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A reversal of fortunes
May is an interesting month for USDA reports. The weekly Crop Progress reports document the speed at which the new spring crops are entering the ground. That planting pace often provides a strong signal to market participants about the potential production in the coming harvest season. The World Ag Supply and Demand Estimates (WASDE) report shifts to provide data for the new crop year, as new crop data is not added to the tables until May. As in past years, there are several factors greatly influencing the potential supply and demand for the crops. Typically, with the May WASDE report, USDA sticks with the acreage estimates from the March Prospective Plantings report and the trend yields released at the Ag Outlook Forum in February. Thus, the May WASDE report is mostly about the usage projection changes since the Ag Outlook Forum. The combination of these reports this year have confirmed the price trend through most of 2023, as prices have fallen on expectations of larger production and concerns of weaker demand.
The planting pace for both corn and soybeans has been much quicker this year than last. Figures 1 and 2 show the national planting pace data for corn and soybeans, respectively, on an annual basis since 1980. The light blue shaded area displays the range in planting pace, with slower pace towards the right of the graphs. For corn, planting was the slowest in 1983 and 1984 during April and early May. The 2019 corn crop set the slowing pace starting in mid-May. Last year, corn planting stared slow, but rallied to catch the five-year average pace by the end of May. This year, national corn planting is running well ahead of last year and slightly ahead of the five-year average.
For soybeans, this year’s planting pace is nearly a record pace, and did set the record for planting for most of the month of April. The 2023 crop is racing with the 2000, 2012, and 2021 crops for the top spot. So, the soybean crop is well ahead of the five-year average and last year. While both crops are going in fast, there are still a few problem spots to watch, mainly to the north, North Dakota and Wisconsin. The late winter storms in those states delivered significant snow, and thus moisture, to fields, alleviating drought issues, but also delaying fieldwork.
Typically, quicker planting leads to more area being planting (boosting prospects for the June acreage numbers to be higher than the March planting intentions) and higher yields at the end of the season (raising thoughts about trendline or higher yields). As USDA published in the May WASDE report, expectations of trendline yields translates into the potential for record corn and soybean crops. For corn, projected production in 2023 now stands at 15.265 billion bushels, which would exceed the record from 2021 by roughly 200 million bushels. For soybeans, 2023 projected production is 4.51 billion bushels, also topping the record set in 2021. So projected supplies are ample this year.
The production gains do not necessarily mean crop prices have to retreat, if crop usage can grow just as quickly. The crop markets were watching the WASDE report to see how strong USDA would project the usage rebound. The gray boxes in Tables 3 and 4 highlight the demand sides of the corn and soybean markets. Both corn and soybeans saw lower usage totals for the 2022 crops. Some of this decline is driven by the lower production in 2022, but some of it is also reflecting shifts in demand. For corn, the drops in usage hit every category. Feed retreated by roughly 450 million bushels. Corn usage for ethanol backed off by 75 million bushels and other industrial uses declined by 8 million bushels. But the largest decline has been in exports. Based on the current export pace, exports shrank by roughly 700 million bushels.
With the bigger projected corn crop for 2023, USDA expects corn usage to climb again, but not quickly enough to match production. USDA signaled this back in February with their early projections and confirmed this in May. What has changed since February is that USDA has become a little more optimistic on domestic usage (feed and biofuels), but more pessimistic on international usage (exports). Corn feed usage is projected to grow by 375 million bushels. That is 50 million bushels more than the February projection, but still 75 million bushels below 2021. Corn usage for ethanol gains 50 million bushels. Again, that’s 50 million more the February estimates, but still 25 million below 2021. But the biggest challenge comes from exports. Corn exports are projected to increase by 325 million bushels, but that’s 100 million bushels less than the February estimate and 370 million below the level from 2021. Record production and slower growth in usage leads to higher ending stocks and lower projected prices. As the corn balance sheet currently stands, ending stocks for 2023 could easily exceed 2 billion bushels, with the season-average price falling below $5 per bushel.
The decline in soybean usage for the 2022 crop was much less dramatic than corn. However, the major shifts for soybeans parallel corn. Exports retreated with the smaller 2022 crop and higher prices. The outlook for 2023 is for record production and slower growth in usage, leading to higher ending stocks and lower prices. The challenge is that where corn exports are expected to rebound higher, soybean exports are projected to continue to decline. The drop in soybean exports from 2021 to 2022 was roughly 140 million bushels. Looking forward for the 2023 crop, exports are projected to fall by 40 million more. Domestic usage remains strong. As new crushing facilities come online, USDA expects crush usage to trend higher. But the boost is not enough, as ending stocks grow by 120 million bushels and the season-average price drops to $12.10 per bushel.
The futures markets have factored in concerns about larger production and weaker usage during the first half of 2023, as futures-based season-average price estimates have been falling over the course of the year. As of May 18, 2023, futures-based estimates were $4.90 per bushel for corn and $11.60 per bushel for soybeans. So the markets are a little more optimistic for corn and more pessimistic for soybeans, compared to USDA. But prices for both crops have definitely retreated enough to severely limit, if not eliminate, profit margins. Prices at the start of the year were above production cost estimates. Now, we’re breakeven at best. The planting pace and what it implies about production will continue to pressure prices. Those looking for a potential price rally either need a significant slowdown in planting or a series of pleasant surprises in export sales.
Listen to the latest Market Outlook video for further insight on outlook for this month.
Chad E. Hart, extension economist, 515-294-9911, email@example.com