Although we’ve spent the past four months monitoring growing season weather in the corn and soybean producing regions of Argentina and Brazil, the yield potential for their 2021 crop is already accounted for in the prices. The big news that is going to drive our grain prices through the remainder of the 2021 calendar year is the potential size of North America’s 2021 crop, and that information is going to be revealed to us on March 31.
The core reason for the high grain and oilseed prices which we enjoyed in the final months of 2020, and through the winter of 2021, is that for both corn and soybeans, North America has consumed more of both crops this year than we produced and we’re mining the ending stocks in order to keep up with demand. In the case of corn, American farmers produced 14.182 billion bushels in 2020, and the market is projected to use 14.625 billion bushels. In the case of soybeans, US producers grew 4.135 billion bushels of soybeans in 2020, and use is expected to reach 4.575 billion bushels. The bottom line is that unless we see bigger seeding plans for both crops in the USDA’s March 31 Planting Intentions Report, the price is too low.
The purpose of price is to ration demand. Essentially what that means is that if the supply of a product is not big enough, then price has to rise to the point that at least some of the end users decide that there is a better alternative product to use or a cheap place to source supply. Should we get into the spring of 2021 and determine that farmers don’t intend to plant enough acres of either corn or soybeans to keep up with demand, or we get into the summer growing season and weather problems look as though they will negatively impact yield, then prices will have to rally to a level which curbs demand.
In order to supply the world market with 14.625 billion bushels of corn, (the amount used in 2020/2021), American farmers will have to harvest a minimum of 83.5 million acres of corn at a minimum average yield of 175 bu/ac. Typically there are about 8 million acres of US corn that’s cut for silage or abandoned prior to harvest, so we need to see American farmers planning to plant at least 92 million acres of corn this spring in order to keep up with demand.
The situation in soybeans is actually more precarious because the projected ending stocks from our 2020 crop are so small that there will be effectively no old inventory to draw down if 2021’s crop is a small one. North America will be out of soybeans before harvest begins, and any concerns about a shortfall in production will be met with a rally in price.
In order to grow as many soybeans in 2021 as were consumed from the previous year’s crop, American farmers need to plant a minimum of 90 million acres of soybeans at a minimum average yield of 51 bu/ac.
The USDA’s March 31 report will set the stage for crop prices for the balance of the crop year. Although we don’t know what the acreage intentions might actually be when the report is released, we can know what the tipping point benchmarks for acreage needs to be. For 2021’s crop production to be big enough to reach the current level of demand, American farmers need to plant 92 million acres of corn and 90 million acres of soybeans.
Both Farm Futures and S&P Global have already predicted 95 million acres of corn being planted in the U.S. this spring and a much smaller than required soybean seeding for the coming year, so if the USDA report agrees we could see corn and soybean pricing react in opposite directions.
The other big question that the commodity markets are contemplating right now is whether or not there are enough available acres of cropland to meet these increasing production objectives. It’s easy to say that we need 1.5 million more acres of corn and 6 million acres more of soybeans, but unless there’s an additional 7.5 million acres which can come out of other crops, and swing into corn and soybeans, the seeding area goals might be hard to achieve.
“Prevented Planting” is the American equivalent of our crop insurance system’s unseeded acres benefit. Basically it’s the cropland area which was not planted due to flooding, drought, or some other natural disaster. In 2020, that area was 9.8 million acres. Depending on how the spring weather unfolds, there could be as much as a 9-million-acre adjustment in final seeded acres. Statistically, it is likely that North American farmers will plant 3 or 4 million acres more crop in 2021 than they did in 2020, but we won’t know that until mid-June.
Steve Kell operates a crop farm in Simcoe County and is a former grain merchant for Parrish and Heimbecker Ltd.
