By Ryan Koory, senior economist, Mercaris
As winter begins to wane, farmers will soon be returning to their fields. Although maintaining a proper crop rotation is at the heart of every successful organic farming operation, there is still room for growers to adjust to changing market conditions. It is important for producers to take stock of the U.S. organic marketplace, and the insights it can provide in determining crop rotations.
Focusing on organic livestock—the largest demand factor for organic row crops— the latest USDA data available shows that organic feed demand continues to grow. Mercaris estimates U.S. organic poultry slaughter may exceed 56 million chickens by the end of the 2018/19 corn marketing year (MY), a 6 percent increase year over year (y/y). Similarly, January 2019 organic egg layer inventories were up 8 percent compared to the prior year.
Trade data also suggests foreign markets are providing more competition for U.S. producers in 2019. Mercaris estimates combined U.S. imports of whole and cracked corn reached 5.7 million bushels through the first five months of the 2018/19 MY, a 12 percent increase from the year before. Some of this growth is likely a rebound from the collapse of organic corn imports over the 2017/18 MY. However, if this trend persists, it could add nearly two million bushels to U.S. organic supplies by this September.
Market competition from foreign soy supplies has been stronger this year, despite imported whole organic soybeans continuing to lose favor. Through the first five months of the 2018/19 MY, U.S. organic whole soybean imports reached 4.4 million bushels according to Mercaris’ estimates, down 36 percent from the prior year.
Despite this decrease, organic soybean meal imports are skyrocketing. In fact, over the same five months of the 2018/19 MY, U.S. organic soybean meal imports reached nearly 115,000 metric tons, a 53 percent increase from the prior year. At this rate U.S. organic soybean meal imports will reach 317,000 metric tons by the end of the 2018/19 MY, or the equivalent of 14.7 million bushels of organic soybeans.
Between growing demand and increased foreign competition the path of organic commodity markets is far from set. Organic feed-grade corn prices act as a bellwether for much of the organic feed market and may be the largest risk factor for organic row crop commodity prices over the next year. Over recent history, organic feed corn prices have displayed the most sensitivity to shifts in imports. A larger 2019 harvest coupled with growing import competition could create conditions for a reduced corn market once harvest begins.
Despite growing imports, the market for organic soybeans may carry a less negative outlook as prices for feed-grade organic soybeans have not seen much support since declining over the 2015/16 MY. This has partially limited the expansion of U.S. organic soybean production. As a result, it appears less likely U.S. soybean acres will see major expansion this year and imports will continue to fill the gap in domestic supplies.
Keep in mind all these projections are speculative. Market direction will also depend on weather, macroeconomics, and politics. That said, as producers dig in this spring, it is a good idea to take stock of where markets are now, and the challenges ahead.
For more information, visit www.mercaris.com.
