The focus shifts to planting
The April World Ag Supply and Demand Estimates (WASDE) report is the last report before the addition of the projections for the new crop year. So it represents the period of time when the markets transition from being global supply and demand focused to domestic supply focused. For the first four months of the year, the focus on demand has led to concerns as USDA has generally reduced crop usage for feed, industrial, and export sectors. The lighter disappearance has been accompanied by lower prices for both corn and soybeans. Meanwhile, global supplies continue to tighten, but not enough to support prices.
Since the beginning of the year, global corn production estimates have shrunk by 11.4 million tons or roughly 450 million bushels. The vast majority of this crop loss is occurring in Argentina as drought has ravaged their crops. The smaller global corn crop has not led to higher US corn use. Since the beginning of the year, USDA estimates of corn usage for ethanol has dropped 25 million bushels, usage for corn sweeteners has fallen 10 million, and corn exports have been lowered by 75 million. So global corn supplies are shrinking, while US corn stocks have risen.
While global corn supplies are smaller year-over-year, global soybean production continues to rise, but the pace of growth has been dramatically cut back. Back in January, the global production estimate stood at 388 million tons. Now, it’s been reduced by 18.4 million tons or 675 million bushels. As with corn, the vast majority of the massive cut is occurring in Argentina, where the production estimate has basically been cut in half. However, the market seems to be paying more attention to Brazilian supplies. Unlike Argentina, Brazil is still on pace for a record soybean crop. Within the US, domestic usage has slipped a bit, while export potential looks a bit brighter. Since January, USDA lowered domestic crush by 25 million bushels, but raised soybean exports by the same amount, leaving US ending stocks at 210 million bushels.
While crop usage has declined and prices have fallen, the economic outlook for crops is still positive. The rise in input costs over the past couple of years has not fully caught up to prices. The potential for profits has farmers once again expanding acreage. Both corn and soybeans stand to gain land in 2023 based on farmer intentions, but corn grabbed the lion’s share of the acreage. Figure 1 displays the prospective corn area in 2023, as farmers across the nation are looking to expand corn plantings by four percent. While the expansion is fairly modest in the heart of the Corn Belt, the shift to corn in North Dakota and the Southeast is significant. The lingering impacts of the Western drought may have slowed the growth in corn area, but it definitely did not stop it. Given this increase in area and a look toward trendline yields, the 2023 US corn crop could be the largest on record, weighing in at 15.2 billion bushels.
The soybean area expansion is set to be much smaller, growing by one-tenth of one percent, with the growth coming east of the Mississippi River or north of the Missouri River. Much like with corn, it is North Dakota and the Southeast leading the growth charge. A few of the large soybean production states, such as Iowa and Illinois, are holding steady on acreage. And five states could set or tie soybean planting records this year, Illinois, Nebraska, New York, Ohio, and Wisconsin. Although the acreage gain is minimal, a return to trendline yields would lead to a record 4.5 billion bushel soybean crop. So both crop markets are facing the potential for much higher supplies this fall.
When USDA released the prospective planting numbers at the end of March, the market quickly absorbed those numbers and immediately began to wonder if weather conditions would allow these shifts. An early taste of summer at the beginning of April had many Iowa farmers raring to plant. But the stubborn snowpack across North Dakota and Minnesota and a consistent stream of storms across the Southeast could delay the planned planting expansion in those areas. Timely planting is a strong key to reaching trendline yields and the markets tend to react quickly to any deviations in planting pace. At the beginning of the month, USDA restarted its weekly Crop Progress reports. These reports will provide timely updates on planting progress, emergence, and crop conditions throughout the growing season. Figure 3 shows the range in corn planting pace since 1980, along with the most recent five-year average and last year’s pace. As the graph displays, the bulk of corn planting occurs in the latter half of April and the first two-thirds of May.
Last year, there were sizable delays in corn planting throughout the month of April. While the pace of planting caught back up to the five-year average by the end of May, the delays provided enough concern for corn prices to reach their springtime peak in the middle of May. Any slippage of pace below the five-year average tends to support prices. The weather issues to the north and south of Iowa could create a similar run this year, but it would be starting at a lower point. Last year at this time, new crop corn futures were above $7 per bushel and new crop soybean futures were in the $15 range. As of April 14, new crop corn futures are in the $5.60-5.70 range, pointing to a 2023-24 season average price of $5.50 per bushel. New crop soybean futures are holding above $13, indicating a 2023-24 season average price of roughly $12.70 per bushel. With estimated production costs roughly $5 per bushel for corn and $12 per bushel for soybeans, prices have fallen from last year, but profits are available and could grow with any planting problems.
Listen to 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