Feature: US corn planting continues apace despite unprecedented market challenges

New Delhi — US corn farmers are already halfway through planting what could be the highest US corn acreage in eight years amid unprecedented market challenges and a pandemic, and analysts say planting will continue to strengthen.

US corn futures hit a multi-year low of $3.01/bu last month, and demand destruction for the coarse grain from ethanol and feed industries has become clear in times of COVID-19. Furthermore, the possibility of a record US corn crop is blocking any recovery from weak prices even in the long term. With these factors, expectations of a smaller corn acreage, or a switch to soybean have started to emerge.

After the US Department of Agriculture projected 97 million acres of corn for 2020-21 (September-August) in its prospective planting report in March, a drop in prices and concerns over poor demand stirred up talks about farmers switching corn acreage to soybeans.

After March, the ratio between new crop soybean futures and corn futures also improved to 2.45:1, from 2.35:1 before the planting survey.

"While the ratio continues to suggest a meaningful shift to more soybean acres, history does not," S&P Global Platts Analytics in a report.

The report pointed out that the five-year average for corn intentions being planted is 99.4%, and in three of the past five years, 100% of intentions were planted in both corn and soybeans.

Switch to soybeans minimal

Platts Analytics sees around 2 million acres switching from corn to soybeans in its best case scenario.

Arlan Suderman, chief economist with INTL FCStone, said that considering all factors, a shift of 2 million-4 million acres can be seen from corn to soybeans, but he said he expects it to be at the lower end.

According to farmers, soybeans are also not at profitable levels. The most active soybean futures contract on the CBOT on Tuesday fell nearly 4.4% from a month ago to $8.17/bu.

An Illinois-based farmer told Platts this week that an acreage shift after this point is unlikely to emerge as farmers have already purchased input materials.

Pete Meyer, Platts Analytics' head of grains and oilseed analytics, said it was far too late for farmers to change course.

"Unless they made a switch in mid-March, before the lockdown, the chances of them switching any measurable acres at this point doesn't seem a possibility," Meyer said.

Corn planting in the US typically begins by mid-March and wraps up by the first week of June, while soybean planting starts later in around May to mid June.

Planting during a pandemic

For most parts of the US, the coronavirus isn't really affecting corn planting, according to farmers, and as an essential activity, farming is exempted from certain restrictions extended to other industries.

Farmers in rural areas don't have much of an issue with social distancing to get crops planted, Minnesota-based farmer Jonathan Mikkelson said.

Meyer echoed that view: "I can spend a day on the farms anywhere, and be quarter a mile away from the next person," he said.

Seed and most input materials are also in place with retailers and at farms, Mikkelson said.

However, the impact of producers and their "hired help" possibly getting sick for two weeks is still unknown, Platts Analytics said.

Farmers in the US have already planted an impressive 51% of their intended corn acreage for 2020-21 through Sunday, above the five-year average of 39%, and well above last year's 21% for the period, according to USDA's latest crop progress report.

The safety net of crop insurance

According to farmers, crop insurance in the US has also persuaded them to stick with corn.

"The revenue protection aspect of insurance certainly helps protect against unlimited downside price movement." said Mikkelson.

The revenue protection insurance plan -- one of four types of crop insurance plans -- protects farmers against loss of revenue due to a change in price or production loss. Insurance coverage in the US generally ranges between 75-85%.

For 2020-21 season's insurance, projected price for corn in the US has averaged $3.88/bu. The projected price of corn is calculated by averaging the closing December futures price during the trading days of February.

"I think there is also some hope that another government payment could be issued to farmers if prices stay so depressed," Mikkelson said.

However, farmers believe that if prices stay low, many of them will still lose money even with the government subsidy or insurance.

The most active July futures corn contract on the CBOT settled at $3.17/bu Tuesday, and analysts believe by the time of the harvest, corn prices could be as low as $3/bu -- the lowest since 2009.

Fresh start

Mikkelson said 2019 was a major struggle for corn farmers. "The planting season came late for everyone and many acres were never able to get planted," he said. "It was a miserable and frustrating year for many and people are excited to start afresh."

Sowing operations in the 2020 season are off to a strong start. Weather conditions are largely favorable after last year's turmoil, which is keeping farmers out in their fields to plant.

"Farmers are by nature eternal optimists," said Mikkelson. Most farmers are nervously optimistic there will be better market prices at some point in the future, he said.