Category: Crop Marketing

Cotton prices in 2022 were like a roller coaster ride, including increased volatility and the highest price achieved for the past decade (Figure 1). Multiple rapid market rallies in the cotton market were observed in 2022, followed by a quick withdrawal of speculative money, resulting in an immediate plunge in cotton prices after the rally. The highest daily spot cotton price for 2022 was achieved on May 4th at 149.76 cents per pound, and the lowest daily spot cotton price in 2022 was observed on October 31st at 72.26 cents per pound. Several factors contributed to the price volatility in 2022, including stock market volatility, soaring inflation, supply chain disruptions, rising interest rates, appreciation of the U.S. dollar, and severe drought in major cotton production areas.

In 2022, the U.S. planted 13.6 million acres of upland cotton, the highest in 3 years. However, harvested acres are forecasted by the U.S. Department of Agriculture to be only 7.7 million acres, indicating an overall U.S. abandonment rate for upland cotton of 43.4%, the highest on record. Severe drought conditions hit major cotton production areas, including Texas, Oklahoma, Kansas, and Missouri. The abandonment rate is estimated to be 68% for Texas which accounted for 58% of total U.S. planted cotton acres (7.9 million) in 2022. Due to drought, cotton production in the U.S. plunged in 2022 resulting in a 2.37 million bale year-over-year decline in cotton exports. The December 2022 USDA World Agricultural Supply and Demand Estimates (WASDE) report projected U.S. cotton production at 14.2 million bales for the 2022/2023 marketing year, slightly below U.S. cotton demand – 12.3 million bales of exports and 2.2 million bales of domestic mill use. Globally, in 2022, cotton production is projected at 115.7 million bales, above the world cotton mill use at 111.7 million bales.

Looking ahead, 2023 could be a challenging year for cotton producers. According to the International Monetary Fund October 2022 World Economic Outlook report, global economic growth is expected to slow down to 2.7%, combined with high inflation worldwide at 6.5%. The reduction in economic activity and high inflation in 2023 will likely continue to reduce consumer demand for discretionary items, such as textiles and apparel, thus suppressing cotton prices. 

In response to high inflation, the Federal Reserve increased the federal funds rate from about 0% in February to 4.25-4.50% in December. The interest rate increases were the largest since the 1980s. The Federal Reserve’s commitment to bringing inflation back down to its target of 2% will likely result in higher interest rates for producers in 2023. The bank prime loan rate has risen to 7.5% in December, up 4.25% since the start of 2022. Rising interest rates further accelerated the appreciation of the U.S. dollar. Cotton is a global commodity; on average, over 80% of cotton produced in the U.S. is exported. The appreciation of the U.S. dollar increases prices paid by foreign consumers and makes U.S. cotton less attractive compared to other cotton exporting countries with a relatively weaker currency. This could result in a further decline in cotton demand from the U.S. and lower cotton prices for U.S. producers in 2023. 

U.S. cotton acreage and production are likely to decline in 2023, due to a lower relative price expectations compared to competing crops. Additionally, profit margins for cotton producers have been adversely affected due to high input costs and low prices. As of December 15, 2022, December cotton futures prices, CTZ23 (Dec’ 23), are currently at 79.29 cents per pound. An optimistic futures price for cotton in 2023 is 80 to 85 cents per pound, and a pessimistic price for 2023 is 69 to 75 cents per pound. For planning and budgeting projections, a price of 72 to 78 cents per pound is suggested for 2023. On a positive note, an economic recovery could occur in the fourth quarter of 2023, and the winter ice in the cotton market could start to melt during the cotton harvest in 2023. 

Figure 1. Cotton Cash Prices for the past decade.

Yangxuan Liu

Assistant Professor

yangxuan.liu@uga.edu

There has been a lot of recent concern regarding Mexico potentially banning genetically modified (GM) corn. The crux of the issue started in December 2020 when Mexico’s president, Andrés Manuel López Obrador, issued a presidential decree calling for GM corn for human consumption to be phased out by the end of January 2024. Details of this decree and how it would be implemented are scarce. The United States has also engaged in negotiations with Mexico on this issue.  The purpose of this article is not to debate the merit, or lack of merit, in Mexico’s decree to ban GM corn, it is to quantify the potential amount of corn trade that could be affected.

Mexico’s position revolves around the protection of native heirloom varieties and banning GM corn for human consumption.  The Mexican President’s position on GM corn used for animal feed and industrial use has softened recently however, the phrase “destined for human consumption” is opaque and subject to interpretation. Any potential ban is destined to have a two-pronged result. First, Mexico would pay more to secure the displaced U.S. corn (whether the replacement is U.S. non-GM or procured from another country), and second, U.S. corn would have to find an alternative market. 

From 2009-2022, Mexico consumed an average of 12.5 million metric tons (MMT) of corn more than it produced (Figure 1). During this time interval, 94% of the corn imported to make up the deficit came from the U.S. (Figure 2). For the 2022-2023 marketing year, Mexico is projected to import 17.2 MMT of corn. Trade data can be examined by Harmonized System (HS) code. HS code is a standardized numerical method of classifying traded products. Table 1shows the value of U.S. corn exports to Mexico by HS code. Over 90% of corn exports to Mexico are Number 2 Yellow Corn. Available data did not provide an indication of intended use (food, feed, industrial etc.) for U.S. origin corn.

Annually, the U.S. exports approximately 15% of total corn production. The top five export markets for U.S. corn over the past five years have been Mexico, Japan, China, Columbia, and South Korea. U.S. corn exports to Mexico represented 25% of all corn exports from 2009-2022. If access to Mexico’s market is restricted, then corn exporters would have to rely on alternative export markets or absorb the production domestically. Holding other factors constant, restriction of U.S. corn exports to Mexico would adversely affect domestic corn prices in the U.S.  Producers, Corn Growers Associations, and other stakeholders are rightfully concerned over attempts to restrict market access for U.S. corn exported to Mexico. The impact of any potential loss of access to Mexico’s corn market will be contingent on the details of the proposed restrictions. 

Figure 1. Mexico Corn Production, Imports, and Consumption, 2009-2022

Figure 2. Corn Exports to Mexico, 2009-2022

Table 1. Value of U.S. Corn Exports to Mexico by HS code, 2021 and 2022 (Jan-Oct) 

HS Code	Description	2021	% of Total	2022	% of Total
1005902030	Yellow Dent Corn (maize), U. S. No. 2, Except Seed	4,350,527,446	91.3%	3,840,293,299	92.4%
1005902035	Yellow Dent Corn (maize), U. S. No. 3, Except Seed	25,919,395	0.5%	58,556,496	1.4%
1005902020	Yellow Dent Corn (maize), U. S. No. 1, Except Seed	37,924,090	0.8%	26,834,623	0.6%
1005904049	Popcorn, Unpopped, Except Seed, Others	32,252,031	0.7%	31,747,599	0.8%
1005904065	Corn (maize), Except Seed, Yellow Dent Corn, Popcorn, Or White Corn, Others	42,646,364	0.9%	24,584,505	0.6%
1005100010	Yellow Corn (maize), Seed	27,033,225	0.6%	18,781,462	0.5%
1005904055	Corn (maize), White, Others	229,351,385	4.8%	146,595,203	3.5%
1005100090	Corn Other	5,089,831	0.1%	3,375,891	0.1%
1005902070	Yellow Dent Corn (maize), Except Seed, Others	3,411,839	0.1%	2,732,217	0.1%
1005902045	Corn (maize), Other Than Seed Corn	9,543,761	0.2%	2,450,565	0.1%
		$4,763,699,367		$4,155,951,860

References and Resources

International Trade Administration. Understanding Harmonized System Codes. https://www.trade.gov/harmonized-system-hs-codes#:~:text=The%20Harmonized%20System%20is%20a,International%20Trade%20Administration

U.S. Department of Agriculture – Foreign Agricultural Service (USDA-FAS). Global Agricultural Trade System. Available on-line at: https://apps.fas.usda.gov/GATS/default.aspx

U.S. Department of Agriculture – Foreign Agricultural Service (USDA-FAS). Production, Supply, and Distribution. Available on-line at: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

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Author: Aaron SmithAssociate

Professor, Crop Marketing Specialist

aaron.smith@utk.edu

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Smith, Aaron. “Quantifying U.S. Corn Exports to Mexico.” Southern Ag Today 2(53.1). December 26, 2022. 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

U.S. corn exports are important in determining farm level prices. For the 2022/2023 marketing year, the November USDA World Agricultural Supply and Demand Estimates (WASDE) report estimates 15.4% (2.15 billion bushels) of U.S. corn production will be exported to foreign markets. This does not include the export of corn products, such as ethanol and DDGS. 

Figure 1. U.S. corn exports (quantity, value, and price) and USDA – National Agricultural Statistics Service (NASS) average monthly price, 5-year average, 2021, and 2022.

Exports fluctuate month-to-month, with the majority of U.S. corn exports occurring January through July (Figure 1). In calendar year 2022, the quantity of U.S. corn exports has lagged behind last year’s pace – 2.038 billion bushels compared to 2.363 billion bushels in 2021 as of the end of October (Figure 1; Export Quantity). However, in terms of value, the U.S. has exported $400 million more in 2022 ($16.53 billion), than 2021 ($16.11 billion) (Figure 1; Export Value). 

Price is the reason for the difference between lower quantity and greater value. USDA export sales do not report prices, but a monthly export price can be calculated by dividing value by quantity (Figure 1; Calculated Export Price). The calculated export price needs to be interpreted cautiously as this price does not represent prices established only in the month reported (prices can be established months in advance of exports). That being said, the calculated export price does provide a point of reference for comparison to other prices. 

Table 1 shows the calculated export price (Figure 1; Calculated Export Price) minus the USDA NASS national estimated cash farm price (Figure 1; NASS Price).  From 2017 to 2020, the difference between the calculated export price and the NASS price ranged from a low of $0.80 to a high of $1.21 per bushel. In 2021 and 2022, the range of the price difference was $1.02 to $1.81 per bushel, $0.41 per bushel greater than the four prior year’s average. The price difference can be interpreted as a rough approximation of the costs associated with moving corn from the farm gate to the export terminal. 

What is the reason for this increase in the price difference? The most likely factor is increased transportation costs. This is due to supply chain disruptions coming out of the pandemic, elevated fuel costs, and higher wage rates. While the price difference has increased the past two years, the NASS estimated price has accounted for a greater portion of the calculated export price: 80.5% in 2021 and 2022 compared to 77.5% from 2017-2020. So, even with a wider differential between cash farm prices and export prices, the farmer is receiving a greater proportion of the export value. Whether the increased price difference between calculated export price and NASS price, or the proportion allocation holds into the future is highly uncertain.  

Table 1. Calculated monthly corn export price minus USDA NASS price ($/bu), 2017-2022

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
2017	1.02	1.00	0.95	1.03	0.94	1.00	0.92	1.09	0.99	1.06	1.09	1.12
2018	1.05	0.94	0.94	0.93	0.96	1.11	1.15	1.20	1.10	1.10	1.14	1.07
2019	1.05	1.03	1.01	1.10	0.96	0.86	0.83	0.90	0.96	0.80	0.99	0.96
2020	0.89	0.92	1.06	1.12	1.11	1.12	1.00	1.08	0.96	0.99	1.12	1.21
2021	1.66	1.61	1.55	1.40	1.15	1.42	1.49	1.03	1.64	1.81	1.59	1.62
2022	1.44	1.33	1.19	1.24	1.56	1.34	1.32	1.28	1.02	1.70
5-Year Average	1.23	1.24	1.26	1.25	1.20	1.20	1.13	0.94	0.95	1.20	1.29	1.31

References and Resources:

U.S. Department of Agriculture – Foreign Agricultural Service (USDA-FAS). Global Agricultural Trade System (GATS). Available on-line at: https://apps.fas.usda.gov/GATS/Default.aspx

U.S. Department of Agriculture – National Agricultural Statistics Service (USDA-NASS). November. Available on-line at: https://quickstats.nass.usda.gov/  

U.S. Department of Agriculture – World Agricultural Supply and Demand Estimates (USDA-WASDE). November. Available on-line at: https://www.usda.gov/oce/commodity/wasde

Author: Aaron Smith

Associate Professor and Crop Marketing Specialist

aaron.smith@utk.edu

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Smith, Aaron. “Corn Exports: Quality, Value, and Prices.” Southern Ag Today 2(51.1). December 12, 2022. Permalink

For planning purposes, it is never too early to think about next season’s opportunities and risks.  To start with, we’re still not settled on the size of the 2022 cotton crop. USDA forecasted the latter back in May at over 16 million bales, and their November forecast is two million fewer.  Many in the southern plains expect more downward revision.  If the old crop carry-out is the currently-forecasted three million bales or fewer, this will be the first contribution to what is shaping up as a tight new crop situation for the 2023/24 marketing year. 

The second consideration is new crop planting.  Relative prices of competing crops like feedgrains and wheat may induce fewer cotton acres being planted in 2023.  For example, if you take Dec’23 corn futures trading over $6 per bushel and Dec’23 cotton under 80 cents per pound, the result is a historically high ratio of corn futures prices to cotton futures prices.  History suggests that when pre-plant corn futures prices are this high in relation to cotton futures (presently around 8.0), we could expect cotton planted acres around nine million acres, all other things being equal (see Figure 1 below).  

Obviously, there are other competing crop prices to consider such as soybeans, peanuts, and wheat.  However, the corn:cotton model reflected in Figure 1 does a decent job incorporating the influences of those other competing crops. 

The third consideration is the lingering drought impact of the fading La Niña.  A relatively dry looking drought map implies at least average, if not above average, abandonment of cotton acreage in the southern plains for the 2023 crop, which will increase U.S. average cotton abandonment.  Nine million planted acres of cotton with average abandonment implies potentially very tight supplies for the 2023/24 marketing year.  It might imply an in-season weather market, with market volatility in anticipation of (or reaction to) milestone supply reports from USDA. 

In short, there may be stronger new crop prices, but they may gyrate sharply between planting and harvest, which is typically volatile weather market behavior.  

Figure 1. U.S. All Cotton Planted Acreage and Ratio of New Crop Corn:Cotton Futures Ratio.

Author: John Robinson

Professor and Extension Economist

jrcr@tamu.edu

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Robinson, John. “Looking Ahead to the 2023 Cotton Market.” Southern Ag Today 2(50.1). December 5, 2022. Permalink