Supply and use shrinkage
The August Crop Production and World Agricultural Supply and Demand Estimates reports set the stage for the crop markets as we head toward harvest. The August numbers provide the first monthly update where farmers weigh in on potential yields and production, via a national survey. Data from the objective yield survey, where actual field samples are taken, will begin with the September reports. A quick summary of the reports shows expected corn and soybean supplies and usage are shrinking.
For corn, USDA’s update showed some additional imports and lower usage for old crop (2022) corn, while reducing both supply and usage projections for new crop (2023) corn. Based on trade data, USDA added 10 million bushels of corn imports to the 2022 crop. Corn export sales continue to lag well below average, forcing USDA to cut 2022 exports by 25 million bushels. Corn sweetener processing has also slowed, leading to a 20 million decline there. The combined shifts add 55 million bushels to the 2022-23 ending stocks, raising them to 1.457 billion bushels. Those additional bushels partially offset the production cut for the 2023 crop. Data from the farmer yield survey supported USDA’s reduction of the 2023 yield estimate by 2.4 bushels per acre, with the national yield estimate now sitting at 175.1 bushels per acre. The yield cut translates to a 209 million bushel reduction in expected production, now estimated at 15.111 billion bushels, which would still be the 2nd largest corn crop on record. But projected corn usage is also getting smaller. Feed and residual usage shrank by 25 million bushels. The 20 million bushel corn sweetener reduction was extended into 2023. Projected exports were lowered by 50 million bushels. Looking at 2023-24 ending stocks, the projection declined by 60 million bushels, but at 2.2 billion bushels, it’s still roughly 750 million bushels above 2022-23 and over 800 million bushels above 2021-22. The corn stocks-to-use ratio has grown from 9.2% in 2021-22 to 15.3% for 2023-24.
Figure 1 displays the state corn yield estimates. Drought has impacted this map since 2020, with the largest yield losses shifting around the country. In 2020, the Southern Plains suffered the brunt of the damage. In 2021, it was the Dakotas. In 2022, the Central Plains saw the largest cuts. Here in 2023, the drought impacts are straddling the Mississippi River. West of the Mississippi, it’s Missouri and Minnesota that are experiencing the largest corn yield declines. East of the Mississippi, the losses are showing up in Illinois and Wisconsin. Despite the continuing drought, 20 of the 32 states where USDA can estimate yield are looking at better yields than last year, with Indiana still on track to reach a record.
The story for soybeans is similar to that for corn. For the 2022 crop, USDA added 5 million bushels to imports, boosting 2022-23 ending stocks slightly. Adding to supplies, 2023 soybean imports were increased by 10 million bushels. However, with a drought induced reduction for the 2023 yield, total available supplies for 2023 fell. USDA dropped the 2023 national yield estimate by 1.1 bushels per acre, to 50.9 bushels per acre. That shaved 95 million bushels off of expected production. But just as corn experienced, the drop in production was partially offset by cuts in usage. 2023 soybean exports were lowered by 25 million bushels. That puts expected exports over 150 million bushels below 2022 and over 400 million bushels below 2020. In the end, 2023-24 ending stocks are projected at 245 million bushels. The soybean market remains tight with a stocks-to-use ratio slightly below 5.8%.
The state yield impacts are also similar to corn. North Dakota and Wisconsin are seeing the largest declines. Iowa and Michigan join the list of states with lower yields. But the Central and Southern Plains and the Northeast are projected to have much better yields this year. Five states (Indiana, Ohio, North Carolina, Mississippi, and Arkansas) have a chance for record yields. USDA will continue to update their weekly crop ratings and in September, they will begin their objective yield surveys, where they actually go out into fields, counting plants, ears, and pods. These pieces of information will provide a much richer picture of potential production. On the corn crop ratings (Figure 3), this year’s crop has been consistently rated below average and last year’s crop. However, the crop ratings did improve in the early part of July and have roughly caught back up to last year’s level. Recent rains across the Midwest may pull the crop rating back above last year, but it will likely not catch the average rating. Typically, between now and harvest, the percentage of the crop rated Good to Excellent will dwindle by an additional three percent. That would provide additional support for USDA to adjust corn yields lower once again.
The soybean ratings (Figure 4) have moved like the corn ratings, reaching a low spot in late June and recovering a bit since then. While this year’s ratings have not risen to last year’s level yet, the recent rains do have a chance to improve the ratings enough to not only reach last year’s, but also catch up to the average. Between now and harvest, the Good to Excellent percentage typically falls another two percent. If this year’s ratings do catch up to the average, we could see USDA reverse some of the yield cut they took this month.
Given all the changes in the USDA projections, they maintained their 2022 season-average prices where they were, $6.60 for corn and $14.20 for soybeans. For the 2023 crops, the smaller projected ending stocks led USDA to increase their season-average price projections. Corn shifted up 10 cents to $4.90 per bushel. Soybeans gained 30 cents to $12.70 per bushel. Futures market-based projections of those same prices reveal that the markets are mixed, with estimated prices in the $4.80 range for corn and $12.80 range for soybeans. While the drought continues to support prices, concerns about exports and the general economy have weighed down on prices. The 2022 crops will finish out a profitable year. The 2023 crops are battling around breakeven. Lower prices and the increases in production costs over the past couple of years have significantly reduced or eliminated crop margins. There will be some profitable windows within the 2023 marketing year, but the window will not be wide open as it has been over the last couple of years.
Watch the latest Market Outlook video for further insight on outlook for this month
Chad E. Hart, extension economist, 515-294-9911, firstname.lastname@example.org