Author: William E. Maples

On February 15-16, 2024, the USDA held its 100^th Annual Agricultural Outlook Forum. During the forum, USDA revealed its outlook for the domestic agricultural economy and trade for 2024. The outlook included 2024/25 crop year supply and demand projections for grains, oilseed, and cotton. USDA is forecasting lower prices for most major crops this year and growing export competition. Complete outlook reports by commodity can be found at AOF Commodity Outlooks | USDA. An important projection provided at the Outlook Forum is planted acres for major row crops as it serves as an early data point for markets to consider. This article examines planted acreage projections and what they might mean as we look ahead to the March USDA-NASS Prospective Plantings report, which is a comprehensive survey of producer planting intentions and provides a more accurate pre-planting picture of the upcoming year.

 During the USDA Outlook Forum, 2024/25 corn planted acreage was projected at 91.0 million, and soybean planted acreage at 87.5 million. If realized, this would mean 3.6 million fewer acres of corn and 3.9 million more acres of soybeans than last year. Corn acreage is expected to be reduced due to declining prices and elevated production costs. While production costs are lower than the previous year, lower corn prices will result in tighter margins. Domestic crush demand in the United States largely drives the increase in soybean acreage, even though exports are expected to face continued pressure from South American competition. Planted cotton acreage is projected to be 11.0 million acres, compared to 10.3 million acres last year. The relative prices of cotton versus corn and soybeans indicate that cotton is more competitive this year than last. 

 The Outlook Forum projections rely on model estimates and do not include a survey of producers. The USDA’s first survey of producer planting intentions will be conducted in early March and released on March 28^th in the Prospective Plantings report. Figures 1-3 compare the Outlook Forum predictions and the historic Prospective Plantings reports for corn, soybeans, and cotton. Based on an average of the past ten years, the USDA Outlook Forum has done a decent job predicting acreage compared to the Prospective Plantings report. On average, corn planted acres were under-predicted by 290,000 acres, soybeans by 200,000, and cotton by 115,000. In some individual years, corn and soybeans have experienced significant differences. For example, in 2022, the Outlook Forum over-predicted corn acres by 2.5 million acres and under-predicted soybeans by 3 million. Interestingly, the 2024/25 projections match the Outlook Forum projections for corn and soybeans in 2023. Even though the Outlook Forum projection was the same as the Prospective Plantings report for soybeans in 2023, the final panted acres still ended up being 3.9 million less. These projections are preliminary, and market and environmental conditions going forward can change producer planting intentions. Producers should closely monitor these conditions when making marketing decisions over the next month. 

Maples, William E., and Spencer J. Sanderson. “USDA Outlook Forum and Planted Acres.” Southern Ag Today 4(9.1). February 26, 2024. Permalink

Marketing plans are typically made up of two parts: pre-harvest marketing, in which producers market the crop prior to harvest, and post-harvest marketing, in which producers sell bushels during harvest or unmarketed bushels in storage after harvest.  In this article, we discuss how historical pre-harvest price movements can be used as a guide for producers when creating their pre-harvest marketing plans. Figures 1 and 2 contain boxplots that show the distribution of historical percent changes in the harvest-time futures prices for soybeans (November contract) and corn (December contract) from December to each subsequent month using data which spans from 2009-2023. Boxplots are helpful as they allow us to analyze the seasonality of prices and the associated price volatility across the year. In the boxplots, the X represents the average November soybean contract price percent change from December to the corresponding month. The bottom whisker represents the lowest 25% of price changes, the box represents the next 50% of price changes, and the top whisker represents the highest 25% of price changes. The line separating the box represents the median; 50% of observations lie below, and 50% lie above. The black dots represent outliers, values at the extreme end of the data. 

Figure 1 indicates that the highest average soybean price occurs in July, where the price is approximately 5% higher than in December; however, the median is approximately 0%, indicating that the price is only higher 50% of the time. On the contrary, the month of June has a slightly lower average price increase at 4%, but less downside risk. An interesting result for soybeans is the outliers in February and March, corresponding to the Brazilian soybean harvest window. We hypothesize that Brazilian crop or harvest issues can provide U.S. soybean producers with opportunities to market grain crops at abnormally high prices with respect to the December price. 

 Figure 2 indicates the summer months again provide the highest average corn price change, with June being the highest on average. We again find that with higher price potential comes more price variability. The May and June median price changes are near 0%, indicating equal upside and downside price risk. After June, the median becomes more negative, indicating that prices are likely to drop with expected new crop production. In May, the upside price potential ranges from 0% to 35%, while the downside ranges from 0% to -15%. 

Figures 1 and 2 put price risk in perspective as it pertains to pre-harvest marketing plans. On average, prices are higher in the summer than in December; however, these higher prices carry a significant amount of downside risk. For example, if a producer is trying to decide if they should market corn in May. The boxplots would indicate that if the price is 15% greater than the December price, price movements have been greater than at least 75% of price movements historically. Creating a solid signal to lock in the higher price. These charts may also indicate the usefulness of option contracts, such as establishing a futures market price floor through purchasing a put option or building an option spread strategy. The summer months have wide trading ranges, by using an option producers can lock in a price floor but leave themselves open to upside potential. 

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

On May 12^th, USDA released the latest World Agricultural Supply and Demand Estimates (WASDE) report. The May WASDE is significant as it provides USDA’s first official projections for the 2023 marketing year. The report provides annual forecasts for the supply and use of various crops based on marketing years, which start August 1 for cotton and rice and September 1 for corn and soybeans. It should also be noted that projections for production are based on the acreage reported in the March 31^st USDA Prospective Plantings report and yield forecasts based on trend models or historical yields depending on the crop. Thus, the projections in Table 1 and discussed below will change as the growing season and marketing year advance. 

U.S. corn production is projected at 15,265 million bushels, based on 84.1 million harvested acres and a national average yield per harvested acre of 181.5 bushels. If realized, this would be a record yield and level of corn production. Combined with carryover stocks from last year, the total U.S. corn supply is projected to be 10% higher than in 2022. This supply increase is offset by a 5% increase in total use. Feed use is projected to increase by 375 million bushels, and ethanol to increase by 50 million bushels. Exports are projected to be up 18%, at 2,100 million bushels. Corn ending stocks are projected at 2,222 million bushels, a 57% increase from 2022. The average farm price is projected at $4.80 per bushel. 

Like corn, U.S. soybeans are projected to see higher supplies and lower prices in 2023. U.S. soybean production is projected to be 4,510 million bushels, a 5% increase from 2022. Most of the production increase is due to a higher expected yield of 52 bushels per harvested acre – also a record if realized. On the demand side, domestic crushings are projected to increase by 90 million bushels from 2022, but exports are projected to decrease by 40 million bushels. With supplies outpacing demand, ending stocks are projected at 335 million bushels, a 56% increase. 

U.S. cotton is projected to plant less acreage in 2023 but will see higher production than in 2022. The 2022 cotton crop saw a record level of abandonment, with 13.76 million acres planted but only 7.31 million acres harvested, mainly due to dry conditions in Texas. Currently, USDA projects 11.26 million acres planted with 8.71 million acres harvested. It will be important to keep an eye on acres abandoned as the year advances, with growing conditions in West Texas remaining dry. In the May WASDE, U.S. cotton production is projected at 15.50 million bales, a 7% increase from 2022. On the demand side, exports are expected to increase by 0.9 million bales to 13.5 million bales. With higher exports, cotton ending stocks are projected to decrease by 0.20 million bales to 3.30 million bales. The average farm price is projected to weaken to 78 cents per pound. 

Lastly, the carryover of long-grain rice from 2022 is low at 16.8 million hundredweight but is more than offset by higher production. Long-grain rice production is projected to increase by 11% to 142 million hundredweight. Exports are expected to increase by 4.0 million hundredweight to 52 million, but any further expansion is expected to be challenged by competition from South America. Ending stocks are projected to remain flat at 16.8 million hundredweight, the same as in 2022. Like other crops, the average farm price is projected lower to $15.00 hundredweight. Unlike other crops, though, the long-grain rice price is projected to remain above its 2021 price. 

Overall, the USDA WASDE report projects a bearish supply and demand picture and lower prices compared to last year. There remains a large amount of uncertainty for the 2023 crop; however, USDA’s initial projections indicate lower prices for many southern row crops. Actual planted acreage, weather, and crop growth are some of the main factors that will determine if lower prices becomes a reality.

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Maples, William E. “Higher Supplies and Lower Prices Projected for U.S. Crops in 2023.” Southern Ag Today 3(20.1). May 15, 2023. Permalink

As the soybean harvest ends in the United States, it is time for the markets to look to the Southern Hemisphere. Brazil is currently the top soybean producer and exporter in the world and, thus, a significant competitor of the United States in the global export market. Since Brazil is in the Southern Hemisphere, the soybean growing season is opposite that of the United States. In general, soybean planting occurs from October to December, followed by a growth stage in January and February, and harvest in March through June. The timing of production will vary by region. The four largest contributors to soybean production in Brazil are Mato Grosso (28%), Parana (19%), Rio Grande do Sul (14%), and Goias (10%). The development of the Brazilian soybean crop over the coming months will influence any potential spring price rallies.

Brazil is projected to produce a record 5.58 billion bushels of soybeans (Figure 1), which is 9% higher than their current record from 2020/21. Last year’s soybean crop was initially expected to result in record production, but dry conditions ultimately dampened production to 4.67 billion bushels. Planting was able to start earlier than normal this year, and Brazil is projected to plant 105.8 million acres. Growing conditions currently appear better than last year, with most major growing areas in Brazil receiving adequate rainfall. There is some concern about dry and hot weather in the south of Brazil that could impact production if it continues. Brazilian yield is projected at 52.6 bushels per acre compared to the U.S. yield of 50.2 bushels per acre.

Since 2012, Brazil has consistently been the largest soybean exporter overtaking the United States. Brazil has, on average, accounted for 51% of world soybean exports over the last five years, and the U.S. averaged 35% of world exports over the same period. In 2022/23, Brazil is projected to export a record 3.29 billion bushels. This projection is based on a sizeable available supply and a favorable exchange rate for the Brazilian real. Brazil is also projected to have a record-high domestic crush of 1.90 billion bushels driven by ample supplies and high demand for soybean products. 

Weather over the coming months will be critical to Brazil meeting these record production and export projections. As seen last spring, soybean markets responded to production difficulties in Brazil with a price rally through January and February. World soybean ending stocks were at a six-year low coming out of the 2021/22 crop year. With strong global soybean demand, the development of dry conditions in Brazil could lead to a strong rally this spring. On the other hand, if record production is achieved U.S. prices are likely to fall. U.S. producers must keep an eye on Brazil and be prepared to take advantage of marketing opportunities. 

Figure 1. Brazil Soybean Production, Exports, Crush, and Ending Stocks: 2000-2022

Author: William E. Maples

Assistant Professor and Extension Economist 

Department of Agricultural Economics 

Mississippi State University 

will.maples@msstate.edu

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Maples, William E.. “What to Expect from Brazil’s Soybean Crop?” Southern Ag Today 2(52.1). December 19, 2022. Permalink

The upcoming winter months provide an opportunity for row crop producers to review their marketing plans. A marketing plan is a valuable tool that helps producers manage emotions when making marketing decisions. A marketing plan is an outline of price, date, and quantity objectives used to generate a reasonable return given the existing market conditions. A producer should, in practice, have two separate marketing plans—a pre-harvest and post-harvest plan—as marketing decisions in both instances offer different challenges. This article will discuss developing pre-harvest plans.  A pre-harvest marketing plan allows producers to take advantage of the normally higher spring and summer prices as seen in Figure 1. When developing a pre-harvest plan, producers should consider some basic items.

A common question when developing a pre-harvest marketing plan is how much should be sold. A good rule of thumb is to not sell more than crop insurance covers. For example, if a producer has an expected production of 100,000 bushels of corn protected by revenue protection insurance at the 75% coverage level, then the maximum amount that the producer should sell pre-harvest is 75,000 bushels. The amount of expected production a producer sells pre-harvest will be influenced by their risk tolerance level, with risk-averse producers making fewer sales. Once a producer has determined the amount of pre-harvest sales, they will want to split sales into smaller more manageable units of 1,000 or 5,000 bushels. Splitting sales into smaller units will provide the producer with greater flexibility in marketing decisions. 

A pre-harvest marketing plan should also include price targets and sale dates for the smaller sales units mentioned above that will force the producer to be proactive about pricing. The most important price target is the minimum price target, which is the lowest price at which the producer would make a pre-harvest sale. A common suggestion is to set the minimum price at the cost of production. The maximum price target should be a realistic price, determined by historical price movements and data, that producers can sell for.  The maximum price is less important than the minimum price because as you will see below, sales dates will force a sale if the price is not reached. Sales units should then be split between price targets, varying between the minimum and maximum price, which reduces the price volatility faced by the producer and hence the volatility of expected income. 

Along with a price target, each sale unit in the marketing plan should have a pre-determined sale date. The sale date implies if a price target for a sale is not reached by the sale date, the producer will still make the sale. When selecting sale dates, producers should consider the price seasonality of the commodity. Higher price targets should be coupled with sale dates that correspond to the time of year the commodity price is typically the highest. 

The final important piece is knowing, understanding, and choosing the marketing tool that will be used to make the sale. Local elevators will offer a variety of contracts to sell grain, or producers can use various futures and options strategies. Producers should consider incorporating multiple tools into their marketing plan to protect against varying types of risks associated with the tools. We do not have room to address all the available tools here, but there have been multiple Southern Ag Today articles discussing available tools for the reader’s reference. (Fences Aren’t Just for Cattle | Southern Ag Today; Marketing Strategies if Producers Do Not Have Access to On-Farm Storage | Southern Ag Today; Managing the Price Risk Gap between December Corn Futures and Projected Crop Insurance Prices | Southern Ag Today).

Figure 1. Average Percent Change in the Monthly National cash Price Relative to the January Price for Corn, Cotton, and Soybeans, 2010-2021

Author: William E. Maples

Assistant Professor and Extension Economist 

Department of Agricultural Economics, Mississippi State University 

Email: will.maples@msstate.edu

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