Corn and Soybean Supplies Likely to Remain Tight

The USDA released the first estimates for the ’21-’22 at the Agriculture Outlook Forum held 02/18-02/19. 

The initial estimates appear to be supportive for US corn and soybean prices.

The USDA is estimating that corn will be planted on 92 million acres and soybeans will be planted on 90 million acres. The combined 182 million acres of corn and soybeans is a record, indicating that farmers will be eager to plant in hopes of benefiting from prices that are currently trading at 8 and 7-year highs, respectively. 

The USDA is estimating corn yields of 179.5 bushels per acre (bpa) and 50.8 bpa for soybeans. About 92% of the corn acres are expected to be harvested for grain while that figure for soybeans is expected to be 99%.[1] 

The math (yields x harvested acres) point to a record US corn and soybean production for the ’21-’22 crop year (15.150 billion and 4.525 billion bushels, respectively). Yet this record production, if achieved, will do little to alleviate tight US corn and soybean balance sheets; assuming USDA usage estimates prove accurate. 

The USDA is estimating record high corn usage of 15.125 billion bushels and near record soybean usage of 4.534 billion bushels. Ultimately, after considering beginning stocks,[2] US corn supplies are estimated to increase by a mere 50 million bushels or roughly 3%, whereas US soybean supplies are estimated to increase by 25 million bushels or 20%. Even though the percentage increase in soybean supply appears large, one must remember that with current crop year-end supplies at only 120 million bushels, the US has one of the lowest estimated stock levels in the last 7 years while in the midst of robust soybean demand. 

The stocks/use ratio for corn is projected to remain unchanged at 10.3% and the soybean stocks/use ratio is seen to improve slightly to 3.2%. Stocks/use ratios at these levels are low by recent historical measures and appear supportive of current prices.   

The inability for estimated record production to meaningfully enhance the balance sheets makes apparent that we are in a “demand market.” Continued high demand for corn and soybeans should remain supportive for prices.   

Given the tight balance sheets, there is the potential for the current “demand market” to quickly turn into a “weather market.” that could have adverse impacts on production. 

Currently every state in a straight line down from North Dakota to Texas is being impacted by moderate-to-severe, and in some cases extreme drought. The dryness this winter is largely consistent with a La Nina patter which has been in place since September 2020.   

Current probabilistic forecasts show the La Nina weakening through the spring with over 50% probability of neutral conditions returning over the three months of April, May, and June.[3]

Even if the La Nina does stick around it may not have a large impact on US growing season. That said, NOAA is forecasting above average temperatures and average rainfall for much of the corn belt over the key growing months of June, July, and August. Some may be concerned that average rainfall might not be enough to alleviate the dry conditions in the northern and western growing areas. Even with adequate moisture, excessive heat can negatively impact production. 

With corn and soybean balance sheets expected to remain tight over the coming crop year, we expect continued price volatility. Persistent high demand is likely to be supportive for prices, however price volatility could materialize to the downside if, for example, usage estimates were to be revised lower.

Stay tuned. 

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[1] As a side note, the USDA separates out corn harvested for silage versus corn harvested for grain and thus the large difference in the harvested percent for each grain

[2] Beginning Stocks – also called carry-in: The number of bushels that will be or is available at the beginning of a crop year from the previous year’s harvest.

[3] https://www.weather.gov/fwd/enso