Category: Crop Marketing

Peanut production was up 4% in the United States in 2021, compared to 2020, as shown in Table 1. This was driven by strong yields nationwide of 4,135 lbs. per acre, just off the 2012 record of 4,211 lbs. per acre. Georgia – the largest peanut producing state – saw a 2% increase in production. This pushed the U.S. average up, as Georgia produces about half of the nation’s peanuts. The increased production comes despite a 5% decrease in peanut planted acreage nationwide. All three main peanut production regions saw declines in acreage, with the Southeast seeing a 5% decline driven by Georgia’s 7% dip.

Table 1. U.S. Peanut Production (thousand tons)

The strong production, however, has been combined with decreased use that is expected to increase peanut stocks. Peanut use is expected to decline by 4% this marketing year, primarily due to a 5% forecasted decrease in exports. However, food disappearance is expected to increase by 1% from 2020. Increases in consumption of peanut butter (5%), peanut candy (4%), and peanut snacks (3%) drove the domestic peanut food demand increase during the 2020-2021 marketing year, as shown in Figure 1. The peanut butter consumption increase follows the similar-sized increases observed the previous year, as demand has increased throughout the COVID-19 pandemic. Peanut stocks are expected to increase by 5% to 1.1 million tons, which is still a manageable level for the industry.

  Figure 1. U.S. Peanut Food Consumption by Product and Marketing Year

Sawadgo, Wendiam. “Peanut Production Up in 2021 Despite Lower Acreage“. Southern Ag Today 2(13.1). March 21, 2022. Permalink

Global commodity markets have been affected by the Russian invasion of Ukraine on February 24, 2022. Energy prices have skyrocketed.  The American Automobile Association estimated the national average gas price in the United States at $4.32/gallon on March 10. Implications of the conflict are far reaching, affecting nearly all aspects of the global economy. Agricultural producers have been affected on two fronts, input prices (fuel, fertilizer, etc.) and commodity prices (wheat, corn, and soybeans). The focus of this article is the impact on grain and oilseed markets and marketing tools that producers may want to consider to help mitigate price risk.

Ukraine is an important producer and exporter of wheat, corn, barley, and sunflower seed products.  Table 1 shows Ukraine’s share of world production and their share of world exports for these commodities. While Ukrainian corn represents only 3.5% of world production, it accounts for 13.8% of world exports.  Meanwhile, Ukraine produces almost a third of the world’s sunflower seed, which is then turned into about half of the world’s meal and oil exports.  Sunflower seed oil production and exports in Ukraine have some ramifications for soybean oil and soybean prices as imperfect substitutes.

Table 1. Ukraine’s Share of World Production and Exports for Select Commodities, 2021/22

	Wheat	Barley	Corn	Sunflower Seed	Sunflower Seed Meal	Sunflower Seed Oil
Production	4.2%	6.8%	3.5%	30.6%	27.5%	30.6%
Exports	9.8%	16.7%	13.8%	4.8%	58.0%	47.3%

Source: USDA PSD https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

Volatility in corn, wheat, and soybean futures markets have been extreme (Figures 1-3). For example, daily price changes for July wheat for the past ten trading days have been: -75, 67, 50, 74.25, 75, 59, 77.25, -57.25, -85, and -67.5 cents. Extreme volatility can make marketing decisions challenging and potentially expensive. However, volatility also often provides opportunities for profit. Three months ago, every farmer would have jumped at the ability to sell wheat futures at $9.00; now farmers can set a futures price floor at $9.62. Purchasing put options is expensive – $1.48 for an at-the-money put as of March 9. However, with a gap between the fall crop insurance price of $7.14 and current market offerings of $11.10, taking some additional downside risk off the table while leaving the top side open is a prudent move.

Corn and soybean projected crop insurance prices were set 10 days ago at $5.90 and $14.33, respectively. Harvest futures prices on March 10 were $6.50 for corn and $14.95 for soybeans, an increase of 60 and 62 cents, respectively. Producers should be asking themselves at what point they should take some additional price risk off the table. Being too aggressive with setting prices (i.e. cash forward contracts and short hedges) should be approached cautiously as producers need to avoid exchanging price risk for production risk or selling their way out of a bull market. However, managing the downside price risk should be on every producer’s mind, particularly with input prices at elevated levels.

Grain and oilseed markets are likely to remain unpredictable, due to uncertainty generated from the Russia-Ukraine conflict. Producers should consider how much of the 2022 crop they are comfortable pricing at this point in the year and how they can protect the downside of this market while keeping the upside open. Options strategies will be expensive but should be fully explored based on current market conditions.

Figure 1. Daily July Wheat Futures, January 3 to March 10, 2022

References and Resources:

USDA – Foreign Agricultural Services. Production, supply, and distribution (PSD). Accessed at: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home

Barchart.com. Corn soybean and wheat historical futures prices. Accessed at: https://www.barchart.com/futures/grains?viewName=main

AAA – https://gasprices.aaa.com/

Smith, Aaron. “Ukraine-Russia Implications in Grain and Oilseed Markets“. Southern Ag Today 2(12.1). March 14, 2022. Permalink

Production and supply of a crop is a critical component for the market outlook for every marketing year.  For the cotton crop, U.S. planted acreage outcome is a major part of the global cotton production and supply.

Grower surveys are one common method for predicting cotton planted acreage. One of the earliest publicly available grower planting intentions surveys is measured in December by Cotton Grower magazine and published in early January.  Similarly, the National Cotton Council measures grower intentions in the weeks before and after New Year’s Day and publishes the result in February.  In 2022, these two surveys measured 12.5 million and 12.0 million planted acres of U.S. all cotton (upland and Pima combined), respectively.  USDA will subsequently measure grower planting intentions in March, and then survey planted acreage in June.

A second approach to predicting cotton plantings is by focusing on the relative price of competing crops.  In the eastern half of the Cotton Belt, cotton competes largely with corn, soybeans, and peanuts.   In the Southern Plains region, the major alternatives are corn, sorghum, and wheat-fallow.  A simple method for predicting cotton plantings is, for example, matching the ratio of new crop corn and cotton future prices to U.S. cotton plantings (Figure 1). So far, the Dec’22 CBOT corn/Dec’22 ICE cotton futures price ratio has been ranging between 5.7 and 5.9 during the first quarter of 2022.  Assuming the price ratio stays at that level, history suggests an outcome of between 12 and 13 million planted acres of U.S. all cotton (see Figure 1). This is similar to the early surveys of growers.

Note that the dryer-than-normal conditions in the central and western Cotton Belt, along with an insurance price above $1.00 per pound, could add 500,000 to 1,000,000 planted acres in the Southern Plains region, albeit with uncertainty in the abandoned acres at the end of the season due to possible drought impacts.

Assuming 13 million planted acres in the U.S. with an average/higher abandonment (20%) and 10-year average yield (850 lbs), the U.S. would produce over 18 million bales of cotton in 2022, with over 21 million bales of supply.  Assuming U.S. domestic spinning is 2.6 million bales and U.S. exports are 15 million bales, the result could be another year of U.S. ending stocks around four million bales.  That year-over-year change in ending stocks would be considered price neutral.  This year that suggests that new crop futures prices may be fundamentally supported at historically high levels, with weather market speculation providing additional upside volatility.

Figure 1. Ratio of December Corn/Cotton Futures and All Cotton Planted Acreage in the United States

Robinson, John. “U.S. Cotton Planted Acres“. Southern Ag Today 2(11.1). March 7, 2022. Permalink

For many feed grain producers, 2021 was a profitable year; however, the uncertainty and risk associated with the 2022 corn crop is elevated. Following is a look at how the components of the supply and demand balance sheet might provide price direction as we head into the new crop season.  Importantly, is there a likelihood of an increase in ending stocks that puts downward pressure on prices, or might stocks get tighter and prices go higher? 

USE:  U.S. corn use over the last six years has ranged from a low of 14.0 billion bushels (2019/20) to a high of 14.8 billion bushels (2017/18, 2020/21, 2021/22).  Domestic use over this time frame is little changed, varying in a range from 12.1 to 12.4 billion bushels. 

Looking at the major use categories, growth in the corn for fuel use category seems limited due to uncertainty around the Renewable Fuel Standard and gasoline demand projections.  With rising fuel-efficiency ratings and a growing number of vehicles on the road that do not use gasoline, the Energy Information Administration forecasts motor gasoline demand in the U.S. (the foundation of ethanol demand) to decline over the next several years in its Annual Energy Outlook (https://www.eia.gov/outlooks/aeo/). 

Impacting the corn for feed category is a decline in grain consuming animal units (GCAU) over the last two years and a decline in energy feed per GCAU over the last five years (https://www.ers.usda.gov/data-products/feed-grains-database/). 

Food, seed, and industrial use (other than ethanol) have held steady in a range from 1.415 to 1.453 billion bushels since 2016.

Exports have been the use category with the most variability over the last several years and have therefore had the most impact on ending stocks. U.S. corn exports hit an all-time record high in 2020/21 at 2.753 billion bushels. Corn production from the top four competitors for U.S. corn exports: Brazil, Argentina, Ukraine, and Russia, is forecasted to be at record high levels in 2021/22, while U.S. exports are projected to be back down to 2.425 billion bushels. High corn prices provide incentives for producers all around the world to increase acres.  At the time of this writing, the conflict between Russia and Ukraine has the potential to upset grain flows from the Black Sea region, an important component of the global grain trade.  

SUPPLY:  One of the greatest areas of uncertainty for 2022 is the impact of record-high fertilizer prices and crop input availability. How will this impact farm productivity, profitability, and planting decisions? Will farmers opt for crops that are less fertilizer intensive given these high input costs? Will herbicide cost and availability shift planting decisions to crops with a wider range of alternative crop production systems that are less reliant on over-the-top herbicides? The current ratio of soybean to corn prices suggests net farm returns are about equal between these two crops in Midwest crop budgets (farmdoc dailyhttps://farmdocdaily.illinois.edu/2021/12/2022-updated-crop-budgets.html).  Late-spring input pricing and input product dealer inventories may keep the acreage question unanswered longer than normal this spring.  

ENDING STOCKS AND PRICE:  If farmers plant about the same number of corn acres in 2022 as 2021 (about 93 million), we once again achieve a trendline yield (about 179 bushels per acre), and projected use holds steady in 2022 as currently projected for 2021, total production would exceed the 14.8 billion bushels of projected use. That would increase ending stocks in 2022 and fundamentally put downward pressure on prices.  

RISK MANAGEMENT:  A primary area of financial risk in 2022 is that producers will have locked in high input costs early in the season only to see prices fall significantly by harvest. This highlights the importance of a two-prong approach to risk management. First, focus on cost management and input use efficiency while maintaining productivity. This is to get the break-even cost as low as possible. Second, have an accurate estimate of break-even cost and a plan and the tools in place to not let profitable price opportunities get away.  

Welch, J. Mark. “2022 Corn Outlook“. Southern Ag Today 2(10.1). February 28, 2022. Permalink

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