In the past few weeks, USDA issued two major crop reports that indicate that farmers will be planting slightly fewer overall acres this year than in 2008 and at the same time, prices for major crop commodities are at or above last year's prices.
If these forecasts hold up, farm equipment sales may hold up better than many industry observers have been suggesting during the past few months.
On March 31, USDA released its annual Prospective Plantings report for the 2009-10 crop year and forecast that total acreage for corn, soybeans and wheat are expected to be down 2.3% from 2008-09. At the same time, ending inventories for all three are forecast to drop lower than previous estimates, which should keep pricing stable throughout the growing season.
Ann Duignan, analyst for JP Morgan, called the report "relatively neutral for equipment manufacturers."
• Corn Acres. The USDA projected corn planted acreage will come in around 85 million acres vs. market expectations of 84.5 million acres and 86 million acres last year. This dropped the 2009-10 estimated ending inventories to 1.523 billion bushels compared with the prior estimate of 1.67 billion bushels.
• Soybean Acres. The current forecast for soybean planted acreage is 76 million acres vs. market expectations of 79.3 million acres and 75.7 million acres a year ago. Ending inventories are also expected to fall to 312 million bushels vs. the prior estimate of 355 million bushels.
• Wheat Acres. Prospective plantings for wheat were reported at 58.6 million acres, slightly below the average trade estimate of 58.9 million acres. The current year's planting estimate is 7% below last year's planted acreage of 63.1 million acres.
• Cash Receipts. "Our current cash receipts forecast for major crops is $87.3 billion based on the USDA Outlook Forum vs. $100 billion a year ago," says Duignan.
• Grain Stocks. The USDA also released its quarterly grain stocks report as of March 1 and estimated corn stocks at 6.958 billion bushels, down 0.6% vs. expectations and up 1.4% vs. a year ago. Estimates for soybean stocks are1.302 billion bushels, down 1.5% vs. expectations and down 9.2% compared with last year.
On April 9, USDA issued its World Agricultural Supply & Demand Estimates report, and lowered its forecast of 2008-09 ending corn stocks by 2%, largely driven by higher feed and residual use, which was partially offset by reduced food, seed and industrial use as production estimates were unchanged," according to Henry Kirn, machinery analyst for UBS Investment Research.
Soybean ending stocks are now projected to be 11% lower than previous estimates (following a 12% reduction last month) at 165 million bushels (down 20% year-over-year). It also dropped its wheat ending stocks forecast by 2% to 696 million bushels.
In its forecast, the ag agency also increased the midpoints of its corn price forecast to $4.20 per bushel, from $4.10, its soybean price forecast to $9.65/bushel, from $9.35 and its wheat price forecast to $6.85/bushel from $6.80.
In his current analysis, Kirn told investors that UBS continues to expect U.S. farm machinery sales to remain relatively solid, driven by still healthy farm commodity prices, solid farmer balance sheets, and expected solid levels of farm income.