US planting responds to price signals

US planting of wheat and corn are down as weak prices deter farmers. Soybean and cotton planting rise as US farmers hope to continue last year’s increase in exports. The latest USDA Prospective Planting report shows that farmers are responding to price signals from last year. Wheat planting is down 8% to the lowest level since records began in 1919. Corn planting is expected to be down 4%. Both of these crops saw record high output last season, which sent wheat and corn prices tumbling 18% and 17% since June 2016. However, to move prices meaningfully higher, other countries will have to restrain planting and the gains in yields we have seen in recent years will have to abate. Soybean on the other hand is expected to see a 7% rise in planting this season. Last year, a poor South American crop increased demand for US soybean and lent support to its price. US soybean exports rose 4.5% in 2016/17. Although prices have eased in the past month, US farmers are hoping to take further market share this season. Cotton planting is expected to rise by 21%. That comes as cotton prices have increased 28% in the past year and US exports rose 44% in 2016/17. Cotton has been in a supply deficit for the past two years and US farmers appear to be banking on continued tightness. However, global cotton inventories ex-China have not fallen and remain around the average in the past 10 years. China’s surplus inventory has been declining as the country abandoned it stockpiling programme in 2014. However, China’s imports of cotton may remain restrictive. US farmers will have to rely on growth in imports elsewhere to absorb potential increased production. (Click to enlarge)

Nitesh Shah, Research Analyst at ETF Securities

Nitesh is a Commodities Strategist at ETF Securities. Nitesh has 13 years of experience as an economist and strategist, covering a wide range of markets and asset classes. Prior to joining ETF Securities, Nitesh was an economist covering the European structured finance markets at Moody’s Investors Service and was a member of Moody’s global macroeconomics team. Before that he was an economist at the Pension Protection Fund and an equity strategist at Decision Economics. He started his career at HSBC Investment Bank. Nitesh holds a Bachelor of Science in Economics from the London School of Economics and a Master of Arts in International Economics and Finance from Brandeis University (USA).