The projections are shifting fast
In my previous article for the Ag Decision Maker newsletter, we worked through USDA’s preliminary outlook for the 2021 crops. Since then, USDA has released four major reports which have shaken up that outlook. With the March and April World Ag Supply and Demand Estimates (WASDE) reports, USDA has provided the markets a sense of the shifting nature of crop usage going into the 2021 growing season. With the March releases of the Grain Stocks and Prospective Plantings reports, USDA revealed the tightening of crop stocks as we go into planting and the differences between farmers’ planting intentions and USDA’s early projections on crop acreage. To summarize how these reports have adjusted the 2021 outlook, I have combined the latest crop usage estimates for the 2020 crops from the April WASDE report, the new estimates for 2021 plantings from the Prospective Plantings report, and the yield and 2021 crop usage estimates from the Ag Outlook Forum to create tentative balance sheets for corn and soybeans. Take these balance sheets with a healthy dose of salt (more than one grain, possibly an entire salt block) as USDA will likely make several significant adjustments to the 2021 crop usage estimates, starting in the May WASDE report (the first WASDE report that will have 2021 crop estimates). But these balance sheets do provide a good starting point for discussing the opportunities and challenges for the upcoming crops.
Let’s start with corn. Corn usage has remained robust, even as corn prices have moved higher. The March stocks report verified that and the April WASDE report reflected that as well. Looking at the annual numbers, USDA boosted 2020 feed and residual usage by 50 million bushels, ethanol usage by 25 million, and exports by 75 million. The combination lowers 2020-21 ending stocks to 1.35 billion bushels, 150 million bushels below previous estimates. So corn supplies going into 2021-22 are smaller. And the Prospective Plantings report showed fewer corn acres than both USDA and the trade expected, further tightening 2021/22 corn supplies. USDA’s initial estimate for 2021 corn plantings was 92 million acres. The Prospective Plantings survey found farmers intend to plant 91.1 million acres of corn. Keeping the ratio of planting to harvested acres and the yield from the Ag Outlook Forum and combining that with the new estimates of corn area leads to an adjusted 2021 production estimate of 15 billion bushels, down 140 million from the earlier projection. Add that to the lower corn stocks and total corn supplies for the 2021 marketing year are projected to be 290 million smaller than the Ag Outlook Forum estimates.
If USDA were to stick with their Ag Outlook Forum 2021 corn usage estimates, then feed and residual usage is projected to be 150 million bushels higher, corn usage for ethanol would rise by 225 million bushels, but exports would fall by 25 million. Total corn usage would exceed production by roughly 120 million bushels, implying another year-over-year drop in ending stocks. And where USDA had first thought the 2021-22 season average price would be lower than the 2020/21 price, these shifts would likely lead to continued higher prices for the upcoming crop year.
For soybeans, the usage adjustments are smaller than for corn, but the shift in projected acreage is significant. Looking at the 2020 crop, domestic crush of soybeans was lowered by 10 million bushels and residual usage was reduced by 20 million. However, soybean exports were increased by 30 million bushels to completely offset these changes. So we are still entering into the 2021-22 marketing year with a projected stock of 120 million bushels of soybeans.
Soybean planting intentions came in at 87.6 million acres, well below USDA’s initial estimate and trade expectations. Given the new acreage estimate, projected soybean production fell by roughly 140 million bushels, which has really tightened up an already tight market. At the Ag Outlook Forum, USDA outlined 2021 domestic crush demand at 2.21 billion bushels, with exports taking 2.2 billion bushels. If USDA held to those usage estimates now, 2021-22 ending stocks would plummet to 24 million bushels, well below historical levels. So I expect some major adjustments to both the 2021 soybean usage forecasts and the 2021-22 season-average price estimate.
The string of USDA reports provided a boost to corn and soybean prices. Prior to the end of March, traders had been preparing for sizable acreage increases for both crops and the larger projected supplies that come with that acreage. Once the acreage projections showed smaller gains than expected, both markets enjoyed a strong jump in futures prices. The figure below shows 2021/22 projected prices based on the futures markets. Through the month of March, those price projections had worked their way lower. Now, with these latest reports in hand, the bulls in the marketplace have found renewed reason for optimism. Both crops are sitting at the highest projected prices for the year thus far, with futures pointing to $4.70 per bushel for corn and $12.20 per bushel for soybeans.
Chad E. Hart, extension economist, 515-294-9911, firstname.lastname@example.org