USDA’s supply and demand balance sheet for U.S. corn has a feature not seen in the corn market since the beginning of the 2019 growing season: carryover from the previous crop exceeding 2 billion bushels. That level of beginning stocks has a significant price moderating effect. In inflation adjusted 2023 dollars, the season average farm price has not been higher than $4.33 per bushel in the three years since 2006 during which beginning stocks exceeded 2 billion bushels.
Figure 1. Corn beginning stocks and that season’s average real cash farm price ($2023)
Source: USDA, WASDE
With a 2024 average yield of 180 bushels per acre (trend line estimate), planted acres could decline from about 95 million in 2023 to just over 87 million in 2024, and the total supply of corn from one season to the next would be little changed.
Table 1. 2023 U.S. corn supply forecast and 2024 alternative projection
Season
USDA November 2023 Forecast
2024 Alternative Projection
Change
Planted, mil ac
94.9
87.9
-7.0
Harvested, mil ac
87.1
80.3
-6.8
% Harvested
91.8
91.3
-0.5%
Yield, bu/ac
174.9
180
5.1
Million bushels
Beginning Stocks
1,361
2,156
795
Production
15,234
14,445
-789
Imports
25
25
0
Total Supply
16,621
16,626
5
Of course, supply is only one side of the balance sheet. Lower corn prices could stimulate increased corn use. But planted acreage above 87 million would also significantly augment the corn supply. In the recently released long-term projections, USDA projects planted corn acreage in 2024 at 91.0 million, a yield of 181.0 bushels per acre, and ending stocks (beginning stocks for the 2025 growing season) of 2.616 billion bushels, the most since 1988 (USDA, 2023).
We are just closing the bin door on the final bushels of the 2023 corn crop, but it is not too early to evaluate pricing opportunities for the 2024 corn crop given projections (what might happen) and forecasts (what we expect to happen) around acres, yield, and use.
References
USDA, Office of the Chief Economist, World Agricultural Supply and Demand Estimates, November 9, 2023. USDA. Long-term Agricultural Baseline Projections, November 7, 2023, available online at https://www.usda.gov/oce/commodity-markets/baseline
World wheat production exceeded world wheat consumption for 7 out of 8 marketing years from the 2013/14 marketing year to 2019/20. The stocks-to-use ratio as measured by days of use on hand at the end of the marketing year increased from a 104-day supply to 146 days on hand over the same period. Since 2020/21, we have seen four consecutive years of total use greater than production. Days on hand have subsequently fallen back to a 119-day supply. During this period, Russia invaded Ukraine in February 2022, raising concerns over exportable wheat supplies from the critical Black Sea wheat producing region.
As world wheat supplies tightened, cash wheat prices doubled from the summer of 2020 to the fall of 2021, from just under $4 per bushel to $8, then to over $12 in the months after the invasion. Prices have since fallen back to levels last seen in the summer of 2021 (the early stages of the 2021/22 marketing year). This price retracement has occurred even though world days of use on hand at the end of the marketing year are lower, and the conflict in Ukraine continues.
Figure 1. Texas Cash Wheat Prices, weekly
A key factor behind prices moving lower despite tightening world wheat fundamentals is the continued movement of wheat from the Black Sea region. In the marketing year prior to the invasion, Russia and Ukraine exported 56 mmt of wheat, 28% of world wheat exports. Current estimates for the 2023/24 marketing year are for combined exports of 60 mmt, 29% of the world total.
This export total is a result of record wheat exports from Russia and a 50% reduction in exports from Ukraine. Russia has gone from virtually no wheat exports in the 2000/2001 marketing year to a projected 49 mmt in the 2023/2024 marketing year. (Figure 2) Export capability comes from a 50% increase in production over the last 10 years. Further, Russia has increased production by 10 million harvested acres since 2013, and increased yields from 33 to 47 bushels per acre.
Figure 2. Russia Wheat Production, Exports, Consumption, and Ending Stocks
Russian wheat supplies are of increased importance to the world wheat market. Russia’s wheat exports have increased against a backdrop of tightening world wheat fundamentals. Wheat prices have fallen as wheat exports continue from the Black Sea region, even though the supply and demand situation for world wheat is tighter than before the Russian invasion of Ukraine. In the current world wheat supply and demand environment, any substantial limitation or reduction in exportable wheat supplies from Russia (e.g., due to reduced wheat production, export policy, or geopolitical forces) would likely result in a significantly amplified price response.
When we talk about wheat production in the south, we often think of the top wheat planting states of Texas and Oklahoma. Yet, in the last two years, with drought plaguing the Southern Plains, wheat production in other southern states has played an important role in the overall supply of U.S. wheat[1]. In 2022, winter wheat production in the south accounted for 20% of total U.S. winter wheat production. That increased to 23% in 2023.
This relationship was highlighted in USDA’s August Crop Production Agricultural Statistics Board Briefing on August 11, 2023. Updated yield information for the 2023 winter wheat crop showed record wheat yields in eight states, five of them in the south: Kentucky, Maryland, North Carolina, Tennessee, and Virginia.
Compared to 2022, U.S. winter wheat production in 2023 is up 124 million bushels with an additional 2.036 million acres harvested. Of these numbers, the south accounts for 55 million bushels (45% of the increase in U.S. production) on an increase in harvested acres of 1.015 million (50% of the increase in U.S. harvested area). Strong crop insurance prices and favorable futures market offerings supported an increase in U.S. wheat acres in 2023 compared to 2022. The Risk Management Agency’s (RMA) base insurance contract price for soft winter wheat increased from $7.14 in 2022 to $8.40 in 2023. For hard winter wheat, the price increase was from $7.08 to $8.79 (USDA, RMA, 2023).
Outstanding yields in southern states outside of Texas and Oklahoma drove the production increase in 2023. Production was 139 million bushels, up 24 million bushels from 2022. Harvested acres in these states were up from 1.630 million to 1.845 million acres, an increase of 215,000. This is a 21% increase in production on a 13% increase in harvested acres.
Wheat production numbers struggled again in 2023 in Oklahoma and Texas. While harvested acres in Oklahoma were up 100,000 in 2023 compared to 2022, the average yield per acre was down 1.0 bushel to 27.0, the lowest average reported by USDA for wheat states in the August Crop Production report. Wheat planted acres in Texas increased sharply in 2023 (5.3 million to 6.7 million, the highest in over 30 years) but the area harvested was only 30% of the planted total. In a normal year, about half of the wheat acres planted in Texas are harvested for grain.
In the last five years, compared to production in Texas and Oklahoma, winter wheat production from Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Tennessee, and Virginia, has increased from about 75 million bushels, just over 40% of that produced in Texas and Oklahoma, to over 130 million bushels, on par with Texas and Oklahoma production (Figure 1 and Figure 2).
Figure 1. Wheat production in the south: Texas and Oklahoma compared to other southern states (Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Tennessee, and Virginia)
Source: USDA, NASS
Figure 2. Wheat production in the south, 2023, million bushels
Source: USDA, NASS
The south is well suited for wheat production in that the longer growing season in the region allows for planting wheat after traditional spring planted crops like soybeans and then back to spring crops the following year without missing a growing season or disrupting rotations.
This is not to say that wheat produced in one region of the south can always substitute for the other. Texas and Oklahoma produce primarily hard red winter wheat while soft red winter wheat is the dominant class in the rest of the south. Each has particular baking and milling characteristics that make it well suited for particular uses and products. But in terms of overall U.S. wheat production, and the influence that number has on prices, the south as a whole plays an important role.
Wheat is a crop with a relatively high yield potential in the south. This becomes especially important to the U.S. wheat supply when drought impacts other major producing wheat states. In addition, wheat in rotation with other crops can aid in controlling weeds, disease, and insects. Wheat can serve as a cover crop to improve soil health and in many areas, can be double cropped for added income potential. All important issues for southern agriculture.
[1] Southern wheat production includes these states reported by USDA in the August Crop Production report: Arkansas, Kentucky, Maryland, Mississippi, North Carolina, Oklahoma, Tennessee, Texas, and Virginia.
USDA’s May 2023 World Agricultural Supply and Demand Estimates (WASDE) included the first official estimates for the 2023/24 marketing year. USDA’s forecast reflected the impact of economic fundamentals on the corn market: recent years of high corn prices have increased incentives for supply and disincentivized use.
The May 2023 WASDE projected a sharp increase in the stocks-to-use ratio for U.S. corn compared to the previous marketing year. This ratio, measured by days of use on hand at the end of the marketing year[1], had been below the critical 40-day threshold for the past three years. But with a 3.4 million acre increase in planted acres and a record projected corn yield of 181.5 bushels per acre, corn supplies in 2023 were estimated to increase by more than 10 percent compared to 2022/23 (Table 1). Total use was estimated to increase by about 5 percent (mostly feed use and exports, fuel use little changed) resulting in a 5% net increase in corn supply. The price impact of this increase was a 27 percent decrease in price, from $6.60 per bushel down to $4.80.
Table 1. U.S. Corn Supply and Use, World Agricultural Supply and Demand Estimates, May 2023
*record high USDA, Office of the Chief Economist (OCE), May 12, 2023
Since the May 2023 WASDE, drought conditions have worsened considerably across the Corn Belt. While storms brought much-needed rain to much of the Midwest last week, hurricane-force winds also wreaked havoc, with the extent of the damage still being assessed. Prior to last week’s storms, early season corn condition ratings were the lowest they have been in 16 years, even lower than the ratings of 2012. Near record low crop condition ratings make the likelihood of a record 181.5 bushel/acre yield highly improbable. Looking at the relationship between days of use on hand at the end of the marketing year and the U.S. corn season-average farm price (current $2023) in the biofuel era (2006 and forward), we can derive an estimate of the resulting farm price from lower yield estimates (Figure 1).
USDA’s projected farm price with a 181.5-bushel crop is $4.80 per bushel. Holding all other supply and demand factors constant, a yield of 176.5 bushels per acre (very near the current record high corn yield of 176.7 bushels in 2021) lowers the carryover to a 45.4-day supply (compared to the May 2023 estimate of 56 days; Table 1). The price associated with that level of carryover would be about $5.00 to $5.50. A yield of 173.3 bushels, the same as 2022, lowers days of use on hand to a 38.6-day supply and a corresponding price of around $6.00 per bushel.
Figure 1. U.S. Corn Average Farm Price (real $2023) and U.S. Days of Use on Hand at the End of the Marketing Year
Source: USDA, WASDE 5/12/2023
Similar fundamentals in the corn market were in place in 2012. Prices reached succeeding record highs in 2010 and 2011. In May 2012, USDA projected an increase in the corn carryover from an estimated 24.5-day supply in the 2011/12 marketing year to a projection of 49.8-days for the new crop (Table 2). The yield estimated at the time was a record 166-bushel/acre crop. The estimated farm price was $4.60 per bushel, down from $6.20 the prior year.
The drought of 2012 lowered the U.S. corn yield to 123.4 bushels and the 2012/13 marketing year carryover down to 27.1-days, below the realized 2012/13 carryover number of 28.8-days. The drought of 2012 caused one more year of high corn prices before price fell to $4.46 in 2013, on the way to $3.36 by 2016 and 2017.
Table 2. U.S. Corn Supply and Use, World Agricultural Supply and Demand Estimates, May 2012
*record high USDA, Office of the Chief Economist (OCE), May 10, 2012
Before we know the final carryover numbers and prices for the 2023 corn crop, we will have to see how the growing season progresses. If conditions improve, we are likely looking at price levels below those of 2022. However, if it stays dry, we may postpone downward price movement and be presented with profitable pricing opportunities during both the 2023/24 and 2024/25 marketing years.
[1] Days of use on hand at the end of the marketing year = ending stocks ÷ (total use/365 days)
References
USDA, Office of the Chief Economist. World Agricultural Supply and Demand Estimates (WASDE). May 10, 2012 and May 12, 2023, https://www.usda.gov/oce/commodity/wasde.
USDA’s Prospective Plantings report on March 31 showed U.S. farmers intend to increase corn acres from 88.6 million in 2022 to 92.0 million in 2023. Of the 3.4-million-acre national increase, 865,000 acres or about 25%, are in the South: Alabama, Arkansas, Georgia, Florida, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia. Of these 13 states, 10 show increases of 10 percent or more (Figure 1). Only Texas and Florida show a decrease in corn acres year to year. One influence for an increase in corn across the South in 2023 was that the harvest futures price of corn this winter and early spring was high relative to the harvest futures price of cotton. The 10 states with an increase in corn acres decreased cotton acres by 789,000. Texas farmers indicated they intend to plant 100,000 fewer acres of corn, 1.650 million fewer acres of cotton but 1.4 million more acres of wheat and increase hay harvested area by 610,000 acres.
The South planted 9.370 million acres of corn in 2022. The prospective plantings survey showed intentions to plant 10.235 million in 2023.
In 2000, the average corn yield in the South was 120.8 bushels per acre compared to 136.9 bushels per acre nationally. Since that time, corn yield increases in the South have kept pace with the rate of corn yield increases nationally, both about 1.8 bushels per year (Figure 2). Notable is the greater degree in yield variability in the South compared to the national average. In the 23 years since 2000, corn yields in the South have been above or below the trendline yield by more than 10% seven times: -14%, 2002; +11 %, 2004; -15%, 2011; -12%, 2012; +13%, 2013; +11%, 2014; -11%, 2022. The national corn yield has only been above or below trend by 10% or more twice in that same period of time: +11% in 2004; -22% in 2012.
Figure 2. Corn Yields: South and U.S. with trendlines and projections to 2023 (bushels r acre)
USDA, NASS, 2023c
Trendline yield growth in 11 southern states has exceeded the national average, three below average – NC, OK, and TX (Figure 3). Texas, the state with the largest corn acreage in this region, has essentially had no change in average yields since 2000.
Figure 3. Trendline Yield Increase, 2000 to 2022 (bushels per acre)
USDA, NASS, 2023c
Based on the prospective plantings survey, 10-year average percent harvested calculations, and the trendline yield projection, corn production in the South would increase by 308 million bushels in 2023 compared to 2022.
Table 1. 2022 Corn Production in the South with Projections for 2023
*projected
Since 2000, corn production in the South has averaged 8.9 percent of total U.S. corn production, with a low of 7.5 percent in 2006 to a high of 11.0 percent in 2013 (USDA, NASS, 2023c) (Figure 4). As a share of total U.S. production, corn in the South increases from 8.3 percent in 2022 to 9.7 percent projected for 2023. This percentage is consistent with the increasing importance of southern corn production to the U.S. corn supply. However, the broad range of growing conditions across the South means yield variability in that supply is more likely year to year.
