Jerry Gulke: What’s Hidden in USDA’s Ag Outlook Forum Data?

The acreage numbers were not too surprising, says Jerry Gulke, president of Gulke Group. What held a bigger punch was the demand picture.
The acreage numbers were not too surprising, says Jerry Gulke, president of Gulke Group. What held a bigger punch was the demand picture.
(AgWeb)

The grain markets were hit hard by new USDA data this week. May corn prices were down nearly 28¢ and December corn prices were down nearly 19¢ for the week ending Feb. 24. May soybean prices were down 3¢ and November soybean prices were down 12¢. Wheat prices were down 30¢ to 60¢, depending on the contract.

USDA released a slew of data at its annual Agricultural Outlook Forum this week. For 2023 acres, USDA is calling for 91 million acres of corn, which is up 2.7% from last year. The national average yield is forecast at 181.5 bu. per acre.

For soybeans, acres are projected at 87.5 million, which is flat with 2022. The national average soybean yield is forecast 52 bu. per acre.
The acreage numbers were not too surprising, says Jerry Gulke, president of Gulke Group. What held a bigger punch was the demand picture.

“USDA increased feed and residual use by 250 million bushels, even though we have a smaller cattle herd,” he says. “They also dropped ethanol corn used, which makes sense. Exports were kept fairly constant.”

At the end, that equals ending stocks at 1.887 billion bushels, up 620 million from a year ago and resulting in stocks relative to use at 13%, which would be the highest since 2019/20.

“Think about that — that's a lot of stocks, which says we’re not going to run out of corn,” Gulke says.

In soybeans, USDA total use is at 4.461 billion bushels, which includes a slight uptick in exports and an 80-milllon-bushel expansion in domestic crush to a record 2.31 billion bushels. Ending stocks under USDA’s scenario would total 290 million bushels with the stocks-to-use ratio of 6.5%.

Gulke says the key now is if either corn or soybean gain a million or more acres, the carryout significantly grows, with the predicted average yields. 

“If we hit 92 million acres of corn, for example, at 180 bu. yield, you’re close to 2 billion bushels of carryover,” he says. “That's not that's not $7 corn, and it's probably not even $6 corn. Same way with soybeans.”

Gulke says his concern for U.S. farmers is they haven’t priced much for their 2023 expected production.


Bullet Points from the 2023 USDA Outlook Forum 

by Jamie Wasemiller, Gulke Group

  • The rate of U.S. consumer price inflation peaked in June 2022, reaching 8.9%, the highest in over four decades. Inflationary pressures have begun to ease, falling recently to 6.3%, following aggressive successive interest rate increases by the Federal Reserve.
  • According to the International Monetary Fund’s estimate from January 2023, projected growth for the United States’ real GDP in 2023 is forecast to increase to 1.4% from their previous estimate of 1% made in October of 2022
  • World real GDP is projected to increase by 2.8% in 2023.
  • Corn used for ethanol in the U.S. is expected to remain unchanged based on expectations for flat motor gasoline consumption and strong global economic growth would support a rebound in cotton mill use.
  • Combined acreage for corn, soybeans and wheat is projected at 228 million acres—a nearly 3% increase from 2022.

USDA - Planted Acres

  • Among the three main crops, wheat area is projected to increase the most, in response to continued high global prices and tight U.S. and global supplies.
  • Soybean area is expected to remain largely unchanged from planted area in 2022. Demand for soybeans in the United States is expected to be driven by stronger demand for domestic crush—largely driven by growth in biofuel use, while exports likely face competition from continued production growth in South American during the 2023/24 U.S. marketing year.
  • Corn planted area is projected to increase about 3% relative to last year.
  • Total wheat planted area for 2023/24 is projected at 49.5 million acres, up nearly 3.8 million acres from last year and the highest wheat area since 2016/17. The NASS Winter Wheat and Canola Seedings report estimated winter wheat seeded area at 37.0 million acres, up 11% from 2022/23 and the largest since 2015/16.
  • Soybean Oil for biofuel in the U.S. is expected to grow 8% to 12.5 billion pounds in 2023/24, supporting domestic crush. As new renewable diesel producers enter the market, competition for biofuel feedstocks will continue to support soybean oil prices and limit growth in other domestic markets and soybean exports.
  • For 2023, red meat and poultry production is forecast to decrease fractionally to 106.9 billion pounds as declines in beef production more than offset higher pork and poultry production. Although the projected decline in production is small, if realized, it will be the first decline in total red meat and poultry production since 2014.
  • Beef production is forecast to fall by 6%. Beef exports are projected to decline on tighter domestic supplies and higher relative prices. The 5-Area steer price for 2023 is forecast to average a record $159.0 per cwt, approximately $15 per cwt above 2022’s average price.
  • Fiscal Year (FY) 2022 ended with record exports ($196.4 billion), driven by high commodity prices and strong demand. USDA’s revised FY 2023 U.S. agricultural trade forecast, which was released today, is for lower exports ($184.5 billion) and record imports ($199.0 billion), reflecting slowing global economic growth, a relatively strong U.S. dollar, softening commodity prices, and lower export volumes for some commodities.
  • The largest declines in FY2023 agricultural exports are forecast for corn, sorghum, and cotton, which are all lowered on volume and in the case of cotton, also on price. This in part reflects lower forecast U.S. production of these crops in 2022/23 relative to the previous year, as well as soft global demand for cotton given the broader macroeconomic situation. Increasing competition from other suppliers, particularly for corn and cotton, also contribute to the lower forecast. FY 2023 exports for most other commodity sectors are expected to be lower, albeit in many cases from record levels in FY 2022. Moreover, the FY 2023 export forecast, if realized, would still be the second highest on record.
  • China remains the top destination for U.S. agricultural exports, although FY 2023 exports are projected to fall $2.4 billion from FY 2022’s record of $36.4 billion, reflecting reduced sorghum, cotton, and tree nut exports. FY 2023 exports to Mexico and Canada are projected to fall slightly, with a larger decline in exports to Canada due to reduced corn sales, which would put Mexico as the second largest U.S. agricultural export market if the forecast is realized. FY 2023 exports to our third largest market, Japan, are projected $1.2 billion lower than FY 2022, due to lower expected corn, beef, and tree nut sales. Exports to the EU are also down slightly, while the forecast for exports to South Korea is on par with FY 2022’s levels.
  • FY 2023 imports are forecast at a new record of $199 billion, up 3% from FY 2022, which was the previous record. The import forecast reflects the relative strength of the U.S. dollar, continued strength in horticulture import growth, and a somewhat improved outlook for the U.S. economy for 2023 relative to what was forecast last year.
  • Direct government payments are forecast to fall by $5.36 billion (34.4%) from 2022 to $10.25 billion in 2023, below the 2010-2019 pre-pandemic average of $15.67 billion.
  • Feed expenses, the largest single expense category, are forecast to decrease in 2023 by $3.92 billion (5.1%) in nominal terms to $72.67 billion because of lower prices for commodities.
  • Cash receipts from the sale of agricultural commodities are forecast to decrease by $23.6 billion (4.3%, in nominal terms) from a record 2022 level to $519.9 billion in 2023, and if realized would be the third highest in inflation-adjusted terms.

 

Read More

Jerry Gulke: Do the Negatives Outweigh the Positives in Grain Price Outlook?

Jerry Gulke: Did the USDA Reports Create A New Paradigm Shift in Grain Prices?

Check the latest market prices in AgWeb's Commodity Markets Center.


Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group Advisory Services.

Learn more at GulkeGroup.com

Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.


 

 

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