An early glimpse at the 2021 marketing year
At the Ag Outlook Forum each year, USDA provides its projections for the agricultural year ahead. The 2021 Forum reflected the ongoing challenges with COVID as all of the sessions were virtual and much of the discussion hinged on agriculture’s rebound from the physical and economic impacts from the pandemic. In general, the view for agriculture in 2021 is positive. Most agricultural markets, including the major ones for Iowa, have recovered nicely from the depths of the price declines that struck the markets in 2020. And the outlook builds upon the improvement in the latter half of 2020, providing projections of better agricultural returns in 2021.
2020 was a challenging year, with COVID, a drought, and a derecho impacting the crop sector. For corn, the 2020 crop started out with huge potential, as early projections had the crop as the first 15 billion bushel crop on the strength of increased corn plantings. But the drought and derecho reduced yield potential enough to bring corn production below 14.2 billion bushels. Thus, the 2020 corn crop was larger than the 2019 crop, but by a much smaller amount than originally projected. The COVID impact to crops mainly came through biofuels, as biofuel consumption was reduced via the stay-at-home orders to reduce the spread of the virus. Given the timing of the pandemic, the biofuel usage decline appeared in the spring and summer of 2020, showing up in the corn grind for ethanol for the 2019 crop. Total corn usage for the 2019 crop was lower than previous years because of that drop, along with a fall in exports. However, this past fall, ethanol production partially recovered and export sales have surged to a record pace. For the 2020 crop, USDA has outlined a significant increase in corn usage, with exports leading the way. The growth in usage reduces projected ending stocks and the corn market has seen a sizable improvement in prices, with the 2020 season-average price estimate holding at $4.30 per bushel, nearly 75 cents above the 2019 estimate. For 2021, USDA outlines a major acreage battle among the major row crops, but projects a 1.2 million acre increase in corn plantings. That, combined with a trend yield of 179.5 bushels per acre, leads to a projection of corn production above 15 billion bushels once again. However, the growth in expected production is fairly well matched by continued growth in usage, as USDA sees higher feed and residual usage, a larger ethanol grind, and another record for exports. With a small increase in projected ending stocks, the 2021 season-average price estimate remains nearly steady, at $4.20 per bushel.
Many of the storylines for corn are in play for soybeans as well. However, the trade effects are more amplified for beans, given the market’s relative dependence on exports. The 2020 soybean crop statistics reflect a general, but partial, recovery for the crop from prevented planting problems and trade disruptions that hit the 2019 crop. Acreage and production increased, but the drought and derecho limited the growth in supplies. Export sales this past fall provided a significant boost to the soybean market. The growth in exports is expected to reduce 2020 ending stocks to 120 million bushels and raised the 2020 season-average price estimate to $11.15 per bushel. For 2021, soybean area is projected to leap again as soybeans are expected to see the largest gains in acreage, to 90 million acres. Given trend yields, the combination pushes expected production to over 4.5 billion bushels. But as with corn, soybean usage is expected to match production. Domestic crush for livestock feed and biofuel usage is projected to rise once again. And even though the export segment declines slightly, soybean exports still hold at 2.2 billion bushels. The 2021 season-average price estimate for soybeans improves to $11.25 per bushel.
Thus, USDA’s projections reveal that the healthy market recovery that already occurred for Iowa crop agriculture will continue. Even with projections of record supplies for corn and soybeans, crop prices are expected to roughly hold steady. The price strength is supported by strong international demand and steady domestic use. The surge in export sales in 2020 has continued as the calendar turned to 2021 and USDA indicates it will continue. While COVID did reduce activity in many parts of the US and global economies, it did not hamper agricultural trade and US agriculture is enjoying the benefits of that.
The futures markets for corn and soybeans have remained bullish on the outlook for the 2021 crops. Even after the release of the latest USDA projections, the markets have maintained prices above the USDA projections. USDA’s 2021 price projections are $4.20 for corn and $11.25 for soybeans. Futures at the end of February projected season- average prices for the 2021 crops of $4.50 for corn and $11.70 for soybeans.
For more market outlook through the month, the latest outlook presentation is always available on the Ag Decision Maker Outlook page.
Chad E. Hart, extension economist, 515-294-9911, firstname.lastname@example.org