Category: Crop Marketing

As soybean producers prepare for the upcoming growing season, global soybean stocks are exerting a bearish influence on the market. Currently, USDA projects the 2024/25 marketing year to have a record-high level of ending stocks at 131.87 million metric tons. If realized, this would be 17.62 million metric tons greater than the previous record high in 2018. The final estimate for ending stocks will depend on how the South American crop concludes. So far, Brazil has experienced favorable weather conditions, making it likely that it will achieve its estimated record soybean production this year. The outlook for Argentina is less certain.

The majority of the increase in global soybean stocks can be attributed to one country (Figure 1). China holds the largest share of these stocks, with 46.01 million metric tons, marking an 83% increase since 2021. This growth accounts for 53% of the overall increase in global stocks during the same period. Brazil and Argentina have seen a 22% increase in ending stocks since 2021. In contrast, of the four major countries in soybean markets, the United States maintains the smallest amount of stocks at 12.8 million metric tons, but this still reflects a 71% increase since 2021.

Another way to analyze ending stocks is by comparing them to a country’s annual usage, which can be illustrated through the concept of days-on-hand. Figure 2 shows the days-on-hand globally and for Argentina, Brazil, China, and the United States. Global days-on-hand are projected at 119 days, the second highest on record. Before 2022, China never had more than 92 days on hand but is currently projected to have a record 132 days of soybeans on hand. Argentina has increased from a decade-low of 152 days on hand in 2022 to a record 199 days on hand in 2024. The United States is projected to have 119 days of soybeans on hand, the second-highest figure since days-on-hand peaked during the 2018 trade war with China.

Due to the current high levels of stocks projected by the USDA, soybean prices are expected to remain weak in early 2025. With a record crop expected from Brazil, the market is unlikely to see significant upward price movements in the coming months. While changes in weather conditions or harvest delays in South America could potentially drive prices higher, producers may have to wait until the market shifts its focus to the planting of the upcoming U.S. soybean crop before witnessing any substantial increases in prices. Given the uncertainty regarding future price direction, it is essential for producers to start preparing a marketing plan for the upcoming year and be ready to take advantage of profitable prices if they arise.

Figure 1. Global Soybean Stocks by Country; 2019-2024

Figure 2. Soybean Days-On-Hand; World and Select Countries; 2000-2024

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Maples, William E. “Record High Global Soybean Stocks.” Southern Ag Today 5(2.3). January 8, 2025. Permalink

Farming in 2025 will be challenging for many row crop producers. Low commodity prices, disappointing 2024 yields, high input costs, and policy uncertainty will require crop farmers to make important agronomic, financial, and risk management decisions. Below are a few points to consider during the planning process.

1) Commodity prices are low and there is currently nothing on the radar that would indicate substantial improvement will occur in 2025. Drought (beyond just the southern region), production disruptions abroad, and geopolitics could improve price prospects, but at this point in time, increases in commodity prices are highly uncertain and mostly wishful thinking.

2) Trade/retaliatory tariffs are a concern and provide the potential for substantial downside price risk in commodities that are heavily reliant on export sales, like soybeans and cotton. Protecting against downside price movements should be considered.

3) Producers need to distinguish between cash versus non-cash costs (capital recovery) in the short term. We can farm in the short-term covering cash costs, but in the long term we need to cover total economic costs. 

4) Input costs and profit margins need to be managed effectively – do not cut costs at the expense of yield but do not pursue the highest yield possible. Approximately 90% of cash costs are in five cost categories: land, seed, chemical, fertilizer, and operating expenses for equipment (fuel, labor, repairs and maintenance). Farmers should evaluate the efficiency of these five costs to assist in managing profit margins.

5) Secure financing early. It will be a challenging year for many farmers to secure operating credit for 2025. Obtaining financing needs to occur as early as possible. Understand your financial position and how lenders evaluate credit applications. There are five main factors lenders consider: repayment, liquidity, solvency, collateral, and relationship. Which factors lenders emphasize, and the ratio or measure to evaluate the factor, will depend on the agricultural lender or credit provider. Talk to your primary lender early and often.

6) Develop a marketing and risk management plan that includes crop insurance, storage analysis, contracts, futures, and options. Do not use the same marketing and risk management strategy in the current market environment as when we had higher prices and higher volatility two years ago.

7) There is the potential for payments from the federal government (FARM Act? or other Ad Hoc legislation) and a new Farm Bill is possible in 2025. Until they are realized, it is not advised to incorporate these potential payments into the 2025 financial plan. If realized, they are a bonus.

Due to the above challenges and the complexity of modern farming, it is essential for farmers to surround themselves with a strong support network. Important roles in farmer support networks include:

Lawyer – Having appropriate legal advice is essential for agricultural enterprises. This can include a local lawyer for general legal matters but may also include specialized legal advice for more complex legal concerns. Paying for specialization is often cheaper in the long run. 

Accountant – Nobody likes paying taxes, but it is essential for farmers to obtain assistance when preparing tax returns, planning purchases, or transitioning the farm to the next generation. A good accountant can save you money and assist if you have issues with the IRS. 

Crop Insurance Agent – Crop insurance is the primary risk management tool for most crop producers. Crop insurance can be complicated to navigate and requires individual, policy-specific analysis to ensure you are receiving the most effective coverage for the premium paid. 

Agricultural Lender – Agriculture is a capital-intensive business. Adequate and consistent access to operating and term debt is essential for most farmers. Having a primary agricultural lender that understands your operation and that will stick with you through agricultural cycles is imperative. This is not to say that all credit will be obtained through one lender. Farmers need to make sure that the cost of credit is fully analyzed and that decisions make financial sense. 

Broker / Marketer / Grain Merchandiser – Marketing is not a strength for most farmers. However, in times of low prices and tight margins, marketing can be the difference between profit and loss. Obtaining expertise or a second opinion can be a tremendous benefit.

Crop Consultant / Agronomist – Every production year is different and will require problem solving so a crop can be produced and sold. Yield is important; however, in periods of low prices and elevated input costs, it is essential that each input pulls its own weight economically. The cost of the input must be fully covered by financial benefits. A good agronomist can help navigate the agronomic challenges of the production season. 

Extension Agent / Specialist – Extension provides a network to problem solve and connect producers with expertise to address problems and verify information independent of a financial motive. Searching the internet can be a powerful tool to assist in decision making. However, the internet has carpet bombed the information landscape with unreliable advice, opinions, and conspiracies, so be wary of information sources. 

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Smith, Aaron. “2025 Crop Planning.” Southern Ag Today 4(51.3). December 18, 2024. Permalink

Statistically generated near-term price forecasts are useful to compare/contrast with Extension ad hoc price estimates, USDA monthly price estimates, and trade price estimates.  Ongoing cotton price forecasting research at Texas A&M University provides some timely short-term (monthly average) price forecasts that shed light on the 2024 season.

As depicted in Figure 1, over the period January 2014 to August 2024, ICE No.2 cotton monthly average futures prices ranged from 53.75 cents per pound to 146.17 cents per pound, averaging 78.23 cents per pound. The first nine years of this data were used as the training sample for model construction, while the 2024 monthly average prices were used for out-of-sample forecasting using a structural econometric model described in the next paragraph.  

Structural econometric models consider the direct effects of specific variables on our dependent variable of interest:  ICE No. 2 cotton futures prices.  Our best working model specifies monthly average nearby ICE cotton futures as being explained by the monthly stocks-to-use ratio, real disposable personal income, real retail clothing sales, real personal consumption expenditures, the Michigan consumer sentiment index, seasonality indicator variables, and various qualitative factors.  We hypothesize that ICE NO.2 cotton futures prices are positively related to real retail clothing sales, real disposable personal income, real personal consumption expenditures, and the Michigan sentiment index but negatively related to the stocks-to-use ratio.  After estimating the model coefficients, the signs and magnitudes of the continuous variables in the model conform to prior expectations. This model accounts for roughly 96 percent of the variables in monthly average nearby ICE No.2 cotton futures prices.  The results indicate the absence of autocorrelation in the residuals.

Using our econometric model to forecast prices, on average over the out-of-sample period January 2024 to August 2024, the price forecasts deviated from the actual values by 7.75 cents per month (also known as the Mean Absolute Error), or roughly 9.7 percent (also known as Mean Absolute Percent Error). In other words, the out-of-sample ex post forecasts are, on average, higher than the actual monthly average nearby ICE cotton futures price.  This result continues with the most recent model forecasts:

• September 2024 Forecast: 76.87 cents per pound (Actual:  70.68 cents per pound)
• October 2024 Forecast: 78.66 cents per pound (Actual: 71.65 cents per pound) 
• November 2024 Forecast: 77.60 cents per pound (Actual: 70.03 cents per pound).

So, what does this mean?   The results of an otherwise well-fitting statistical model suggest what cotton growers already knew:  2024 was an abnormal year.   The nearly thirty-cent decline in monthly average nearby prices between March and August was a statistical anomaly that our model cannot predict.  

These kinds of things suggest there are atypical factors affecting price forecasts, which means adjustments need to be made by considering market forces that are not captured by economic modeling.  

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Robinson, John. “A Statistically Lousy Year for Cotton Prices.” Southern Ag Today 4(50.3). December 11, 2024. Permalink

As the 2024 peanut harvest wraps up, peanut prices remain relatively stable compared to prices of other crops. Corn, soybeans, cotton, wheat, and rice have had significant price decreases since the 2022/23 marketing year, while peanut prices have experienced only a slight decrease over that period. Peanut prices are projected to average $530 per ton for the 2024/25 marketing year, just below the $536 and $538 per ton observed for the 2022/23 and 2023/24 marketing years, respectively. This price stability comes as peanut ending stocks have remained low and stable, which is expected to continue into the 2024/25 marketing year.

Figure 1: Peanut Production, Disappearance, and Ending Stocks by Year

Peanut production is expected to increase in 2024, driven by the 10% increase in planted acreage. If current USDA projections are realized, peanut production would total 3.3 million tons, an 11% increase from 2023, as shown in the orange line of figure 1. Georgia leads the way with an expected 1.65 million tons of peanut production, followed by Florida (297,850 tons), Alabama (297,600 tons), and Texas (262,500 tons). The increased nationwide production comes despite a projected U.S. peanut yield of just 3,723 lb. per acre, which is 1.4 percent below the 2023 yield and the lowest yield since 2016. 

On the demand side, peanut disappearance is projected to keep pace with the increased production, as shown by the bars in Figure 1. Peanuts processed for domestic food products, which account for about half of U.S. peanut disappearance, are expected to increase by 1% to 1.58 million tons. Peanut crush is expected to increase by 22%. In contrast, exports are forecast to decrease by 18% to 600,000 tons. As a result of the strong production, ending stocks are expected to increase to 823,000 tons, but this would still be the second lowest total since 2016. Overall, these tight supplies may suggest that peanut prices remain favorable next year. Despite the relatively favorable peanut price situation, peanut profitability remains a major concern due to the elevated production costs identified in the article titled “The Long Term Economic Struggles of Southern Peanut Farmers.”

Sources:

USDA Economic Research Service. Oil Crops Outlook: November 2024. Available at: https://www.ers.usda.gov/publications/pub-details/?pubid=110380

USDA. Peanut Stocks and Processing: November 25, 2024. Available at: https://usda.library.cornell.edu/concern/publications/02870v87z

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Sawadgo, Wendiam. “Peanut Stocks Expected to Remain Low in 2025.” Southern Ag Today 4(49.3). December 4, 2024. Permalink

With several key moves during the 2024 rice market, and harvest behind us, we can let the dust settle and make some observations and conclusions as we look toward 2025. A major shift in domestic production patterns emerged in 2022; volatile input costs, triggered by the Russian-Ukraine War and supply chain disruptions, led to a decline in rice acreage as southern U.S. farmers opted to grow less input-intensive crops like soybeans and corn. These challenges were exacerbated by a severe drought in California that substantially reduced short/medium grain rice production. Rice production rebounded in 2023 and maintained that level in 2024, when more stable fertilizer prices shifted producers back to rice to counter the risk of lower prices, as was the case in other commodities (Figure 1). Recent conversations with agronomists indicate that U.S. rice farmers may maintain or expand rice acreage and production in 2025.

Figure 1. U.S. All Rice Class Production and Acres Harvested (2014 – 2024)

The November 2024 World Agricultural Supply and Demand Estimates (WASDE) report indicates the current outlook for U.S. rice is for larger ending stocks, weaker exports and unchanged supplies and domestic use from October 2024 (USDA-AMS, 2024). All rice exports combined are lowered 1 million cwt to a total of 100 million. All rice ending stocks are increased 1 million cwt to 46.7 million, a 19% increase from the 2023/24 marketing year. The seasonal average farm price for long grain and southern short/medium grain is unchanged at $14.50/cwt, suggesting a cautious domestic response to the stock increases (Figure 2).

Figure 2. Rice Marketing Year Average Farm Prices (2020/21 – 2024/24F)

Internationally, it’s important to note the spread between India’s rice, Thailand/Vietnam rice, and U.S. milled rice. U.S. long grain is and has remained for several months at $800/metric ton, while Vietnam and Thailand are currently selling at $550 and $500/metric ton, respectively. The price gap widened following the September 2024 lift of India’s export ban on non-basmati milled rice. Currently, India has set the price floor at $490/metric ton. India’s return to the international market has forced Thailand and Vietnam to lower their prices by 10-13%, impacting demand for U.S. long grain rice in countries like Iraq. Iraq’s preference for cheaper rice from Asia, influenced by the price differential, has reduced demand for U.S. rice exports and poses a challenge for U.S. farmers (Childs and Jarrell, 2024). 

Looking ahead, global rice exports for 2025 are expected to increase by 4% YoY, bringing total exports to 56.3 million metric tons. India is projected to reclaim much of their share, reaching a volume of 21 million tons. However, countries like Pakistan, Thailand, Vietnam, and the United States are expected to see a decline in export volumes (Figure 3). 

Figure 3. Milled Rice Exports (2020/21 – 2024/25Nov)

References

United States Department of Agriculture, Agricultural Marketing Service. (2024). World Agricultural Supply and Demand Estimates (WASDE-654). Retrieved November 9, 2024, from, https://www.usda.gov/oce/commodity/wasde/wasde1124.pdf

United States Department of Agriculture, Foreign Agricultural Service – PSD Reports. (2024). World Rice Trade. Retrieved November 9, 2024, from, https://apps.fas.usda.gov/psdonline/app/index.html#/app/downloads

United States Department of Agriculture, National Agricultural Statistics Service. (2024). Rice Production and Acres Harvested. Retrieved October 2024, from, https://quickstats.nass.usda.gov/

Loy, R., and Hunter, B. (2024). The Disparity Between Crop Prices Received and Input Prices Paid.” Southern Ag Today 4(28.3). July 10, 2024. Available at, https://southernagtoday.org/2024/07/10/the-disparity-between-crop-prices-received-and-input-prices-paid/

Childs, N., & Jarrell, P. (2024). Rice outlook: October 2024 (Report No. RCS-24I). U.S. Department of Agriculture, Economic Research Service. Retrieved November 2024, from, https://www.ers.usda.gov/webdocs/outlooks/110219/rcs-24i.pdf?v=5219.8

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Loy, Ryan. “Sifting through the Rice Market: Rising Supplies and Growing Competition.” Southern Ag Today 4(48.3). November 27, 2024. Permalink