an impressive average yield of 196 bushels per acre. With many farmers choosing to opt out of planting new crops thanks to the adverse conditions, it’s expected that these figures will fall drastically.
Traders and investors should keep an eye out for next year’s crop with many agricultural products expected to shoot up in price by then.