Steve Kell
Market Minute
Grain futures prices on the Chicago Mercantile Exchange exploded on June 30 when the USDA released its estimates on the number of acres planted into the major crop for the 2021 production season. Private analysts’ forecasts going into the report suggested bigger seeded acres for both corn and soybeans in 2021.
So when the American government came in with a relatively low acreage projection, prices took off. During the morning trading both corn and soybeans futures were lower, but then at noon when the report was released, December corn jumped $0.60 and soybeans rocketed $1.08 higher as a surprised market reacted.
The nagging questions which linger after the June 30 report are: Was the USDA right? Is 2021’s corn and soybean crop really as small as the US government estimated? And what will this do for prices going forward?
One thing to keep in mind is that the USDA will continue to adjust its report estimates for quite some time. It’s entirely possible that we will see corrections made to the 2020 crop in the September 2021 USDA Report. If you were not convinced that the June 30 USDA report on 2021 seeded acres was correct, don’t worry. They’ve got another 12 or 14 monthly reports where they will have a chance to update the 2021 estimates.
In its latest 2021 release, the USDA estimated that American farmers had planted 84.49 million acres of corn and 87.57 million acres of soybeans. Leading up to the report, several of the private analysts had suggested that those figures could have been closer to 90 million acres for both crops. High prices for both corn and soybeans since last fall were believed to be a powerful incentive to producers to plant more this spring, and with corn acres exceeding 90 million in two of the previous three crop years (90.81 million in 2018, and 92.69 million in 2019), the expectation of large seeded acres in 2021 seemed like a rational guess.
The total number of acres planted to major crops in the June 30, 2021 USDA Seeded Acreage Report was 317.215 million acres. Considering that in 2018 that figure was 319.570 million and in 2017 total acreage planted to major crops was 318.340 million, this year’s total seemed to be too low. The obvious question is where did more than a million acres of cropland go?
According to the American Farmland Trust, between 1992 and 2012, the United States lost 31 million acres of farmland to urban development. That’s a rate of 1.55 million acres per year (or 175 acres per hour). About 60% of the farmland loss is urban growth around major cities, and the remaining 40% is the sprawl of non-farm land uses around rural communities.
The inclination that farmers were going to plant more corn and soybeans this year due to the higher prices was entirely correct. Hay and pasture acres are down. Land set aside in the Conservation Reserve Program is down. Prevented planting due to spring weather is down. For major crop acreage to only be down 2.3 million acres compared to 2018, when the US has lost about 4.5 million acres of farmland since then demonstrates that farmers planted every acre that they could in 2021. The problem is that farmers simply can’t plant into asphalt.
The good news for grain and oilseed producers in all of this is that there is not enough land in corn or soybean production to build up supplies quickly. Last fall’s La Nina drought in Brazil and Argentina set up a market situation where North American grain exports set records, resulting in a big drawdown in grain stocks. 2021’s North American seeded acres are not big enough to rebuild inventories, so prices are going to have to be high enough to ration demand for at least another crop year (and this summer’s drought in western North America is certainly going to impact yield and make a small crop even smaller).
One of the reasons why I am really optimistic about agriculture is because we live in a world with a growing population, (and even more importantly, an ever increasing demand for higher quality food) and the supply of land available to grow that food is effectively shrinking. We are now in a position where the balance between global grain supplies and global grain demand is precariously tight. Witness the impact of an early growing season drought in Brazil last October and November, and the tremendous impact which it had on world commodity prices. We’re now following that up with a summer-long drought in western North America and it puts grain ending stocks in such a tight position that with such a limited potential production acreage, there is no way that the world supplies can bounce back in a single year.
Cash bids for grains and oilseeds through the spring and summer of 2021 have been amongst the highest prices ever. We may not be able to hold on to $20 soybeans and $9.50 corn, but we also are not headed back to the traditional lows any time soon. No matter what you think of the 2021 grain crop, next year’s production will be 1.5 million acres smaller.
Steve Kell is a Simcoe County and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
