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
It is important for farmers to have accurate knowledge of their costs of production. Having a historical baseline of production costs gives producers a standard for managing their operation. Accurate knowledge of production costs is also the basis for developing a marketing plan, i.e., identifying break-even price levels to target your price risk management or selling.
There are tools available to assist producers. There are commercial software products that provide useful database management and financial calculations. Some Extension agricultural economists provide support using standard accounting programs like Quickbooks. Extension agricultural economists in major cotton producing states also publish planning budgets, often in spreadsheet formats, to guide producers in developing their own customized cost and returns estimates. Lastly, the USDA Economic Research Service (ERS) also conducts regular grower surveys of production costs, by region, and publishes research reports based on this information (Figure 1).
Figure 1 summarizes annual data on U.S. average annual cotton production costs. The data depict two measures of historical profitability: 1) short run profitability, reflected as the value of cotton production less specified variable costs, and 2) long run profitability, calculated as the value of cotton production less specified variable and fixed costs. The value of production shown does not include farm program payments or crop insurance indemnities.
On the face of it, these data reflect U.S. cotton as a marginal proposition. While there appears to be an economic rationale to operate in the short run, and partially contribute to fixed costs, the long run profitability implications of U.S. cotton appear poor. The possible implications for long term viability of U.S. cotton include the following. 1) The cotton growing operations that will be left are likely of a scale that implies lower than average fixed costs, particularly machinery costs. This may involve beneficial leasing terms that are unavailable to smaller scale producers. 2) The larger scale operations may also benefit from volume discounts on purchases of variable and capital inputs. 3) Some operations may generate above average value of production. On the yield side, this perhaps is being achieved by the early adopters of yield enhancing technology and production systems. On the price side this could involve better risk management and marketing that captures some of the upside price risk that is available in most years. Lastly, the picture implied by Figure 1 reinforces the need for the buffering effects of federal farm programs and crop insurance.
With the US harvest concluding, markets will focus on South American weather forecasts and crop progress. For the 2023/24 marketing year, Brazil and Argentina are projected to account for 53% of global soybean production and 15% of global corn production. By comparison, the US produces 32% of the world’s corn and 28% of the world’s soybeans. Combined, these three countries dominate corn and soybean exports. The three countries account for 89% of soybean exports and 75% of corn exports. As such, production in these three countries has major implications for global prices. This article examines trendline corn and soybean yields for Argentina, Brazil, and the US.
Figure 1. Average Corn Yield by Country, 1977/78 to 2023/24
There are major differences between Argentina, Brazil, and US corn yields. Differences in corn yield can be partially explained by production practices, such as Brazil corn production occurring largely as a second crop after soybeans. For 2023/2024, US corn yield is projected at 173 bu/acre – 83% higher than the global average; Brazil at 90 bu/acre – 5% below the global average; and Argentina at 123 bu/acre – 31% above the global average (Figure 1). Trendline yields also reveal significant differences. Over the past 33 years, Argentina has added 1.92 bu/acre/year, the US has added 1.85 bu/acre/year, and Brazil has added 1.61 bu/acre/year. Since 2014/15, yields for all three countries have flattened substantially, with average increases of less than 0.25 bu/acre/year. Yield variation is also an important feature. Since 2000, Argentina corn yields have been substantially more volatile than Brazil or the US. Argentinian volatility may be partially attributed to a greater impact from extreme weather and economic instability in Argentina, creating greater challenges with input availability, cost, and utilization.
Figure 2. Average Soybean Yield by Country, 1977/78 to 2023/24
Soybean yields across the three countries are more uniform. Projected yields for 2023/2024 are 44 bu/acre, 53 bu/acre, and 50 bu/acre for Argentina, Brazil, and the US, respectively (Figure 2). Brazil has led the way with annual yield improvements, increasing trend line yield by an average of 0.69 bu/acre/year, followed by the US at 0.50 bu/acre/year, and Argentina at 0.29 bu/acre/year. Similar to corn, Argentina and US trend line yields have flattened in the past ten years; however, Brazil’s average yield gain has increased to 0.78 bushels per acre per year over the last decade. The variation in Argentina’s annual yields is significantly greater than that of Brazil or the US.
Yields (along with harvested acres) will be important in determining production in each country and potentially their share of the export market, particularly for soybeans, as a larger share of global production is concentrated in three countries. If yields are forecast below trendline it would be supportive of higher prices and vice versa. Changes in projected yield and production from USDA, CONAB (Companhia Nacional de Abastecimento, National Supply Company, Brazil), and private companies have the potential to influence market direction.
In the international rice arena, much of the attention has been focused on the Indian Government’s July 2023 decision to ban non-basmati white rice exports. This is significant to the global rice market as India is the world’s largest rice exporter. The USDA reports India’s 2022-2023 marketing year share of total global rice exports at 40%, as shown in Figure 1 (USDA ERS, FAS, 2023). India has dominated the international market for some time due to low domestic prices and high stocks – resulting from a bevy of trade-distorting subsidies – which allows India to offer rice at substantially lower prices to international buyers. Almost half of India’s exports are non-basmati parboiled rice, with the ban affecting approximately 15% of global rice trade.
The decision by India to ban rice exports was a means of countering rising food inflation and ensuring sufficient domestic supplies heading into an election year. Also factoring into the government’s decision were uncertain weather conditions attributed to El Niño (warming conditions and potential drought). Indian rice stocks remain plentiful, due in part to their much-scrutinized subsidization policy for rice. The non-basmati rice ban has not been the only policy action on rice taken by India over the last year. In September 2022, India banned exports of broken kernel rice and placed 20% tariffs on rough rice, brown rice, and regular milled white rice. In August 2023, a 20% tariff was placed on parboiled rice exports through mid-October and a $1,200 per ton minimum export price was placed on basmati rice.
The Indian government has insulated Indian rice farmers from falling domestic rice prices. It sets market support prices and subsidizes crop inputs like fuel, fertilizer, and water to support farmer incomes and lower food prices. In April 2023, a consortium of grain exporting countries, including the U.S., filed a second counter notification at the World Trade Organization, formally challenging India for obscuring the true level of price supports and subsidies it provides for its wheat and rice producers (USA Rice, 2023).
While policy decisions by the Indian government have had an impact on global rice prices, the question remains: Will U.S. rice prices see support from this policy-induced market shock? The short answer is ‘not immediately – but opportunity might exist later in the year.’
Global rice prices can support the domestic market to a certain degree as a result of trade flows of both Indian and U.S. rice. Rice exports from India are primarily destined for African countries (e.g., Benin, Senegal, Kenya, Togo, Guinea, and the Ivory Coast). These countries predominantly import broken rice, which is much cheaper than milled rice. In addition, the Philippines, Malaysia, and Vietnam are also reliant on Indian rice exports. Whereas, for the U.S., major rice markets include Mexico, Canada, Haiti, and Latin America. Mexico is primarily a buyer of U.S. rough rice. The Middle East is a region that imports from both the U.S. and India. However, sales to the Middle East – while important – are not ‘core’ markets for U.S. rice.
The USDA FAS reports that Thai, Vietnamese, and Pakistani export rice prices have increased (Figure 2) because of the Indian ban as countries begin to cover their needs, raising concerns that other countries will also restrict or ban exports (notably, Myanmar recently announced that it was temporarily restricting exports). Thai export prices had risen rapidly from late July through mid-August, peaking at about $650 per ton. Currently, Thai prices are quoted at $595 per ton. Like Thailand, Vietnamese export prices rose quickly but have since retreated to $616 per ton. Asian buyers are holding off from making purchases in hopes that prices continue to fall. U.S. rice export prices for No. 2 4% broken long grain milled rice remain quoted at $760 per ton, unchanged since late January and the highest since October 2008. U.S. quotes for Latin American markets were also unchanged since late January at $725 per ton. Indian price quotes have been unavailable since the start of the export ban which came into effect on July 20th. Prior to the ban, India rice was quoted around $450 per ton.
Expectations of a significant increase in U.S. rice supplies has helped keep U.S. rice prices stable. However, the export ban in India ultimately will benefit U.S. rice producers in the short run with stronger U.S. export demand likely developing in the Middle East (e.g., Iraq). U.S. rice may also be able to secure additional exports into the Caribbean and Central and South American markets which will contribute to capturing lost market share. U.S. rough rice sales to other Latin American markets are expected to increase in 2023/24. In the previous marketing year, the U.S. saw significant erosion of its market share in Mexico to South American suppliers, mostly Brazil, due to their more competitive prices. Long term, high global prices will increase global rice production. Growing stockpiles of rice in India – compounded by India’s extensive use of trade-distorting subsidies – will ultimately be dumped on the world market, thus causing world rice prices to over-correct (CoBank, 2023).
Figure 1. Global Rice Exports, by Country Share (%), USDA FAS.
Figure 2. Weekly FOB Export Quotes ($/ton) for Long Grain Milled Rice, USDA FAS.
References
CoBank. “India’s Rice Export Ban: Short-Term Benefit, Long-Term Challenge for U.S. Rice”. August 17, 2023.
USA Rice Federation. “India’s Rice Subsidies Under Fire at WTO by U.S., Thailand, and Others”. USA Rice Daily, April 6, 2023.
This article examines how low river levels impacted off-farm storage utilization last year for the five Southern states bordering the Mississippi River (Kentucky, Missouri, Tennessee, Arkansas, and Louisiana). In particular, we look at changes in corn held in off-farm storage. USDA-NASS (2023) reports off-farm stock numbers quarterly, including bushels stored on and off-farm. Net off-farm storage disbursement can be calculated by subtracting off-farm stocks in the previous quarter. For 2022/23, corn disbursements trailed the 5-year average in the five southern states bordering the Mississippi River. Lower net disbursement was likely caused by low river levels, which increased barge freight and caused the corn basis to widen (Gardner, Biram, and Mitchell, 2023). Once river levels returned to normal, elevators tended to barge soybeans as they have a higher value on a per-bushel basis, further delaying corn shipments (USDA-NASS, 2023). Figure 1 shows aggregate corn disbursement rates for all five states compared to the 5-year average. Figure 2 further breaks down the data by state. Typically, most corn is put in off-farm storage in Quarter 1 (Q1) of the marketing year, which consists of September, October, and November. Corn is then disbursed as the marketing year progresses.
Figure 1 indicates that in Q2 of last year, negative disbursement occurred. Negative disbursement percentages indicate that corn was added to off-farm storage. Additional corn storage in Q2 was likely driven by river level declines, which slowed corn shipments through the Mississippi River. The bulk of corn added to off-farm storage in Q2 occurred in Louisiana and Mississippi (Figure 2). As elevators in Mississippi could not move corn downriver, they filled their storage space and stopped taking delivery, causing producers to delay harvest and “store” corn in the field. Louisiana could still utilize the river for transport. Thus, the increase in off-farm supplies in Q2 was likely driven by producers in surrounding states delivering to Louisiana from more northern states. In Q3, the basis neared normal. On a percentage basis, the states disbursed 40% (-1% less 39%; figure 1) of the corn stored in Q1, the same as the 5-year average (10% less 50%). In Q4, producers disbursed 5% (39% compared to 34% on average) more off-farm corn than average, likely allowing some producers to capture the high June prices induced by drought fears on new crop supply. Q4 disbursement rates trailed 6% below the average, indicating that close to 23.5 million bushels were carried into the new marketing year.
Looking ahead to the 2023/24 marketing year, river levels have again caused the basis to decline, and off-farm storage will be an important risk management tool in these five states. As river levels improve, the basis should rise to normal levels. However, slow disbursement in the first quarter of the 2023/24 marketing year may hinder basis improvement.
Figure 1. Aggregate Net Off-Farm Storage Disbursement for Mississippi River Bordering Southern States by Marketing Year Quarter (2022/23 vs. 5-Year average)
Notes: States include Arkansas, Kentucky, Louisiana, Mississippi, and Tennessee. Q1 includes the months of September, October, and November. Q2 includes December, January, and February. Q3 includes March, April, and May. Q4 includes June, July, and August. Disbursement Percentages calculated in comparison to Q1.
Figure 2: Net Off-Farm Storage Disbursement for Mississippi Bordering Southern States by Marketing Year Quarter (2022/23 vs. 5-Year Average)
Notes: Q1 includes the months of September, October, and November. Q2 includes December, January, and February. Q3 includes March, April, and May. Q4 includes June, July, and August. Disbursement Percentages calculated in comparison to Q1.
Sources:
Gardner, Grant, Hunter Biram, and James Mitchell. “Low River Levels, Barge Freight, and Widening Basis.” Southern Ag Today 3(39.1). September 25, 2023. Permalink.