Author: J. Mark Welch

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

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

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

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. 

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^[1] Days of use on hand at the end of the marketing year = ending stocks ÷ (total use/365 days)

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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.

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Welch, J. Mark. “The U.S. Corn Market: a Look Ahead and Lessons from the Past“. Southern Ag Today 3(27.1). July 3, 2023. Permalink

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.

Figure 1. 2023 Corn Planted Acreage, “Prospective Plantings”

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)

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)

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

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.

Figure 4. South’s Share of U.S. Corn Production

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References

USDA, NASS (a), “Grain Stocks, “Prospective Plantings, Rice Stocks Agricultural Statistics Board Briefing”, March 31, 2023, https://www.nass.usda.gov/Newsroom/Executive_Briefings/2023/03-31-2023.pdf

USDA, NASS (b), “Prospective Plantings”, March 31, 2023, https://downloads.usda.library.cornell.edu/usda-esmis/files/x633f100h/rv044597v/gx41nz573/pspl0323.pdf

USDA, NASS (c), Quick Stats, accessed April 18, 2023,  https://quickstats.nass.usda.gov/.

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Welch, Mark. “The Importance of Corn Production in the South to the U.S. Corn Supply.“ Southern Ag Today 3(19.1). May 8, 2023. Permalink

Photo by David Dibert: https://www.pexels.com/photo/corn-plantation-during-daytime-5001990/

A key factor in the development of a new crop price forecast is how many acres farmers plant of each crop.  USDA surveys farmers each year and reports early season acreage intentions in the Prospective Plantings report, released at the end of March. Then at the end of June, the Acreage report from USDA details the area of each major crop planted.  Since 2006, U.S. farmers have planted about 244 million acres to corn, soybeans, wheat, cotton, sorghum, and rice.  Corn and soybeans account for the largest crop areas planted, reaching 181 million acres combined in 2021 (Figure 1).   

Figure 1. U.S. Planted Acres

From an economic standpoint, relative crop profitability is an important driver of planting decisions. One indicator of that profitability is the relative price of one 3.11commodity to another.^[1] Given the large area impacted and the typical rotation between these two crops, the soybean-to-corn price ratio is widely watched as providing insight into what farmers ultimately plant each spring. 

An aspect of how the price relationship between soybeans and corn impacts planting decisions can be seen in the relationship of the soybean-to-corn price ratio and the number of corn acres planted in excess of soybeans each year.  In general, when the price ratio of Risk Management Agency (RMA) soybean-to-corn projected prices, calculated each February^[2] is relatively low, corn acres increase at the expense of soybeans. At high ratios, soybean acres increase relative to corn (Figure 2).    

Figure 2. Corn Acres Minus Soybean Acres and RMA’s Soybean-to-Corn Projected Price Ratio

The average price ratio from 2006 to 2022 is 2.36 and the average number of corn acres over soybean acres is 10 million.  At the extreme, in 2007 the soybean-to-corn projected price ratio was 1.99 and farmers planted 93.5 million acres of corn and 64.7 million acres of soybeans, a difference of 28.8 million acres (Figure 2). When the price ratio has been at its highest, 2.57 to 2.59, we have seen plantings of corn and soybeans about equal (2017 and 2018). But the price ratio at this level is also associated with 6 million more acres of corn than soybeans in 2021.  Corn acres relative to soybean acres were much smaller than expected in 2022, a difference of only 1.1 million acres despite a price ratio of 2.43.  It is likely that risks associated with high fertilizer prices and product availability had an impact on farmers’ planting decisions last year given higher fertilizer requirements for corn compared to soybeans. 

The RMA soybean to corn base price ratio for 2023 is 2.33 ($13.76 soybeans, $5.91 corn). If the total planted area remains constant, that suggests an increase in corn acres and a decrease in soybean acres in 2023 compared to 2022.  In other years when the price ratio rounded to 2.3 (2010, 2013, 2015, and 2016), the range of corn acres over soybeans were 5.3 million to 15.6 million.  If corn and soybean acres again total about 180 million, the low estimate of corn acres for 2023 would be 92.7 million acres and the high estimate of soybean acres 87.4 million acres.  

Of course, other factors besides relative prices matter when farmers make their planting decisions. Among these are crop rotations that boost productivity and input efficiency, input costs, and of course, weather. And in the South, cotton is a major non-grain competing crop enterprise whose price and profitability are not part of this analysis.   But, the price ratio between major crops may provide a key piece of information in forming expectations of what upcoming acreage reports may reveal. 

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^[1] For more on relative price relationships between commodities, see Rabinowitz, Adam. “The Peanut-Cotton Price Relationship.” Southern Ag Today 3(2.1). January 9, 2023.

^[2] RMA Price Discovery, base prices for 2023, conventional practices with a March 15 sales closing date, RMA Price Discovery – Home (usda.gov).

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Welch, Mark. “The Soybean to Corn Price Ratio as a Guide to Farmers’ Planting Decisions.” Southern Ag Today 3(11.1). March 13, 2023. Permalink

Since the fall of 2020, grain prices have risen significantly (Figure 1). Production shortfalls in the U.S. (derecho windstorm in August 2020 and drought in 2022), drought in South America, increasing feed demand in China, followed by Russia’s invasion of Ukraine, pushed cash grain prices, in many cases, to near record highs. Late in 2022, cash prices were back down to pre-Russian invasion levels, but still historically high. 

Price forecasts for the 2023 crops will rightly focus much attention on planting intentions and yield prospects. High prices in the U.S. and globally provide market incentives for farmers to increase production.

But the other side of the supply and demand balance sheet deserves attention as well. Looking at the 2022/23 marketing year corn market in the U.S., feed and residual use and fuel use are the two largest use categories, 5.3 billion and 5.275 billion bushels, respectively. Next are exports at 2.075 billion bushels (Figure 2). Market conditions point to increased production in 2023, but what about use?

For the feed use category, data from USDA shows a decline in Grain Consuming Animal Units (poultry, pork, and cattle) over the last several years (USDA, ERS 2022). Gasoline demand, the foundation of ethanol use, is dampened by newer vehicles that use fuel more efficiently, or, in a growing segment of the automobile industry, do not use any gasoline at all (EIA, 2022). Export demand is impacted by the availability of exportable grain supplies from other major production areas, the value of the dollar, and global economic growth prospects. Grain use can go down when incomes and GDP slow down or decline. Global economic growth prospects will be slowed by the continued turmoil of the Russian invasion of Ukraine, broad inflation pressures, and lingering COVID pandemic effects (IMF, 2022). 

Early season grain budgets for 2023 show high prices and high input costs resulting in tight margins for farmers in many production areas. An increase in grain supplies in 2023 relative to use could result in lower prices that squeeze these margins even more as we head into summer and fall.   

Figure 1. Texas Cash Corn, Cash Sorghum, and Cash Wheat, Weekly, July 2020 to December 2022

Figure 2. U.S. Corn Use, 2005/06-2022/23

References

Energy Information Administration. “This Week in Petroleum”, available online at https://www.eia.gov/.

International Monetary Fund. “World Economic Outlook Report October 2022”, available online at https://www.imf.org/en/Home.

USDA, ERS. “Feed Grains Database”, available online at https://www.ers.usda.gov/data-products/feed-grains-database/.  

Author: Mark Welch

Professor and Extension Economist Grain Markets and Marketing, Risk Management, Production Economics

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Welch, Mark. “The Demand Side of the Supply and Demand Balance Sheet.” Southern Ag Today 3(3.1). January 16, 2023. Permalink

The Southern region of the United States is more associated with cotton production than wheat. Yet, from 2005 to 2022, a time of high grain prices associated with increased production of biofuels, wheat planted acres in the South, on average, have exceeded that of cotton (Figure 1).  Wheat acres and production in the region are dominated by Oklahoma and Texas (Figure 2); Texas also leads cotton planted acres, by far, followed by Georgia (Figure 3). In 2022, the South will account for about 20 percent of total U.S. wheat production (USDA, NASS, Crop Production, August 2022). 

The year with the most wheat acres in the South in this ‘biofuel era’ is 2013 at 17.3 million. That year saw the highest plantings in seven of the fourteen states in the region for this period of time: Alabama, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia. Oklahoma and Texas are not on this list. Acreage increases across multiple states can add up to make a significant difference in total wheat area in the region.  

Wheat is a crop with relatively high yield potential across the South. This becomes especially important when drought impacts major producing states.  With drought lowering harvested acres and yields, Oklahoma and Texas are projected to produce about 109 million bushels of wheat in 2022 from 4 million harvested acres and 9.8 million acres planted (Figure 4).  The states of Kentucky, Tennessee, North Carolina, Maryland, and Virginia combined to plant about 2 million acres of wheat for 2022 and will match the production total in Oklahoma and Texas. Kentucky’s production alone is 90 percent of that of Texas.  

Years with high wheat acres in the South tend to be associated with years of relatively low cotton acres (Figure 5).  Crop acres are positively correlated with the price received in the previous season (Figures 6 and 7). Wheat acres are negatively correlated to higher cotton prices (Figure 8).  Additionally, wheat acres tend to go up following years of high abandonment of cotton in Texas and Oklahoma (abandonment rates in other Southeastern states are minimal) (Figure 9).  In 2022, Texas and Oklahoma farmers planted 8.6 million acres of cotton, only to harvest 2.8 million (a harvested-to-planted percentage of 33 percent). 

Looking ahead to 2023, what are wheat acreage prospects in the South given:

• record high wheat prices^[*]
• record high cotton prices^*, and
• high cotton abandonment in Texas and Oklahoma? 

A regression model composed of these independent variables and recent trends in wheat planted acres shows that wheat planted area:

• is trending lower,
• goes up when the price of wheat the previous year goes up,
• goes down when the price of cotton the previous year goes up,
• goes up when percent of cotton harvested in Texas and Oklahoma the previous year goes down.   

Based on these variables, the model estimate of wheat acres in the South for 2023 is 14.4 million, up from 12.7 million acres planted in 2022 (Figure 10). Many factors will shape farmers’ planting decisions in 2023, among them persistently high input costs, lingering drought, returns from other crops such as corn and soybeans, and price prospects given global economic and geopolitical turmoil and uncertainty. This model suggests that significant factors are in place for an increase in wheat acres in 2023, maintaining wheat as an important crop enterprise in the South. 

Figure 1. Southern region planted wheat and cotton acres, 2005-2022

Figure 2. High, low, and average winter wheat acres in the South, 2005-2022

Figure 3. High low, and average cotton acres in the South, 2005-2022

Figure 4. Southern region wheat production 2022, million bushels

Figure 5. Wheat acres and cotton acres in the South, 2005-2022

Figure 6. Wheat acres in the South and the previous year’s wheat price, 2006-2022

Figure 7. Cotton acres in the South and the previous year’s cotton price, 2006-2022

Figure 8. Wheat acres in the South and the previous year’s cotton price, 2006-2022

Figure 9. Wheat acres in the South and percent cotton acres harvested the previous year in Texas and Oklahoma, 2006-2022

Figure 10. Southern region wheat acreage model

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^[*] U.S. Season Average Farm Price, World Agricultural Supply and Demand Estimates, September 2022

Welch, J. Mark. “Wheat Acres in the South“. Southern Ag Today 2(43.1). October 17, 2022. Permalink