Author: Hunter Biram

On May 10^th, USDA released the latest World Agricultural Supply and Demand Estimates (WASDE) report. The May WASDE provides the first official projections for the 2024 marketing year from USDA and annual marketing year forecasts for the supply and use of various crops. Projections for production are based on the acreage reported in the March 28^th USDA Prospective Plantings report, and yield forecasts are based on trend models or historical yields, depending on the crop. Thus, the USDA projections discussed below are subject to change as the growing season and marketing year progress. 

U.S. corn production is projected at 14,860 million bushels, a 3% decline from the 2023 record of 15,342 million bushels. For 2024/25, U.S. corn production is based on 82.1 million harvested acres (5.1% decline from 2023) and a national average yield per harvested acre of 181.0 bushels. Combined with 2,022 million bushels of carryover stocks from last year and 25 million bushels of imports, the total U.S. corn supply is projected to be 1.1% higher than in 2024 at 16,907 bushels. Similar to 2023, the supply increase is slightly offset by a 0.6% increase in total use. Feed use is projected to increase by 50 million bushels, and ethanol use remains unchanged from 2023 at 5,450 million bushels. Exports are projected to increase by 50 million bushels to 2,200 million bushels, partially due to reduced expectations in exports for Brazil and Russia in 2024. Corn ending stocks are projected at 2,102 million bushels, a 4% increase from 2023. The average farm price is projected to continue the downward trend, at $4.40 per bushel, compared to $4.65 in 2023 and $6.54 in 2022. 

U.S. soybeans are also projected to see higher supplies and lower prices in 2024. U.S. soybean production is projected to be 4,450 million bushels, a 6.8% increase from 2023. Some production increases are due to a higher expected yield of 52 bushels per harvested acre (compared to 50.6 in 2023) – also a record if realized. The 2024 average farm price is projected at $11.20 per bushel, an 11% decrease from 2023. Demand and exports are expected to improve from 2023, with domestic crushing and exports each projected to increase by 125 million bushels. However, supplies continue to outpace demand, with 2024 ending stocks projected at 445 million bushels, a 31% increase. 

U.S. cotton producers are projected to plant 0.44 million more acres  in 2024, an increase that more than offsets the 6% drop in the national average yield, resulting in nearly 4.0 million more bales of production compared to the 2023 production estimate. The 2023 cotton crop saw 3.79 million acres of abandonment, with 10.23 million acres planted but only 6.44 million acres harvested. Drought plagued Texas again with abandoned acres in Texas accounting for 90% of U.S. abandoned acres. Currently, USDA projects 10.67 million acres planted with 9.13 million acres harvested in 2024. Drought conditions in Texas are not as severe as this time last year which may slightly alleviate the magnitude of abandonment. In the May WASDE, U.S. cotton production is projected at 16.0 million bales, a 33% increase from 2023. On the demand side, exports are expected to increase by 0.7 million bales to 13.0 million bales. Despite higher exports, cotton ending stocks are projected to increase by 1.3 million bales to 3.7 million bales on higher production. The average farm price is projected to weaken to 74 cents per pound, the lowest farm price since 2020. 

Lastly, the carryover of long-grain rice from 2023 is relatively low compared to the last two marketing years at 18.0 million hundredweight, but increased production in 2024 will nearly eclipse the carryover. Long-grain rice production is projected to increase by 10% to 169.3 million hundredweight. Exports are expected to increase to 75 million hundredweight, which is largely driven by increased competitiveness in price and regaining the Mexico market lost to Brazil in 2023. Ending stocks are projected to be up 46% at 26.3 million hundredweight. Like other crops, the average farm price is projected lower to $14.50/cwt.

Overall, the May 2024 USDA WASDE report projects a bearish supply and demand picture and lower prices compared to 2023. Figure 1 provides a snapshot of typical month-over-month movements in the five-year average of the Marketing Year Average (MYA) cash price received by farmers. This can provide an expectation of movements in a relatively more current window. The last pre-harvest price upside movement for long grain rice has recently been in August while the last pre-harvest upside price movement for cotton happens in July. Corn and soybeans follow a similar pattern with downward price movement in July through harvest in October. Taking advantage of upward price movement through a crop marketing plan as described by previous Southern Ag Today articles (Maples, 2022; Maples and Gardner, 2023; and Maples, 2024) is of the utmost importance.

Figure 1. Month-over-Month Change in Five-Year Average MYA Price for Rice, Cotton, Corn, and Soybeans: 2019-2023

References

United States Department of Agriculture, Agricultural Marketing Service. (2023). World Agricultural Supply and Demand Estimates (WASDE-63). Retrieved May 10, 2024 from https://downloads.usda.library.cornell.edu/usda-esmis/files/3t945q76s/8910m7465/0p097p24j/wasde0523.pdf.

United States Department of Agriculture, Agricultural Marketing Service. (2024). World Agricultural Supply and Demand Estimates (WASDE-64). Retrieved May 10, 2024, from https://www.usda.gov/oce/commodity/wasde/wasde0524.pdf

Maples, Will. “Considerations for Developing a Pre-Harvest Marketing Plan.” Southern Ag Today 2(47.1). November 14, 2022. 

Maples, William E., and Grant Gardener. “Using Historical Price Movements to Inform Marketing Decisions.” Southern Ag Today 3(51.1). December 18, 2023. 

Maples, William E. “Cash Grain Contracts and When to Use Them.” Southern Ag Today 4(18.1). April 29, 2024. 

Biram, Hunter, and Ryan Loy. “May WASDE Projects Higher Supplies and Lower Prices Again in 2024.” Southern Ag Today 4(20.1). May 13, 2024. Permalink

Two of the most prominent risks faced by all agricultural producers are production risk (i.e., yield) and marketing risk (i.e., price). Rice is somewhat unique in that its relative yield risk is lower than that of its competing crops (Biram and Mills, 2023). According to the article, corn, cotton, and soybean production risk in southern states can be anywhere from 2 to nearly 11 times higher than that of rice production risk. This is primarily driven by the fact that most all rice production is flood irrigated which provides risk protection against weeds, drought, and wind. With such a low relative production risk, this begs the question of how rice producers should protect themselves against price risk.

Historically, most rice producers in the U.S. have utilized target price programs authorized by the farm bill. The latest target price program is the Price Loss Coverage (PLC) coverage program which triggers a payment rate based on the difference between the national Marketing Year Average Price (MYAP) and the Effective Reference Price (ERP), whenever the MYAP is below the ERP. While some crops are expected to see an increase in the ERP driven by a higher Olympic Average MYAP (e.g., corn and soybeans), the ERP for rice is expected to remain at the Statutory Reference Price of $14.00/cwt. The 2024/2025 MYAP price will likely not fall below $15.00/cwt based on the average of the November 2024, January 2025, and March 2025 Rough Rice futures contracts, suggesting the PLC program will likely not trigger a payment for rice in the 2024/2025 marketing year.

However, there is an opportunity to lock in higher price guarantees through area crop insurance administered by the Federal Crop Insurance Program. In a previous Southern Ag Today article, Fischer and Outlaw (2024) suggest leveraging area crop insurance products such as the Supplemental Coverage Option (SCO) and Enhanced Coverage Option (ECO) with PLC for winter wheat. One price risk management strategy for rice producers would be to leverage a Revenue Protection plan of insurance with SCO, ECO, and PLC. Assuming RMA County yields for rice remain the same or fall compared to their historical average, SCO can provide additional price protection from your individual coverage level up to 86% and ECO can cover from 86% up to 95%. It is worth noting that SCO and ECO will come at a premium cost additional to any underlying Yield Protection or Revenue Protection premium cost.

In Figure 1 below, I provide a visual example of the downside price risk protection SCO and ECO insurance products can provide with an RP policy at the 80% coverage level using an RMA Projected Price of $15.50/cwt. While a rice producer can opt to only choose PLC and forego the crop insurance coverage, PLC faces a maximum payment rate of $7.00/cwt, it provides no farm-level yield risk protection (which is a key feature of all RP crop insurance policies), and it is unlikely to trigger in the 2024/2025 marketing year, as noted above.

Figure 1. Using RP with SCO and ECO crop insurance products to provide a price guarantee for rice. 

References

Biram, Hunter, and Brian E. Mills. “Analyzing the Relative Riskiness of Rice Yields.” Southern Ag Today 3(19.4). May 11, 2023. Permalink

Fischer, Bart L., and Joe Outlaw. “Making the ARC/PLC Election for 2024.” Southern Ag Today 4(3.4). January 18, 2024. Permalink

Biram, Hunter. “The Coordinated Decision of PLC and Federal Crop Insurance in Managing Price Risk in Rice.” Southern Ag Today 4(7.1). February 12, 2024. Permalink

Producers can keep track of their price risk protection through revenue insurance in a given growing season by comparing the Harvest Price to the Projected (Spring) Price determined by USDA-RMA. This article examines the price protection offered by Revenue Protection (RP), Supplemental Coverage Option (SCO), and Enhanced Coverage Option (ECO) crop insurance for corn and rice. 

The liability covered under an RP insurance policy is based on the product of the farm-level Actual Production History (APH), a futures price, and a coverage level. The futures price is based on the higher of the Projected Price and the Harvest Price determined by USDA-RMA. Please visit the RMA Price Discovery Tool to find current Projected and Harvest Prices by location. RP has eight coverage level options to choose from, ranging from 50-85% in 5% increments.

Area-based (i.e., county-level) crop insurance products like SCO and ECO can be paired with Yield Protection (YP), RP, or RP with Harvest Price Exclusion (RP-HPE). The liability insured by SCO and ECO is calculated using the same parameters as RP (e.g., APH and futures prices), with the notable exception being that SCO offers a coverage level of 86%, and ECO offers coverage levels of 90% and 95%.  Unlike RP – which triggers indemnities based on farm-level losses – SCO and ECO trigger indemnities based on county-wide losses. ECO will trigger a full indemnity when county-level revenue losses fall to 86%, and SCO will trigger a full indemnity once county-level revenue falls to the coverage level of the underlying RP or RP-HPE policy.

Consider implications for rice price risk protection in 2023 for the Louisiana Harvest Price at $15.84/cwt. Expressing this price as a proportion of the Projected Price for the same futures contract (i.e., $16.90/cwt) gives us 94%, which implies ECO would begin to trigger assuming harvest yield does not increase. However, assuming average yields, neither SCO nor any coverage level of RP would trigger at the current Harvest Price. Producers might consider purchasing area-based insurance next year, such as SCO or ECO, in addition to their underlying RP or RP-HPE policy since yield risk is not as prevalent in rice compared to other crops grown in the southeast (Biram and Mills, 2023).

Doing the same exercise of finding the proportion of the Harvest Price to Projected Price for corn in Arkansas would give us a percentage of 81% which is found by taking the ratio of the Harvest Price of $4.83/bu and the Projected Price of $5.94/bu (i.e., $4.83/$5.94 = 81%). Under this scenario, ECO at both 90% and 95%, SCO, and RP at 85% would all trigger an indemnity assuming average yields. Extending this exercise to all southeastern states producing corn shows that this pattern continues (Figure 1). Since southern corn producers face more yield risk relative to rice, one might consider adding area insurance to a risk management strategy in 2024.

Implications for marketing unsold grain near harvest depend on the local cash prices being offered in a specific delivery window. Producers with crop insurance can decide to forward contract with delivery in a specific month based on the exercise outlined above. This can be done by taking the ratio of the cash price being offered in the desired month of delivery to the Projected Price and comparing the percentages. If the percentage found using the local cash price is lower than the percentage found using the RMA Harvest Price, then producers can forward contract knowing there is a price guarantee which can be used to offset any non-delivery fees. For example, if the local cash price for corn with September delivery in Arkansas is $4.72/bu, then the ratio would be 80% (i.e., $4.72/$5.94 = 80%), which falls within the 81% ratio found above. This implies that even if there are unexpected harvest losses resulting in non-delivery, there will be an added layer of protection provided by the underlying revenue crop insurance.

Figure 1. RMA Corn Harvest Price as a Percentage of the Projected Price (Sales Closing Date: February 28th and March 15th)

References

Biram, Hunter, and Brian E. Mills. “Analyzing the Relative Riskiness of Rice Yields.” Southern Ag Today 3(19.4). May 11, 2023. Permalink.

Biram, Hunter. “Comparing the Harvest Price and Projected Price in Revenue Protection Crop Insurance for Rice and Corn.” Southern Ag Today 3(35.1). August 28, 2023. Permalink

The Black Sea Grain Deal made it possible for Ukraine to continue to ship goods amid the Russia-Ukraine conflict. On August 1, 2022, five months after the Russian invasion of Ukraine, the first Ukrainian grain ship left the port of Odesa, marking a time when Ukraine safely exported grain, fertilizer, and other products. On July 17, 2023, nearly a year after its implementation, Russia left the deal and will no longer abide by the rules set in place by the Black Sea Grain Deal. We look at which agricultural markets will be impacted and provide implications for each market. 

Ukraine ranked 3^rd among global competitors for corn exports but is projected to fall to 4^th in the 2023/2024 marketing year while ranking 7th in production (USDA-FAS, 2023). Ukrainian corn exports accounted for 15% of global exports in the 2022/2023 marketing year and are projected to drop to 9.6% in the 2023/2024 marketing year (Figure 1).  Despite Ukraine’s relatively high ranking in the corn export market, global ending stocks are projected to increase from 11.71 billion bushels to 12.36 billion bushels, carried by a projected record production of 15.27 billion bushels in the United States. Russian corn exports accounted for a smaller portion of total exports at 2.4% of global exports during the 2022/2023 marketing year, with corn exports projected to fall to 2.1% of global exports in the 2023/2024 marketing year.

The top 3 wheat exporters in the world are Russia, the European Union, and Canada, while Ukraine ranks 7th among global competitors (USDA-FAS, 2023; Figure 2). Ukrainian wheat exports accounted for 7.5% of global exports in the 2022/2023 marketing year and is projected by USDA to drop to 5.0% in the 2023/2024 marketing year. Russian wheat exports accounted for 21% of global exports in the 2022/2023 marketing year and is projected by USDA to increase to 22% in the 2023/2024 marketing year. 

According to the Food and Agricultural Organization, Russia ranks 1st, 2nd, and 3rd in Nitrogenous, Potash, and Phosphate fertilizer exports. At the same time, Ukraine only accounts for 2% of Nitrogenous exports and a smaller amount of Phosphate and Potash fertilizers.  Fertilizer prices increased at the start of the Russian-Ukraine conflict due to Russian supply shocks. Russia’s exports and production are expected to be uninhibited by the Black Sea deal. The same holds for Russian ally Belarus, the third largest global potash exporter behind Russia and Canada.

The initial cancellation of the grain deal on the 17^th did not significantly affect futures as the market likely already accounted for the cancellation. We saw a small rally in the futures prices for corn, soybeans, and soft red winter wheat that returned to market-open price levels by market close. However, Russia escalated Ukrainian export problems on July 18^th by launching a missile strike on the Port of Odesa. Some reports indicate that critical port infrastructure was destroyed, and Russia is trying to stop grain exports (Reuters & The Hill, 2023). Continued attacks on Ukrainian ports could cause supply shocks, increasing the volatility of markets speculating on U.S. crop conditions and weather. Combining the recent missile strikes with a fall in forecasted July precipitation, the harvest-time futures price of corn and wheat have increased by $0.40 and $0.70, respectively, as of July 19th. Recent gains in wheat prices are likely due more to the Ukraine/Russia situation than weather while corn is a combination of both. Moving forward, markets will likely be affected by the Russian/Ukrainian conflict, weather, and crop conditions, increasing price volatility.

Approaching harvest 2023, producers should take advantage of relatively higher corn prices now, before the weather risk premium associated with speculation on weather and crop conditions reduces to zero. As September approaches and winter wheat harvest progresses, the wheat price typically falls due to an influx of market supply and rebounds after the glut of harvest supplies exits the market.

Figure 1. Global Corn Exports by Country (Marketing Years 2019/2020 to 2023/2024)

Figure 2. Global Wheat Exports by Country (Marketing Years 2019/2020 to 2023/2024)

References:

Hunder, Max, and Olena Harmash. “Kyiv Says Russia Attacks Grain Infrastructure with Strikes on Ukraine’s Odesa Ports | Reuters.” Reuters. Accessed July 19, 2023. https://www.reuters.com/world/europe/russia-strikes-ukraines-odesa-port-hellish-attack-official-2023-07-19/.

Robertson, Nick. “Russian Missiles, Drones Strike Odesa Port Just as Grain Export Deal Set to Expire.” Text. The Hill(blog), July 19, 2023. https://thehill.com/policy/international/4105251-russian-missiles-drones-strike-odessa-port-just-as-grain-export-deal-set-to-expire/.

Biram, Hunter, and Grant Gardner. “Implications of the Black Sea Grain Deal Cancellation.” Southern Ag Today 3(30.1). July 24, 2023. Permalink

Photo by Pixabay: https://www.pexels.com/photo/sunset-cereals-grain-lighting-39015/