Category: Crop Marketing

It is generally the case that the U.S. cotton market is influenced by aggregate production uncertainty.  One reason for this is that a majority of the U.S. acreage is planted in Texas (Figure 1), with much of that under dryland conditions contributing to historical abandonment rates between 4% and 62% statewide.  In drought years like the current one, this production risk is only heightened.  The management of this risk is potentially helped by publicly available market information data.

The first upcoming major information source is the May 12^th USDA “World Agricultural Supply and Demand Estimates” (WASDE) report published by the USDA’s World Agricultural Outlook Board (https://www.usda.gov/oce/commodity/wasde ).  The May report is notable for publishing USDA’s first official, comprehensive projections of U.S. and world crop supply and demand variables.  Historically, the May WASDE report tends to be closely watched and is frequently associated with cotton market volatility.

Like other crops, U.S. cotton is monitored by weekly crop condition reports and crop progress reports (on Mondays) from USDA’s National Agricultural Statistics Service (NASS, https://www.nass.usda.gov/).  Because cotton is a perennial bush in its native habitat, its growth and response to stress are different from annual grain crops.  Hence there is less correlation between weekly crop conditions and progress for cotton yield outcomes compared to grains.  Nevertheless, the news media and some market analysts pay attention to these weekly observations between the major report milestones.

June 30^th “Planted Acreage” is another closely watched major report that is conducted by USDA/NASS.  This report is sometimes associated with market volatility when it contradicts expectations based on the March 31^st “Prospective Plantings report from USDA.  USDA’s Farm Services Agency (FSA) provides supplemental acreage information with periodic certified acres data through the summer (https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index ). 

For U.S. cotton, the September WASDE report represents the first extensive proven yield sampling for areas outside of South Texas, in addition to grower interviews.  This sample-based production estimate is refined in subsequent WASDE reports through December, as well as with data on cotton ginnings.  The uncertainty about cotton yield may be further exacerbated in 2022 from restricted input applications.  For example, anecdotal evidence of reduced quantities of nitrogen fertilizer applications (due to the higher cost) could contribute to lower-than-average yields.   The resulting yield effect from fewer inputs might not be realized until the ginnings data in November.  Hence, this season could involve extended price volatility beyond the normal resolution of weather market uncertainty.

Robinson, John. “Milestone Indicators of U.S. Cotton Supply and Demand“. Southern Ag Today 2(20.1). May 9, 2022. Permalink

In the Prospective Plantings report released March 31^st by USDA-NASS, total planted rice acreage for 2022 was projected at 2.452 million acres, down 3% or 80,000 acres from last year. If realized, this would be the lowest acreage of rice planted in the United States since 1987. The majority of the acreage reduction is due to a 60,000 acre decrease in California, which grows medium and short grain rice. Long grain acres, the main type grown in the Southern states, is projected at 1.943 million acres, down 1.4% from last year. Arkansas remains the largest growing rice state with 1.191 million acres, accounting for 49% of all acreage. Louisiana is the only state to increase acreage, adding 20,000 acres for 440,000 acres total, while Mississippi’s 100,000 acres is the lowest since 1975. 

            Higher input costs played a key role in producer unwillingness to add rice acreage this year. Enterprise budgets from Mississippi State University’s Department of Agricultural Economics project rice production expenses to increase by 10% to $899/acre averaged across production practices. A large driver of this increase is fertilizer costs, which are projected up 43%. University of Arkansas budgets project similar increases, with a 47% increase in production expenses from last year. Additional supply chain uncertainty for herbicides needed in rice production makes a lower input intensive crop like soybeans more attractive to producers. 

            Additionally, long grain rice had to compete with a better price outlook for alternative crops, such as corn and soybeans. The chart below shows the percent change in the harvest month futures price for corn, soybeans, and rice since December 1, 2021. The November CBOT Rough Rice futures contract price has increased approximately 20% since the 1^st of December. The percent price increase of corn and soybeans though has outpaced rice at 25% for soybeans and over 35% for corn. The combination of higher input costs and a lower price relative to other crops has likely made producers take a longer-term outlook of the rice market. Lower acreage will continue to support the upward trend in rice prices seen this spring. While supplies are not necessarily tight at this point, we can expect increased price volatility due to any events that might influence production during the growing year. As of April 25^th, the USDA-NASS Crop Progress report has rice planting at 26% complete compared to the 5-year average of 47%. If plantings remain stalled, the market will begin to worry about supply and push prices higher.    

Maples, William E. . “U.S. Total Rice Acreage Projected at 35 Year Low“. Southern Ag Today 2(19.1). May 2, 2022. Permalink

Peanut acres in the U.S. decreased 5% in 2021, but with strong yields, total production ended almost 9% higher than in 2020.  The 2022 crop year is shaping up to start with a similar story on acreage. However, early indications point to the potential for a different result at the end of the year.  The prospective plantings report by the USDA was released on March 31, 2022, which showed U.S. peanut farmers intend to plant 3.4% fewer acres in 2022 compared to a year prior.  This decrease in intentions has been driven largely by high prices for other row crop alternatives and thus favorable marketing opportunities for other crops.  This competition for acres has been recognized by shellers who have offered higher contracts over the past few months than had been offered in recent years.

While a decline in acres of less than 4% does not seem to be very much, especially after a year of high yields, the distribution of that decline has the potential to have a much larger impact on production.  In 2021, the top three states in planted acreage were Georgia, Alabama, and Florida (see Table 1).  These three states accounted for about 71% of the total U.S. peanut acreage last year and are forecast to plant 95,000 less acres this year, a decline of 8.2%. Offsetting some of those lost acres are increases in South Carolina and Texas, with 20,000 additional acres planned in each state.  The challenge here is going to be the weather.

The West Texas area where peanuts are produced is currently facing extreme drought (U.S. Drought Monitor as of April 14, 2022).  The National Oceanic and Atmospheric Administration (NOAA) expects this drought to continue or expand throughout the spring.  This may make planting extremely difficult in that region.  Even if that intended acreage is achieved, it will be important to watch how yields develop, given the expected continuation of dry weather. Texas is also not the only part of the peanut belt with dry weather.    Abnormally dry and moderate drought continues across the peanut belt in Alabama, the Florida Panhandle, Georgia, South Carolina, and North Carolina (U.S. Drought Monitor as of April 14, 2022).  Beyond spring planting, the southeast expects neutral conditions where tropical moisture will determine if drought conditions persist (Knox 2022).  

So, on the surface, a small decline in acreage after a large crop may help balance ending stocks for the 2022-23 marketing year.  This would take the current 2021-22 forecasted ending stocks of 2.3 million pounds and significantly tighten market supply.  However, the location of increased acres, current drought and dry conditions, and the potential for persistent drought throughout the summer could significantly impact the fall crop and the peanut market.  The risk of lower yields and less harvested acreage could potentially drop ending stocks significantly to 2016-17 levels of around 1.5 million pounds.

Table 1. Peanut Acreage in 2021 and 2022 Prospective Plantings
State	2021	2022	Acreage Change	Percent Change
ALABAMA	190,000	175,000	-15,000	-7.9%
ARKANSAS	45,000	35,000	-10,000	-22.2%
FLORIDA	180,000	160,000	-20,000	-11.1%
GEORGIA	790,000	730,000	-60,000	-7.6%
MISSISSIPPI	25,000	20,000	-5,000	-20.0%
NEW MEXICO	6,500	11,000	4,500	69.2%
NORTH CAROLINA	110,000	120,000	10,000	9.1%
OKLAHOMA	17,000	13,000	-4,000	-23.5%
SOUTH CAROLINA	65,000	85,000	20,000	30.8%
TEXAS	170,000	190,000	20,000	11.8%
VIRGINIA	27,000	32,000	5,000	18.5%
Total U.S.	1,625,500	1,571,000	-54,500	-3.4%
Source: USDA NASS Prospective Plantings, March 31, 2022

Sources:

NOAA. U.S. Spring Outlook 2022: Drought to expand amid warmer conditions, March 17, 2022. https://www.climate.gov/news-features/understanding-climate/us-spring-outlook-2022-drought-expand-amid-warmer-conditions

Knox, Pam. April and summer 2022 outlook for Georgia and beyond, April 7, 2022.  https://site.extension.uga.edu/climate/2022/04/april-and-summer-2022-outlook-for-georgia-and-beyond/

Rabinowitz, Adam. “Projected Decrease in Peanut Acreage Could Have Greater Impacts on Overall Production“. Southern Ag Today 2(18.1). April 25, 2022. Permalink

World wheat supplies are tight, and Russia’s invasion of Ukraine puts at risk a significant portion of the world’s wheat supply. World wheat ending stocks in the 2021/22 marketing year are estimated at 278 mmt, the lowest since 2016/17 (263 mmt) (USDA, FAS, PSD, 2022).  In the current marketing year, Russia is expected to account for about 10 percent of global wheat production (75.16 mmt) and 16 percent of global wheat exports (33.00 mmt) (Figure 1). Ukraine’s wheat production is about four percent of the world total (33.00 mmt) and its 19.00 mmt of exports is 10 percent of the world total. 

With its control of the Black Sea, Russia has the ability to continue exporting grain in the midst of this conflict. One impact of economic sanctions may be to change the normal allocation of Russia’s wheat exports. But with strong global demand and Russian wheat priced competitively in global markets, it seems unlikely that total Russian wheat exports will fall substantially.  

Ukraine’s ports have been closed since the first day of fighting and the Ukrainian government has banned some grain exports to ensure domestic food supplies.  The 2022 wheat crop is at risk not only in active conflict zones but more broadly due to shortages of equipment, fuel, fertilizer, and labor. Where harvest is possible,  it is safe to assume infrastructure damage (e.g., storage, roads, rail, ports) will impact the movement of agricultural products from field to international markets.    

What is the worlds’ capacity to make up for the loss of wheat exports from Ukraine, which average about 18 mmt, just below the current marketing year’s 19 mmt? In addition, the global wheat trade has increased 11 mmt over the last five years.  In the short-term, exports have increased significantly from Argentina, Australia, the EU, India, and Brazil (Figure 1).  In the 2021/22 marketing year, Argentina’s exports are up 2 mmt from its most recent five-year average. Australia is projected to export an additional 12 mmt. Exports from the EU are up 5 mmt. India’s wheat exports are up 8 mmt compared to its 5-year average and Brazil’s wheat exports are up 2 mmt.  These combine for an increase of 28 mmt.  

Major wheat exporters whose sales are down in 2021/22, compared to the 5-year average, are the U.S. and Canada. Both had significantly smaller spring wheat crops in 2021.  U.S. wheat exports are down 5 mmt and Canada’s sales down 8 mmt.  A return to normal would add 13 mmt to world wheat exports in 2022/23.  

All wheat acres in the U.S. for 2022 are up about 700,000 from 2021 to 47.4 million (USDA, Prospective Plantings, 2022).  Across the South, wheat acres increased in Alabama (+3%), Arkansas (+5%), Kentucky (+6%), Mississippi (+5%), North Carolina (+16%), Tennessee (+5%), and Virginia (+22%).  Wheat acres were unchanged in Oklahoma and Texas.  Acres were down in Georgia (-5%), Maryland (-12%), and South Carolina (-4%).  

Further complicating the wheat market, drought conditions in the U.S. Southern High Plains look to decrease winter wheat yields and increase unharvested acres in this region. For U.S. and Canadian wheat production to increase and augment exportable supplies, favorable growing conditions are needed for the upcoming spring wheat crop. 

While the loss of Ukraine’s wheat crop in 2022 would have a significant impact on world wheat supplies, high commodity prices are providing incentives for agricultural producers around the world to plant more acres.  However, the loss of Ukraine’s production amplifies the importance of production disruptions in other wheat producing regions, should issues occur. Longer-term production will certainly increase as weather and crop input availability and affordability allow. 

Figure 1. World Wheat Exports, average 2016/17-2020/21 and 2021/22 (million metric tons)

References

USDA, Foreign Agricultural Service, Production, Supply and Distribution, accessed April 12, 2022, https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery.

USDA, Prospective Plantings, March 31, 2022

USDA, World Agricultural Supply and Demand Estimates, April 9, 2022

Welch, J. Mark. “World Wheat Supplies in Response to Russia’s Invasion of Ukraine“. Southern Ag Today 2(17.1). April 18, 2022. Permalink

Table 1. Projected Planted Area (‘000 of Acres) 

	2020	2021	2022
Soybeans	83,354	87,195	90,955
Corn	90,652	93,357	89,490
Other	67,261	65,243	65,095
Wheat (all)	44,450	46,703	47,351
Cotton (all)	12,092	11,220	12,234
Sorghum	5,880	7,305	6,205
Rice (all)	3,036	2,532	2,452
Peanuts	1,663	1,585	1,571
Total	310,407	317,161	317,375

Data Source: USDA, Prospective Planting Report

On Thursday March 31, USDA released the Prospective Plantings report. Nationally, principal crop acres planted were projected at 317.375 million, up 214,000 acres compared to last year. Corn acres were projected at 89.490 million, down 3.867 million compared to last year. Soybean acres were projected at 90.955 million acres, up 3.76 million acres compared to last year. Cotton acres were projected up 1.015 million acres at 12.234 million acres. All wheat acres were projected at 47.351 million acres, up 648,000 compared to last year. Compared to projections released in February at the USDA Outlook Forum, March projections were for 2.51 million fewer acres of corn, 466,000 fewer acres of cotton, 2.955 million more acres of soybeans, and 649,000 fewer acres of wheat. 

The change in projected acres planted from February to March estimates were not surprising considering price trends in February and concerns over high fertilizer prices. On December 1^st, the 2022 harvest soybean-to-corn futures price ratio was 2.21 — a price that would historically favor planting corn over soybeans. By February 15^th, the ratio had moved to 2.45 – a price ratio that would normally be neutral to favoring soybeans. From a cost of production standpoint, higher fertilizer prices create an input cost disadvantage for planting corn, , thus a ratio of 2.45 would definitely favor planting soybeans.  

Markets reacted to the Prospective Plantings report mostly as expected with harvest contracts for corn up 27 ¾ cents, soybeans down 49 ¾ cents, cotton down 1.16 cents, and Chicago wheat down 21 cents. Moving forward, many producers likely have a good idea regarding what they are going to plant.  Weather is the wild card that could shift acres. However, the price ratio moved in favor of corn after the Prospective Plantings report was released.  The soybean-to-corn harvest futures price ratio on April 5^th was 2.06 — strongly favoring corn. Will we see an increase in corn acres planted? The next USDA acreage estimate will be the June 30 Acreage report.

References and Resources:

USDA – National Agricultural Statistics Service (NASS). Prospective Plantings report. Accessed at: https://usda.library.cornell.edu/concern/publications/x633f100h

USDA – Office of the Chief Economist. Agricultural Outlook Forum. Accessed at: https://www.usda.gov/oce/ag-outlook-forum/2022-commodity-outlooks

Barchart.com. Accessed at: https://www.barchart.com/futures/grains?viewName=main

Smith, Aaron. “Less Corn, More Soybeans, Cotton, and Wheat Projected to be Planted in 2022″. Southern Ag Today 2(16.1). April 11, 2022. Premalink