Category: Crop Marketing

Historically, the harvest futures price from December 1 to March 31 can be a key predictor of planted acreage for spring crops. From 2010 to 2021, the monthly average futures price from December 1 to March 31 for soybeans (SX) divided by corn (CZ) has been 2.39, and corn (CZ) divided by cotton (CTZ) has been 5.85. A soybean-to-corn price ratio below 2.39 would tend to favor planting corn over soybeans and a corn-to-cotton price ratio above 5.85 would favor corn over cotton (Figure 1). So, with relative prices favoring corn and cotton, should we expect a reduction in soybean acres in 2022? Maybe not. 

Figure 1. December 1 to March 31 monthly average futures closing price ratio for the harvest contract (December = Corn; Soybeans = November; and Cotton = December), 2010-2022*

Commodity price ratios may not dictate producer decisions on what to plant in 2022. Instead, input cost and availability may be the driving force. High input crops, like cotton and corn, are at a disadvantage compared to lower input crops like soybeans and sorghum. High input prices reduce profit margins, and potential lower input availability increases production risk. 

Using fertilizer as an example, retail prices (Figures 2 & 3), are up 62-176% compared to last November. To put this in context, from 2010 to 2020 for the Mississippi Portal Region, USDA ERS estimates the cost of fertilizer to be 4.49 times more expensive for an acre of corn than for an acre of soybeans and 2.64 times more expensive for an acre of cotton compared to an acre of soybeans. As such, a doubling in fertilizer prices can add $100-150 or more per acre to producer’s production costs for corn, whereas for soybeans, fertilizer costs may only go up $20-35 per acre with a doubling of fertilizer prices. Producers will need to estimate profitability and risk for each commodity when making planting decisions. 

Figure 2. Select weekly fertilizer prices November 2019 to November 2021

Figure 3. Select weekly fertilizer prices November 2019 to November 2021

Smith, Aaron. “Input Price and Availability is Influencing 2022 Planting Intentions“. Southern Ag Today 2(3.1). January 10, 2022. Permalink

The National Peanut Board recently reported that per capita peanut consumption in the U.S. reached an all-time high of 7.9 pounds in 2021 (National Peanut Board, 2021). This is an increase from a record 7.6 pounds per capita in 2020.  Peanut consumption has increased domestically since the beginning of the pandemic led by peanut butter use.  The industry faced challenges of restocking grocery shelves after shoppers emptied them of peanut butter.  The JM Smucker Company reported 7.1% growth in peanut butter consumption in 2020 (JM Smucker Co., 2021). The growth was due to increased consumers working and schooling at home and an increased demand from food banks.  Peanut butter usage on a shelled raw basis was up 2.7% from August 2020 to July 2021 according to the USDA National Agricultural Statistics Service (2021).  This was above the six-year average of 1.93%.  Peanut butter makes up 58.9% of total shelled usage followed by snacks at 20.6%, candy at 17.6% and other uses at 2.95%.

Figure 1. Shelled Peanut Use (Raw Basis) of Primary Peanut Products, 2015-2020 Marketing Years.

The trends for shelled peanuts used domestically in primary peanut products is shown in Figure 1.  Peanut butter has increased at a rate of 1.9% over the last six years and averaged 2.6% since 2017.  Candy usage has grown at a rate of 2.5% over the last six years and averaged 3.5% since 2017.  Snack usage has remained flat over the same time period.  What about the 2021 crop marketing year beginning August 1, 2021?  The latest data shows usage for the first three months of the marketing year to be below last year by 2.9%.  Peanut butter usage is down 4.3%, candy up 2.7% and snacks down 5.7%.  The data suggest there might be a softening of shelled peanut usage.  The first three months of the marketing year represent old crop peanuts and a larger 2021 crop should start having an impact as we enter 2022.   Consumers have returned to the workplace and children are back in school.  Time will tell if shelled peanut domestic use has softened or if logistic challenges are impacting reporting. 

Citations:

JM Smucker Co., (2021) “Peanut Butter and Jelly: The Ultimate Pandemic Comfort Foods”  Press Release.  December 17, 2020. https://www.jmsmucker.com/news-stories/stories/22876.

National Peanut Board, (2021) “Peanut Per Capita Consumption Breaks New Record for Second Year in a Row” Press Release. October 21, 2021,https://www.nationalpeanutboard.org/news/peanut-per-capita-consumption-breaks-new-record-for-second-year-in-row.htm. 

USDA National Agricultural Statistics Service, (2021) “Peanut Stocks and Processing” ISSN: 1949-1875, August 27, 2021, https://downloads.usda.library.cornell.edu/usda-esmis/files/02870v87z/41688g448/9593vt44b/pnst0821.pdf. 

Smith, Nathan. “Is Shelled Use of Primary Peanut Products Softening?“. Southern Ag Today 2(2.1). January 3, 2022. Permalink

In the past marketing year, the U.S. exported a total of 7.19 million MT of sorghum (milo) with an estimated value of $1,991 million, according to USDA Foreign Agricultural Service. Sorghum exports in 2020/21 are among the highest export levels in history and only surpassed by the exports observed in 1989/90, 2014/15, and 2015/16. The U.S. is the world’s leading sorghum exporter, followed by Argentina. Last year, about 87% of total U.S. production was exported. For instance, 2020/21 U.S. sorghum exports represented 65% of world exports. Moreover, in the last 30 years, U.S. sorghum accounted for about 73% of all international exports. Recent increases in export demand improved the local sorghum/corn price ratio from 0.93 in 2017-19 to 1.03 in the last two marketing years.

Historically, Mexico, Japan, and Sub-Saharan African countries have been the principal importers of U.S. sorghum. Since 2013/14, China has become the primary buyer, compensating for the loss of traditional market destinations. Specifically, China imported 94% of total U.S. sorghum exports during 2020/21, and about 81% of the total U.S. sorghum exports since 2013/14. Exports to China have increased by 1,029% from 2018/19, and nearly doubled from 2019/20. The US-China Phase One Trade agreement (i.e., compared to corn and wheat, U.S. sorghum exports are not subject to tariff-rate quotas), the recovery of the Chinese swine sector severely affected by the African swine fever, and relatively higher corn prices have supported high exports of U.S. sorghum to China during the last two years. 

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Abello, Pancho, and Samuel Zapata. “U.S. Sorghum, An International Commodity.” Southern Ag Today 1(51.1). December 13, 2021. Permalink

Squeeze situations in financial markets have been in the news this year.  In early 2021, the stock of the company GameStop was subject to extreme price volatility as a large number of short sellers were forced to buy back their positions while other traders were buying the stock aggressively.  Squeeze plays exist in commodity futures markets, too.  A common example of this can happen with short speculators in a rising futures market.  Assuming those speculators can’t deliver the physical commodity against their short futures position, they are left having to buy their way out of their short futures position, which contributes to upside price volatility.   

A different version of this short squeeze situation is playing out in ICE cotton futures in the current marketing year.  The set-up for this situation involves a number of things.  First, there is a physical supply imbalance in the form of the very low level of physical “certified stocks” of cotton that are eligible for delivery against ICE cotton futures contracts, as shown in Figure 1.  Daily certified stock levels are published daily by the ICE.  

Second, there is a historically high level of “unfixed call sales” contracts, especially on the Mar’22, May’22, and Jul’22 cotton contracts.  Unfixed call sales represent un-finalized basis contracts between merchants and mills which will eventually require buying of futures to fix the price. This situation is reflected by weekly data published by the U.S. Commodity Futures Trading Commission.  

Third, there is also historically large, long speculative positioning in ICE futures, including both hedge funds and index funds.  With the current expectations for rising inflation, speculators who are long cotton futures may hang on to, or even expand their long futures position in ICE cotton.  This could lead to continued futures price volatility, especially during February, April, and June. 

Chart Source:  Author compiled with data from USDA Ag Marketing Service (https://www.ams.usda.gov/market-news/cotton-tobacco ) and cotton certified stocks from the Intercontinental Exchange (https://www.theice.com/marketdata/reports/4/product/588/hub/732/isOption/false/isSpread/false ).

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Robinson, John. “Current “Squeeze” Dynamics in ICE Cotton Futures.” Southern Ag Today 1(50.1). December 6, 2021. Permalink