Prices Could Go Even Higher Without Significant Corn And Soybean Acre Increases

Jon Scheve
Jon Scheve
(Marketing Against The Grain)

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Market Commentary for 4/9/21

Corn Carryout and Price Potential

With the USDA increasing demand for all categories, the tightest carryout since summer 2014 is expected.  This has led to a lot of uncertainty in the market. 

Export Potential

Exports have the most potential for change as traders are still debating how much US corn will be exported before late August.  Some believe cancellations are possible and reductions are still likely, while others expect exports will increase significantly.

Brazil Impact

If exports stay strong, Brazilian corn could be imported into the southeast US to relieve tight carryout pressure.  However, much of Brazil’s corn crop was planted late, and with recent dry weather, yields may be compromised.  Still, crop development there is early and good weather conditions could help improve yield potential.

US New Crop Corn

With current export estimates and the USDA predicting only 91.14 million corn acres for 2021, next year’s carryout could be potentially tighter than where we are this year.

Where Did All the Expected Corn Acres Go?

Sorghum planting intentions increased by more than 1 million acres year over year in the southern plain states.  This switch is likely due to high sorghum prices relative to corn and better drought tolerance. I would expect this change to stay in place this year.

I was surprised spring wheat acres were basically unchanged year over year since their values haven’t increased nearly as much as corn over the last 6 months.  I wouldn’t be surprised if 1 million of the 12 million spring wheat acres planned moved to corn by the June report.

Prevent Plant Influence

Prevent plant acres have been higher than normal the last 2 years, but with current prices I expect nearly all farmers to push hard to plant every acre possible regardless of weather conditions and late planting windows.

How Likely Will More Acres Be Added to The June USDA Report?

In the last 20 years, there has never been more than about 3 million combined corn and bean acres added from the March intentions report to the June planting estimate, which occurred in 2014.  Also, US farmers have never planted more than 180.4 million corn and bean total acres like they did in 2017. 

With the current USDA corn and bean acre estimated intentions at 178.74, if planting intentions manage to increase by more than 3 million, then 182 million combined acres are still possible.

Projecting Potential Supply and Demand Outcomes for 2021

Corn Carryout and Price Potential

In the chart below I analyzed potential carryout outcomes for next year.  I included possible planting scenarios, traditional new crop yield potential, key US supply and demand values, and trends from the last 20 years for reference.

Corn

Orange Column – current USDA April WASDE values

Green Columns – potential 2021 supply and demand scenarios

Blue Cells – plausible acreage outcomes on the June report

Yellow Cells – below trend line yield potential and reduced export pace as a result

Yield Estimates

Trendline yields suggest the national yield average should be around 177-178.  I suspect that if more acres are planted, it will likely be in fringe areas that produce lower yields because there are few prime fields in Illinois and Iowa not already in production.

Ethanol Demand Estimates

I increased ethanol demand because as vaccinations increase and Covid is more controlled, gasoline usage should see increased demand after September 1st.  This should also lead to more DDG supply and likely displace some corn in feed rations.

Feed Demand

If old crop corn prices remain steady, feed usage demand could face reductions.  In 2010 and 2011, feed demand fell 250 million bushels as prices rallied significantly due to dry weather.  Also, ethanol demand flattened for the first time.  As prices increased and production continued to drop in 2012, there were further feed and ethanol demand reductions. The same situation could occur this year if the weather turns dry or prices rally significantly.

Export Demand for 2021/2022

Export pace that far out is difficult to assess.  If dry weather reduces yield and prices increases significantly, then export demand should decrease longer term.  Also, after Ukraine’s 25% yield reduction last year, I expect them to be closer to normal, which would add 250 million more bushels to world supply.  Argentina also suffered yield loss of 250 million bushels under La Nina this year. In both cases the US had to fill the void.  If both countries have normal conditions during their next crop production, then there will be more competition in the market a year from now. 

Possible Imports of Corn?

While the USDA currently has only 18 million bushels estimated to be imported this year, in the summer of 2013 imports jumped up to 160 million bushels.  If the second corn crop in Brazil is big enough there is potential for some of it to find its way into the US in late summer both this and next year.

What Will It Take for Sub - $4 Corn to Come Back?

It will take good weather not only in the US, but also in Ukraine and Brazil this summer and Argentina next winter. Also, a decrease in Chinese export demand and a big increase in US planted acres could certainly pressure prices.

Bean Carryout and Price Potential

Friday’s report showed a 17-million-bushel reduction in the residual category, which looks to be the USDA’s “fudge factor” section in tight years.  In the last 14 years this category has only had a total range of about 50 million bushels, and usually it doesn’t move more than 25 million bushels in any direction in any given year.  With the move on Friday there now seems to be a small amount of room left to move this category lower the balance of the year.

Most old crop beans have been shipped, so large cancellations seem unlikely and processor demand remains strong.  Therefore, I expect prices to stay high which will help ration bean demand and potentially encourage Brazilian beans to be imported into the US in July and August. 

In the summer of 2014, imports increased to about 72 million bushels, which is 33 million more bushels than what the USDA currently is estimating.  This could be an area to watch moving forward, as it may put downward pressure on prices in late summer.

Potential Acre Increases

To meet demand, new crop needs a very large acre increase in the June report, at least 2.5 million acres.  However, as mentioned above, the record acre shift from March to June was only about 3 million acres in 2014.  Therefore, increasing both corn and beans acres to meet increased demand for both crops may prove challenging.

Projecting Potential Carryout, Supply and Demand Outcomes

Like the corn chart above, in the analysis below I project possible planting scenarios, traditional new crop yield potential, key US supply and demand values and trends from the last 20 years for reference.

Beans

Orange Column – current USDA April WASDE values

Green Columns – potential 2021 supply and demand scenarios

Blue Cells – plausible acreage outcomes on the June report

Yellow Cells – below trend line yield potential and reduced export pace as a result

Pink Cells – increasing imports into the United States

If the USDA wants to keep a 120-million-bushel carryout, there will need to be demand reductions.  Like corn, without perfect weather, more acres, and reduced Chinese demand, then it’s unlikely prices will pull back significantly. 

Beans have had an average national yield over 50 in 2 of the last 3 years and averaged 49.29 over the last 5 years.  Therefore, estimating 50 as a trendline yield for this year seems reasonable.  This means over the next year, any production problem could increase prices further, push more demand rationing, or increase US imports.

Planted Acres/Brazilian Imports

I’m expecting US farmers will find a way to plant 90 million bean acres this year.  Plus, I suspect the US will need to import some Brazilian beans in July and August to keep the summer pipeline from running dry this year and next. 

With higher prices, I also suspect Brazil and Argentina will expand their bean production significantly next season, which could ease demand pressure for our new crop production next winter and spring. 

In Summary

With what we know today, to meet global demand needs, corn and bean planted acres must hit 182 million collectively in the June report.  Plus, weather needs to be normal across the US throughout the growing season and trendline yields need to be average or better.  And most importantly, China must continue to import large amounts of corn from the US and other countries throughout the world. Arguably, Chinese export demand is the biggest unknown and poses the most potential risk to prices right now. 

As always, weather will remain an uncertain variable to the market.  However, in the last 45 years corn has been at or above trendline yields 66% of the time with beans above 60% of the time.  And on average, corn and beans both hit new record national yields 33% of the time.  While we usually see a new record yield every 2-5 years there has been one time in history where it took 8 years to hit a new record-sized crop. It’s been 3 years since corn’s last record and 4 years since bean’s last record.  While there is certainly upside price potential for both corn and beans this year, it’s not guaranteed at this point.

Want to read more by Jon Scheve?  Check out recent articles:

Which USDA Reports Should Farmers Give Their Attention To?

The Most Important Factor Determining Price Direction For The Next 2 Months Will Be Chinese Demand for Old Crop US Corn & Beans

Brazil Will Export As Much Corn As The United States With Only Half The Yield Size

Corn Prices Could Range Between $4-$8 While Beans Could Be $10-$16

How Do Trade Cancellations Work And How Do They Affect Farmers?

China May Import 40% More Corn Than In The Last 60 Years Combined

What Price Will Farmers Sell Their Remaining Unpriced Corn?

$6 Corn? $15 Beans? Hang On Tight Its Going To Be A Bumpy Ride

 

Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com
 
This email material is for the sole use of the intended recipient, and cannot be reproduced, disseminated, distributed or electronically transmitted, including any attachments, without the prior written permission of Superior Feed Ingredients, LLC.. Even though the information contained herein is believed to be reliable, we cannot guarantee its accuracy or completeness, and the views and opinions expressed are subject to change without notice. Trading commodities involves risk and one should fully understand those risks before buying or selling futures or options. This data is provided for information purposes only and is not intended to be used for specific trading.

 

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