The job of price discovery is to look to the future to address a “potential event” — be it positive or negative. The November USDA Report gave a shot over the bow on an evolving concern of whether we can produce enough to meet demand for 2021/22. My September column suggested an acreage battle may be looming. USDA’s supply/demand tables support that theory.
Since prices peaked in 2012 (soybeans at $17 and corn at $8), overall price direction has been down. The high prices of 2011—2013 incentivized production worldwide and brought new competition to the U.S. producer. Costs became local, selling prices global and competition got greater as the U.S. became a storehouse for the surpluses. Trade tariffs and political rhetoric distorted markets and trading for a time, but the traditional laws of supply and demand were not repealed. Rational price discovery is back in vogue again.
Rarely do we producers have the luxury of making planting decisions based on profit potential—regardless of planting choices. Lower ending stocks going into harvest of 2021, and the supportive stocks-to-use ratios are giving rise to concerns for planting sufficient acreage of corn and soybeans to meet 2021/22 demand, while having enough excess for a yield cushion just in case.
SOYBEANS: Tight stocks under 190 million bushels (5 million metric tons (MMT)) could be an understatement. A year ago, USDA estimated Chinese usage at 85 MMT. Current estimates are near 100 MMT this year and 105 MMT next year. Carryout evaporates this 2020/21 marketing year if South America production falters more or usage estimates are still too low. Matching supply with the current firm demand outlook will require 89 million acres planted in 2021 and a near-record yield.
CORN: Unchanged acres (91 million) for 2021/22 takes that ending stocks number to 1.4 billion bushels, meaning no cushion for adversity. As such, 94 million acres is required.
The Bottom Line
The three areas I will monitor for continued price outlook guidance are:
- South American weather/production.
- Chinese demand exceeding expectations.
- COVID-19 and its implications to encourage building strategic reserves.
Russia has wheat production issues, and the Ukrainian corn supply dropped 10 MMT affecting their exportable supplies. Price is not an issue for China, as currency issues not as relevant when stocks are tight.
Technical price chart action brought me to the dance to warn of a turnaround last August. The media is running amuck with innuendos. Price action is already indicating not if but how robust the competition for acres will be in 2021.
I can see 94 million acres of corn, but 90 million acres of soybeans — not so much. The needed 10-million-acre increase of U.S. production is a tall order for 2021. Price is a great fertilizer. I’ll go home with the one that brought be to the dance to help ascertain how high is high enough!
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Jerry Gulke farms in Illinois and North Dakota. He is president of Gulke Group. 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.
