Category: Crop Marketing

Soybean prices have maintained their bullish momentum into 2022. The March soybean futures contract closed at $15.52 ¼ on February 15, which is up $2.03 ¼ since the start of the year. Numerous factors have propelled prices higher, including drought in South America, global economic recovery, and very strong domestic crush margins. United States domestic soybean crush has been at a record pace and the current crush margin, well above $2.00/bushel, will continue to support domestic soybean prices. Additionally, the current global reserves of soybean’s two primary products – soybean meal and soybean oil – are also very supportive of soybean prices. The three largest producers of soybeans are Brazil, the United States, and Argentina. The largest importer of soybeans is China; however, the rest of the world (ROW) maintains a substantial portion of soybean meal stocks – 46.7% in 2021/22 (Figure 1) and soybean oil 40.4% in 2021/22 (Figure 2). 

Since the 2019/20 marketing year, global soybean meal stocks have decreased from 14.54 million metric tons (MMT) to 12.27 MMT, a 15.6% decline in two years. The decrease in soybean meal stocks is largely attributed to declines in Argentina (16.4%) and ROW (27.2%) (Figure 1). Over the same time, global soybean meal consumption has increased from 240.5 MMT to 247.5 MMT. Increasing meal demand and lower meal stocks will continue to support soybean meal and soybean prices.

Figure 1. Global Soybean Meal Stocks by Country, 2006/07-2021/22

Similar to soybean meal, soybean oil also has lower stocks compared to recent years. USDA projects global soybean oil stocks at 3.719 MMT, down 22.4% compared to the 2019/20 marketing year (Figure 2). Soybean oil stocks have dropped 50.6% for Argentina, 34.2% for ROW, and 23.1% for China. Global soybean oil consumption has increased from 57.2 MMT, in the 2019/20 marketing year, to 60.2 MMT projected for the 2021/22 marketing year. Lower soybean oil stocks and increased demand will continue to support high soybean oil and soybean prices.

Figure 2. Global Soybean Oil Stocks by Country, 2006/07-2021/22

A great deal of uncertainty continues to be prevalent in the soybean complex. However, there are numerous reasons to be cautiously optimistic that high soybean prices will continue in 2022. Low stocks of soybean oil and meal are one of the factors that will be supportive for soybean prices.

References

U.S. Department of Agriculture Foreign Agriculture Services (USDA FAS). 2022. Production, Supply, and Distribution (PSD). Accessed online at: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

Smith, S. Aaron. “Soybean Meal and Oil Stocks Supportive for High Soybean Prices“. Southern Ag Today 2(9.1). February 21, 2022. Permalink

Rice saw a record overall yield with the 2021 crop, but rice production was down almost 16% from the previous year. The overall rice yield was 7,709 lbs./acre, which beats the previous record high of 7,694 lbs./acre in 2013. This new record high was driven by a record medium-grain rice yield of 8,623 lbs./acre, which was 2.8% higher than the previous record. The 2021 long-grain rice crop saw the second-highest yield on record at 7,471 lbs./acre, just below the record of 7,517 obtained in 2018. Despite these high yields, 2021 production was lower than the previous year at 191.8 million hundredweight for all rice and 144.6 million hundredweight for long-grain rice. Lower production was driven by a reduction in planted acreage by nearly 17% in 2021 as compared to 2020. Mississippi saw the largest reduction of any state in planted acreage, down 36% from the previous year. 

 With lower production, U.S. long-grain rice ending stocks for the 2021 marketing year is currently estimated by the USDA at 21.4 million hundredweight resulting in a stocks-to-use ratio of 12.1%, which is down from 29.7% in 2020. Domestic U.S. consumption of long-grain rice, while lower than last year, remains strong, but exports remain flat compared to previous years. The current 2021 market year average price projection for long-grain rice is $13.20/cwt, which is the highest price since 2013. 

U.S. long-grain rice acreage has fluctuated from around 2.5 million to 3 million acres year to year consistently since 2013. Given this pattern and current high prices, rice acreage is expected to rebound back to around 3 million acres in 2022. One potential factor that can limit an acreage increase is current high input costs and supply uncertainty. Soybeans are the common rotational crop planted with rice and currently, soybean prices are strong and can be planted at a lower cost of production per acre. Current high long-grain rice prices though will likely convince most producers to stay with their normal crop rotation.         

Maples, William E. . “Rice Production Down in 2021 Despite Strong Yields“. Southern Ag Today 2(8.1). February 14, 2022. Permalink

As farmers are planning for the new year, they have several factors to consider. Besides supply and demand uncertainties for cotton marketing and weather uncertainties for cotton production, we are in the middle of a supply chain crisis with rising input costs and limited supplies. Additionally, inflation is a major concern, with the latest annualized Consumer Price Index at 7.0 percent. Inflation translates into higher production costs for cotton producers. 

Cotton producers are wondering if they will be profitable this year under rising cotton prices and higher input costs. Figure 1 below shows the estimated costs of production for cotton in 2021 and 2022 from the University of Georgia Cotton Enterprise budgets. The total costs of production rose significantly for 2022 compared with 2021, with an average increase in total costs for irrigated land of 17.4% and a 24.7% increase in total costs for dryland production. Similar year-over-year increases in production costs have been reported for Tennessee (21% for irrigated and 27% for non-irrigated) and Mississippi (11% for irrigated and 12% for non-irrigated).^[1]This increase in input costs is largely driven by the rise in fertilizer costs, crop protection costs, land costs, and energy costs. Even though individual producers’ costs vary and are determined by their production practices, these estimates clearly show the increase in input costs year-over-year. 

To ensure profitability, producers need to have a sound plan for input use, particularly fertilizer application this year. Soil testing will allow producers to determine available nutrients and the profit-maximizing amount of fertilizer that should be applied. Additionally, producers should develop secondary plans for chemical applications (e.g., if product A is unavailable what other products can be used). All of this implies higher production costs and greater financial risk for this year and makes it more critical for producers to estimate and control their cost of production. 

The good news is high new crop cotton prices (December 2022 closed at 100.87 cents per pound on January 31, 2022), are providing potentially profitable outcomes. With a yield of 1,200 pounds per acre for irrigated land and 850 pounds per acre for dryland production, with the costs shown in the table, cotton producers would need to lock in prices at 89 cents per pound for irrigated land and 96 cents per pound for dryland to break even. Producers need to be cognizant of the elevated amount of money at risk and modify their marketing and risk management plans accordingly. Incrementally removing price risk when purchasing inputs will help mitigate some financial risk for cotton producers. As with every year, producers need to focus on managing their profit margin through sound risk management practices. 

Figure 1. The Rise in Variable Costs and Fixed Costs for Cotton Production in 2022. Source: University of Georgia Cotton Enterprise Budgets. Average of conventional tillage and strip-tillage production. Costs Exclude Land Rent.

 

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^[1] Budgets were created on different dates and have different specified costs, so some caution should be exhibited when comparing different states.

References

Estimate of 2022 Relative Row Crop Costs and Net Returns, Department of Agricultural & Applied Economics, University of Georgia, November 2021. https://agecon.uga.edu/extension/budgets.html

Cotton 2022 Planning Budgets, Department of Agricultural Economics, Mississippi State University, Budget Report 2021-01, November 2021. https://www.agecon.msstate.edu/whatwedo/budgets.php

2022 Cotton Budgets, Department of Agricultural and Resource Economics, University of Tennessee. https://arec.tennessee.edu/extension/budgets/

Liu, Yangxuan. “Rise in Input Costs for Cotton Production: Make and Keep a New Year’s Plan“. Southern Ag Today 2(7.1). February 7, 2022. Permalink

Corn prices are outside producers’ control, marketing is not. Corn prices are influenced by domestic and global supply and demand, government policies, and money flows between asset categories. While it is important for corn producers to understand and monitor factors influencing global and national prices, it is equally important to understand local market conditions and sale opportunities that can substantially increase average cash sales price. 

In general, corn prices in the Southeast are higher than the national average (Table 1 and Figures 1 and 2). Of the four states analyzed North Carolina and Texas had the highest five-year average cash price, however all four states had five-year average monthly prices greater than the national average. 2021 presented a slightly different picture with Kentucky having lower prices in six months than the national average. Additionally, both Tennessee (September) and North Carolina (August) had months with state average prices below the national average.

While Southeast corn prices are generally higher, it is important that producers understand seasonal trends, returns to storage, and historical basis to consistently obtain a higher cash price.  This is primarily due to strong demand from poultry, livestock, ethanol, distilleries, and proximity to export markets through Mississippi River terminals or ocean ports. However, tremendous variation exists between states and within states based on prevailing local supply and demand. As such, understanding local market conditions is essential. Three basic considerations that should be factored into every corn producer’s marketing plan are:

1. Typical harvest period– Harvest interval will vary by location and will influence when early harvest premiums may become available. Harvest timing can vary from year-to-year due to planting and weather, so it is important to account for both “typical” harvest timing and current growing season influences.
2. Storage – For many Southeast producers, storage is one of the most effective marketing tools. Storage can help mitigate production risk and extend the marketing interval. Storing the crop allows producers to know what they have to sell before committing to a final cash price. It is important to note that this does not eliminate the need for in-season price risk management tools (ie. options and crop insurance). Not having to sell the crop at harvest typically avoids seasonal price lows in futures markets and basis.
3. On-demand sales opportunities – Due to high demand for corn in many locations, producers who have storage can also have the ability to meet on demand requests, for a price premium, for large corn end users. To access these markets, producers need to be on the end user’s contact list to obtain emergency or short turnaround corn supplies and be able to deliver corn quickly (trucking requirement).

Producers should utilize their knowledge of local supply and demand factors to extract the highest cash price possible. Developing a marketing plan and risk management strategy that factors in national price trends and local market conditions will aid in achieving higher prices in local markets. 

Table 1. Average Monthly Corn Prices

Figure 1. Five-Year Monthly Average Corn Prices for Select Southeast States Minus the National Average

Figure 2. 2021 Monthly Average Corn Prices for Select Southeast States Minus the National Average

Smith, Aaron. “Variation in Corn Prices in the Southeast.” Southern Ag Today 2(6.1). January 31, 2022. Permalink

In the last 2-1/2 years, wheat futures prices have doubled, from just over $4.00 per bushel in June 2019 to over $8.50 per bushel this past November. This has occurred in both the hard red winter wheat (Kansas City contract) and soft red winter wheat (Chicago contract) markets.  But over most of this period, hard red winter wheat, which normally trades at a premium to soft red winter wheat, traded at a discount. From January 2006 to December 2018, the average premium for hard red winter wheat to soft red winter wheat was 34 cents. From January 2019 through August 2021, hard red winter wheat traded at an average discount of 53 cents to soft red winter wheat. September 2021 to date, hard red winter wheat is back to an average 16-cent premium to soft red winter wheat.

Figure 1. Wheat futures prices, Kansas City hard red winter and Chicago soft red winter, Tuesday close, cents per bushel

The increase in wheat prices generally is associated with tightening world supplies.  Wheat acres globally have increased over the last several years, but the world average yield has declined. Total wheat production is up only 600 million bushels (about two percent) since the 2019/20 marketing year while world domestic use has grown by 1.6 billion bushels (about six percent). World wheat days of use on hand at the end of the marketing year have declined from a 146-day supply to a current estimate for 2021/22 of 130 days.  A decline in this measure of stocks-to-use has put upward pressure on prices.  

World Wheat	2019/2020	2020/2021	2021/2022
Area Harvested, mil ac	533	546	552
Yield, bu per ac	52.6	52.2	51.9
Production, mil bu	28,006	28,510	28,609
Domestic Use, mil bu	27,218	28,462	28,867
Ending Stocks, mil bu	10,876	10,642	10,236
Days of use on hand	145.9	134.7	129.8

Hard red winter wheat is the dominant class grown in Kansas, Oklahoma, and Texas with soft red winter wheat the most common class east of a line from Dallas to Kansas City. While the price of both classes of wheat are higher in the current global environment, there are important differentials in stocks-to-use by class which may help explain the premiums and discounts between these markets. 

As with the global wheat situation, the stocks-to-use ratio for both hard and soft winter wheat have been on the decline in the U.S. the last several years. However, the decline in the stocks-to-use ratio for soft red has been sharper relative to the decline in the stocks-to-use ratio for hard red. 

U.S. Wheat by Class: Days of Use on Hand at the End of the Marketing Year

In the 2017/18 marketing year, days of use for soft red was 34 less than hard red winter. By 2020/21, soft red days on hand were 103 less than for hard red—the soft wheat supply got tighter relative to hard wheat.  The hard red winter wheat premium declined from +8 cents to a 74-cent discount.  That situation appears to be reversing in the 2021/22 marketing year. The stocks-to-use ratio for soft red winter wheat has declined at a slower rate compared to hard red winter wheat and days on hand are back to a 54-day differential—soft winter wheat supplies are more plentiful relative to hard red winter wheat.  The price relationship to date this marketing year has hard red winter back on par with soft wheat. The latest weekly price shows a premium for hard red of 22 cents.  

SRWW days of use on hand minus HRWW days of use on hand and the HRWW price premium

With the U.S. only accounting for about six percent of world wheat production, supply and demand dynamics globally will largely influence the price of wheat overall.  But important distinctions in supply and use levels by wheat class can be important in local markets. For the time being, the fundamental (supply and demand) and price relationship between hard red winter and soft red winter wheat appears to be moving back toward long-term norms.    

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Welch, Mark. “2022 Price Outlook for Hard Red Winter and Soft Red Winter Wheat.” Southern Ag Today 2(5.1). January 24, 2022. Permalink