Peanut farmers in the post-quota era have historically had limited marketing opportunities. There is no futures market for peanuts, and the market is defined as relatively thin with a high concentration by two major buyers, Golden Peanut Company and Birdsong Corporation (Adjemian, Saitone, and Sexton 2016). In economics, this is known as an oligopsony – a market that is dominated by a very few disproportionately large buyers. Sellers in an oligopsony market have little ability to influence the price they receive for their product. Here the seller is the peanut farmer looking to market their crop who often must just accept what shellers will pay.
The agricultural cooperative model allows farmers to work together to sell their product, achieve greater bargaining power, and provide profit sharing opportunities. Grower-owned peanut shellers provide member peanut farmers an opportunity to share in the downstream profit that is otherwise not passed through to the farmer. Over the past decade, there has been considerable growth in grower-owned peanut shellers. A few examples include Premium Peanut that was formed in 2014 in Georgia, Delta Peanut that was founded in 2018 in Arkansas, and Coastal Growers that came together in 2021 in Alabama.
The table below shows the current USDA approved peanut warehouse storage capacity in the United States. While the top two firms control 47.2% of the storage capacity, we see five grower-owned shellers (listed in bold) that combine for 28.3% of the storage capacity. Furthermore, that share of grower-owned capacity has more than doubled since 2017 from both increases by existing grower-owned shellers and the entry of Delta Peanut and Coastal Growers. While storage capacity is not fully reflective of market share, it represents a reasonable approximation and is indicative of marketing opportunities that farmers are leveraging through agricultural cooperatives.
References:
Adjemian, M.K., Saitone, T.L. and Sexton, R.J. (2016), A Framework to Analyze the Performance of Thinly Traded Agricultural Commodity Markets. American Journal of Agricultural Economics, 98: 581-596.
Many factors influence commodity prices. Recently, movements in commodity prices have been driven by U.S. acreage estimates and weather concerns across a large portion of the Corn Belt, and this is likely to remain the principal focus of markets into August. As of July 11, 2023, the percentage of soybeans in Moderate Drought (D1), Severe Drought (D2), Extreme Drought (D3), and Exceptional Drought (D4) was 1%, 6%, 20%, and 30%, respectively (USDA-Ag in Drought). However, there are always numerous factors impacting price direction simultaneously. An interesting trend that has potential repercussions for soybean exports has been the movement in currency exchange rates in 2023.
Soybean exports are largely a three-country game. For the 2023/2024 marketing year, the majority of global soybean exports are expected to come from Brazil (56%) and the U.S. (31%), while China is projected to account for 59% of global soybean imports (USDA-PSD). As such, the prevailing currency exchange rates between the three countries are important. Figure 1 shows the number of Chinese Yuan Renminbi (CNY) and Brazilian Reais (BRL) required to purchase one United States Dollar (USD). Since the start of 2023, the BRL has increased by 11.6% compared to the USD, and the USD has appreciated by 3.3% compared to the CNY (Figure 1). For example, on January 3, a bushel of soybeans worth 14.50 USD would be 78.67 BRL. On July 14, that same bushel of soybeans at 14.50 USD would be 69.58 BRL. From a Chinese buyer’s perspective, due to changes in the value of currencies, a bushel of U.S. soybeans increased 3.3% from January 3 to July 14 and a bushel of soybeans from Brazil increased 15.4% over the same time. Over this time, the change in currency values would support Chinese purchases of U.S. soybeans over Brazilian soybeans, all else being equal. However, supplies of soybeans in Brazil and the U.S. largely minimize this potential effect. Brazil has record supplies, and based on current prices, could have record plantings this fall. The U.S. has lower acreage (83.5 million acres planted) than initially anticipated, lower potential yields due to drought, and limited endings stocks (230 million bushels) for the 2022/2023 marketing year. Moving forward, trends in exchange rates could influence the quantity of soybeans purchased, by China, from the U.S. and Brazil. If the USD appreciates in value, relative to BRL, it makes U.S. exports relatively more expensive for foreign buyers. If the USD depreciates in value, it makes U.S. exports less expensive for foreign buyers.
Figure 1. Brazilian Reais and Chinese Yuan Renminbi to 1 United States Dollar, January 3, 2023, to July 14, 2023
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 3rd among global competitors for corn exports but is projected to fall to 4th 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 17th 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 18th 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)
Often, we think of crop loss being caused by weather, such as drought or excess moisture. However, a lesser quantified, but growing, cause of loss for crops in the southeast United States is wildlife damage. The most common causes of wildlife damage in soybeans are deer and hogs. Wildlife damage can be quantified when crop yield is damaged to a level that triggers an indemnity payment. Using the USDA RMA cause of loss data, Figure 1 shows the county map of soybean indemnity payments due to wildlife damage from 2011 to 2022; Figure 2 shows the percent of total soybean wildlife indemnities as a percent of total insured liability for soybeans by county. Mississippi received the most payments totaling $6.54 million, and Arkansas received the least number of payments, totaling $1.1 million. Tennessee was second with $5.65 million and Kentucky was third with $5.5 million. Missouri received $4.3 million, and Alabama received $2.4 million.
We also show the annual losses to wildlife damage for soybeans in the seven states combined (Missouri, Kentucky, Arkansas, Tennessee, Mississippi, Alabama, and Georgia) from 2011 to 2022 (Figure 3). Indemnity payments due to wildlife damage to soybeans in 2022 were approximately $4.8 million, which is a 487% increase from 2011. Between 2011 and 2022, in these seven southeastern states, a total of 250,818 soybean acres received an indemnity payment due to wildlife damage. Figure 3 also shows the percentage of total soybean indemnity payments caused by wildlife damage (orange line). These indemnities due to wildlife losses are a small percentage of the total soybean crop insurance losses but have increased since 2011.
It should be noted that the total indemnity payments received do not capture the total loss of wildlife damage in soybean fields. Before an indemnity payment is made, the actual revenue or yield must be below the crop insurance yield or revenue guarantee for the insured unit. Also, damage to uninsured acres would not be accounted for in the data. Further, some losses due to wildlife may be being attributed to another cause that also impacted the farm (e.g. drought or excess moisture). As such, indemnities paid due to wildlife losses in soybeans represent only a portion of actual producer losses. In the seven-state region, state average soybean crop insurance coverage levels for 2022 (2011-2022 average) were: Alabama 72.1% (71.6%), Arkansas 63% (62.2%), Georgia 67.6% (66.8%), Kentucky 76.1% (76.2%), Missouri 73.2% (73.0%), Mississippi 69% (69.2%), and Tennessee 72% (72.2%).
We note that some states and counties allow for nuisance hunting permits out of season to control deer and hog damage to crops. It might be of interest to check with your local game warden to determine if this is an option for your farm.
Figure 1. Soybean Indemnity Payment Map for Wildlife Damage Cause of Loss for Missouri, Kentucky, Arkansas, Tennessee, Mississippi, Alabama, and Georgia from 2011 to 2022
Figure 2. Percent of Wildlife Damage Cause of Loss as a Percent of Total Insured Liability for Missouri, Kentucky, Arkansas, Tennessee, Mississippi, Alabama, and Georgia from 2011 to 2022
Figure 3. Soybean Wildlife Indemnity Payments for Missouri, Kentucky, Arkansas, Tennessee, Mississippi, Alabama, and Georgia and Percent of Total Soybean Indemnity Payments Caused by Wildlife Damage by Year from 2011 to 2022
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.
