The United States Department of Agriculture Economic Research Service (USDA-ERS) released the September Farm Income and Wealth Statistics Report on September 2, 2021. The report provided estimates of Net Farm Income (NFI), for each state, in 2020. NFI for the nation was approximately $94.6 billion in 2020, which was the highest since 2014. A key driver of this increase is due to the amount of direct government payments, which was approximately $45.7 billion. Government payments were up from $22.4 billion in 2019. The 2020 government payments account for 48.3% of NFI. Specifically, payments in the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) both increased, but the largest increase was supplemental and ad hoc disaster payments. These types of payments include payments from the Coronavirus Food Assistance Programs and other USDA Pandemic Assistance for Producers, loans from the Small Business Administration’s Paycheck Protection Program (PPP) and payments from the Wildfire and Hurricane indemnity Program (WHIP+), Quality Loss Adjustment (QLA) Program and other farm bill designated disaster programs (USDA-ERS, 2021).
Figure 1 displays the 2020 NFI totals by state for the Southern region. The region totaled approximately $19.4 billion in 2020, with the highest total being Texas, at approximately $5.6 billion. While grain crop, cattle, and hog incomes were steady or up in 2020, states with poultry production sustained a decrease in poultry income.
Figure 1. Map of 2020 Net Farm Income Totals ($1000s) (source: U.S. Department of Agriculture, Economic Research Service. FarmIncome and Wealth Statistics)
Following their normal Fall decline, calf prices across the country, including the South have bounced higher. In the last two weeks 5-600 pound calf prices in Georgia have increased from about $139 to $146 per cwt. That calf price increase is roughly in line with the average price increase over the 2015-2019 period. Lighter, 4-500 pound calves in Georgia, have seen little price increase, in contrast to sharply higher prices for lighter calves in Texas. Heavier, 7-800 pound feeder steers have increased about $10 per cwt to $130 over the last two weeks.
A couple of factors are working to increase calf prices. The first is supply related in that the Fall run of calves is over, effectively reducing supplies on the market. The second is rising fed cattle prices. Fed cattle prices crossed $130 per cwt last week after a number of weeks around $124. Higher feed costs are working against these price increasing factors. Corn prices in the Southern Plains have increased from about $5.85 per bushel to $6.11 in the last couple of weeks.
Calf prices do tend to decline by year end, on average, before rallying into the next Spring. The smaller cow herd suggests some tighter supplies of calves next year. Rising fed cattle prices would also pull calf prices higher.
The current high prices have one certain result—more corn acres. To the extent that farmers in Brazil, Argentina, and everywhere else, see these high prices they are going to increase their production. –Daryll E. Ray and Harwood D. Schafer (2012)
A fundamental approach to a commodity price outlook involves plugging in expectations for various components of the supply and demand balance sheet as well as some influence of expected returns of competing crops. How the combination of these factors impact ending stocks provides expected price direction: tighter stocks, higher prices; increased stocks, lower prices. One of the greatest uncertainties related to forming an expected corn price in 2022 is the question of acreage.
Demand. U.S. corn use over the last several years has varied little (Table 1 and Figure 1). Domestic use since 2016 has averaged 12.244 billion bushels, in a range from -178 million to +111 million from that average. Exports have been the use category that has separated total use from low to high. Total use was the lowest of the last six years in 2019/20, coinciding with the lowest exports of the time frame. Total use was the highest of the last six years in 2020/21, the year we set export records for U.S. corn. The export forecast for U.S. corn in 2021/22 is down compared to the previous year as record production is forecast from our primary export competitors: Brazil, Argentina, Ukraine, and Russia.
Table 1. U.S. Corn Use
U.S. Corn (million bu.)
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22 est.
Average
Domestic Use
12,354
12,355
12,223
12,185
12,066
12,280
12,244
Exports
2,293
2,438
2,065
1,778
2,753
2,500
2,305
Total Use
14,647
14,793
14,288
13,963
14,819
14,780
14,548
Source: USDA, WASDE, October 2021
Figure 1. U.S. Corn Use
Source: USDA, WASDE, October 2021
Supply. Since 1950, the average corn yield in the U.S. has increased at the rate of about 2 bushels per acre per year (Figure 2). The trend line yield estimate for the 2021 crop was 176.7 bushels per acre. The latest estimate from USDA for the 2021 corn crop is an average yield of 176.5 bushels per acre. Given ‘normal’ growing conditions in 2022, that trend line yield estimate is 178.7 bushels per acre.
Figure 2. U.S. Corn Average Yield and Trendline Projection
Source: USDA, WASDE, October 2021
Maximum combined planted acres of corn and soybeans in the U.S. the last five years is about 180 million acres. One early predictor of corn and soybean plantings is the relationship between soybean prices and corn prices prior to planting. Using the base prices for crop insurance set by the Risk Management Agency to calculate the price ratio (February average closing price of November soybean futures divided by December corn futures), shows a range in the soybean: corn price ratio since 2006 of 1.99 to 2.59. Years in which that ratio is relatively low, corn acres tend to increase relative to soybean acres. In years in which that price relationship is relatively high, the difference between corn and soybean plantings decreases (Figure 3). For example, in 2007, the soybean-to-corn price ratio in February was 1.99. Corn plantings that year exceeded soybeans by 29 million acres (93.5 million corn, 64.7 million soybeans). In February 2017 and 2018, the soybean to corn price ratio in February was 2.57. Plantings both those years were virtually the same for soybeans and corn (90.2 and 88.9 corn, 90.2 and 89.2 soybeans). Currently, the price ratio between November soybean futures and December corn futures is 2.25, down from 2.59 in 2021 and below the average ratio from 2006 to 2021 of 2.35.
Figure 3. Corn acres minus soybean acres, millions (2019 intended, all other actual)
But that price relationship may be affected in 2022 by soaring fertilizer prices. The price of anhydrous ammonia reported by the Agricultural Marketing Service is currently $1,135 per ton, urea is $810 per ton, and 28% liquid N is $475 per ton (USDA, AMS, 2021). Compared to the cost of nitrogen fertilizer in southeastern corn crop budgets for 2021, at 200 pounds of N per acre, the cost increases from about $80 per acre in 2021 to $180 per acre for 2022. With a 200 bushel yield, the additional cost of nitrogen alone adds 50 cents per bushel to the cost of growing corn. Soybeans, which have lower fertility requirements, would have a lower increase in the cost of production when compared to corn.
If nitrogen affordability is measured by the number of bushels of corn it takes to buy a ton of fertilizer, the current price increase is somewhat more moderate given higher corn prices (Figure 4). The average price of anhydrous ammonia since September is $884 per ton. At $5.00/bu corn, it takes 177 bushels of corn to purchase one ton of anhydrous. In 2021, that cost was 101 bushels per ton ($552/ton anhydrous and $5.45 per bushel corn), one of the lowest bushels per ton ratios of the last 25 years. The most expensive anhydrous measured in bushels of corn since 1997 was 230 bushels per ton in 2014 ($851 per ton anhydrous, $3.70 per bushel corn). The average cost in bushels per ton since 1997 is 153.
Figure 4. Anhydrous Ammonia Prices
Ending Stocks. Using an estimate of corn use and average yield, we can calculate the planted acres needed to match production to consumption. The likelihood of acres above or below this threshold guides our price outlook based on the number of acres that will tighten or build stocks (Figure 5). If we assume that total corn use in the 2022/23 marketing year is about the same as the higher levels of the last five years (14.8 billion bushels) and a trendline yield of 178.5 bushels per acre, corn plantings of 90 million acres would match production to use (assuming 92 percent of planted acres harvested for grain). U.S. farmers planted 93.3 million acres in 2021.
It seems likely that the soybean-to-corn price ratio and affordability measures of nitrogen fertilizer will influence producers’ planting decisions in 2022. Monitoring changes in these relationships over the winter may provide insight in to how this important piece of the fundamental outlook for corn shapes our price expectations and marketing decisions.
Figure 5. Planted area and yield needed to produce a 14.8 billion bushel corn crop
References:
Daryll E. Ray and Harwood D. Schaffer,” Production destruction leads to both short-term and long-term demand destruction”, Agricultural Policy Analysis Center, University of Tennessee, Knoxville, TN; August 3, 2012.
Sales of organic specialty crops grown in the U.S. rose by about 124 percent from 2014 to 2019, according to the Organic Survey conducted by the U.S. Department of Agriculture. Sales of organic U.S. vegetables increased from $1,248 million to $2,084 million during that period, while sales of organic fruits and tree nuts more than tripled from $586 million in 2014 to $2,022 million in 2019. Top organic vegetables grown in the country in 2019 were lettuce ($400.11 million), spinach ($179.50 million), potatoes ($154.94 million), tomatoes (132.33 million), and carrots ($131.81 million); they constituted 47.9 percent of the U.S. organic vegetables sold. On the other hand, 75.8 percent of all organic fruits sales were for apples ($474.70 million), grapes ($332.49 million), strawberries ($320.79 million), blueberries ($205.23 million), and citrus ($115.87 million). In 2019, organic tree nuts sales totaled $109.75 million, and the main crops grown were walnuts, almonds, pecans, pistachios, and hazelnuts.
For the 2021 program year, the U.S. had a total of 246,601,268 enrolled base acres across 23 covered commodities, ranging from feed and food grains to various major and minor oilseeds and seed cotton. The 13 Southern States (Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia) accounted for 50,459,543 acres or 20 percent of the U.S. total.
Looking at enrolled crop bases for the 2021 program year, the South accounted for a relatively low percentage of corn and soybean bases (9% and 14%, respectively). The Southern States accounted for over 90 percent of seed cotton, long grain rice, and peanut base acres, which makes sense as these three commodities are generally grown in warmer climates and are often referred to as “Southern crops”. While the share of wheat base in the Southern States was only 24 percent of the U.S. total, the 14,734,976 acres of wheat base represented the largest raw number of base acres of any single crop in the 13-state region.
Table 1. Enrolled Base Acres for the 2021 Program Year.
These seven crops accounted for 49,807,514 of the 13 Southern State total of 50,459,543 base acres (or 98.7 percent), indicating there are very few enrolled base acres of other covered commodities on farms located in the South.
