KANSAS CITY, MISSOURI, US — It’s spring. Attention increasingly was turning toward corn and soybean planting and prospects for the supply and demand of the two crops in the 2021-22 marketing year. But first, food manufacturers employing corn and oilseed products, in the next several months before the fall harvest, will be tasked with finding ways to best manage operations as old crop supplies drop to the lowest prices in years and corn and soybean futures hold at historically high levels. This they must do even as they navigate the vagaries of a spring weather market. Analysts interviewed by Milling & Baking News, a sister publication of World Grain, suggested continued volatility at high price levels in corn and soybean futures lies ahead.
Corn and soybean futures have been trading at historically high levels in recent months, and both markets surged to new contract highs, trading limit up, in the wake of the March 31 release by the US Department of Agriculture of its annual Prospective Plantings report, which suggested farmers intend to plant many fewer acres to both corn and soybeans than the market had been expecting.
Shortly after and adding fuel to the fire, the USDA in its April 9 World Agricultural Supply and Demand Estimates report lowered its forecast for the US carryover of corn while maintaining its excruciatingly tight forecast for the soybean carryover, both reflecting projected Sept. 1, 2021, stocks.
Against this backdrop, Milling & Baking News discussed the outlook for corn and soybeans with Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, Inc., and Brian Harris, executive director and owner, Global Risk Management. Meyers and Harris first discussed corn.
Asked what in the 2020-21 corn outlook had corn futures performing so strongly to this point, Meyers said, “The main thing is the stronger-than-expected corn export demand, mainly fueled by higher-than-anticipated Chinese imports.”
Harris observed, “Current corn ending stocks estimates for 2020-21 are near pipeline levels, keeping the need to have additional ‘risk premium’ in prices through this year’s growing season.”
The USDA’s forecast for the 2021 corn carryover at 1.352 billion bushels was down 150 million bushels from the March projection and down 567 million bushels, or 30%, from 1.919 billion bushels in 2020. The average of pre-report trade estimates was 1.396 billion bushels. If the forecast is realized, the 2021 corn carryover would be the smallest since 1.232 billion bushels in 2014.
The lower carryover forecast reflected a 75-million-bushel increase in projected 2020-21 corn exports to a record 2.675 billion bushels, a 50-million-bushel increase in forecast feed and residual use to 5.7 billion bushels, and a 25-million-bushel increase in forecast corn use in the manufacture of ethanol to 4.975 billion bushels.
Asked whether he agreed with the USDA’s corn carryover forecast, Harris said, “We believe that the USDA is still underestimating year-to-date Chinese demand in their April number and that the actual ending stocks will be closer to 1.2 billion bushels as opposed to the 1.352 billion that they posted.”
Meyers said he was surprised the USDA didn’t raise its export forecast for 2020-21 more than the 75 million bushels it did.
“Apparently the reason they didn’t go up more is that they don’t think China will ship all of the purchases that they have made so far” in the current marketing year, he said. “That’s why their corn import forecast for China didn’t change (24 million tonnes in 2020-21), even though China has bought more than 4 million tonnes of US corn in just the past month.”
Meyers said he thought corn export sales will turn out to be higher than the USDA forecast, but in subsequent reports, the USDA may lower its feed use and ethanol use numbers.
“I’m just slightly above where the USDA is,” he said. “We may be a bit closer to 1.4 billion bushels instead of 1.35 billion.”
The USDA’s corn export forecast for 2020-21 at a record 2.675 billion bushels was up 897 million bushels, or 50%, from 1.778 billion bushels in 2019-20.
According to the USDA’s weekly Export Sales report series, net export sales of US corn to China through April 1 for delivery in 2020-21 totaled about 23,284,100 tonnes (about 916.6 million bus) compared with 880,000 tonnes (about 34.6 million bushels) in the same span of 2019-20. Through April 1, net export sales of US corn to China comprised about 36% of all US export corn sales to date this marketing year.
With export demand playing such a large role in the recent rally in corn futures, Meyers and Harris were asked whether China would continue to be a large buyer of US corn in the months ahead and in 2021-22.
“Demand will likely remain strong albeit not at the same levels that we have seen in recent months,” Harris said. “The new outbreaks of African swine fever (ASF) in China will likely take the top end off their demand going forward.”
Meyers said, “There are conflicting views on just how aggressive China is going to be purchasing corn for next year. My take is, it still will be a large number, probably 25 million to 30 million tonnes, from all sources. China’s economy is rebounding. Their hog industry has not completely recovered from ASF, but the reduction from where it was pre-ASF is perhaps less than 10%. And it looks like they will be restocking corn reserves, which have been pulled down in recent years. So, I think there will be continued strong demand into next year. “
Meyers said the new outbreaks of ASF in China were not a major concern yet, but they will have to be watched closely to see if the virus is, indeed, spreading as rapidly as some people have been suggesting.
“It would have a definite impact on both corn and soybeans,” Meyers said.
Both Harris and Meyers said they thought farmers will plant more corn and soybeans this spring than forecast by the USDA in its March 31 Prospective Plantings report.
The USDA, based on a survey of producers, said farmers intend to plant 91.144 million acres to corn this spring, up only 325,000 acres, or 1%, from 90.819 million acres in 2020. Still, it would be the largest area planted to corn since 94 million acres were seeded in 2016 and compared with the recent five-year average planted area at 90 million acres. The average of pre-report trade estimates was much higher at 93.208 million acres.
“We believe that the final acreage for corn will be higher than the USDA’s recent forecast as long as the weather holds,” Harris said.
Meyers said, “I think acreage will be higher. I think when we get the June Acreage report that the total acres of corn and soybeans combined will be 2 million to 3 million acres higher than indicated in the March intentions.” He said combined increase seen for the two crops may be pretty evenly split between them.
Meyers compared this year’s Prospective Plantings report with the 2020 edition to support his expectations. In the 2021 report, the USDA said farmers intend to plant 316 million acres to the 19 principal field crops this spring. In the March 2020 report, the USDA said farmers intended to plant 319 million bushels. Meyers said it was difficult to believe farmers intend to plant 3 million fewer acres to field crops this year than last when prices this year have been the highest seen in eight or nine years.
Asked about what he sees as corn market drivers in the next few months, Harris said, “The primary driver over the next few months will be the weather, and we expect breaks to be well supported until we make it through the critical ‘pollination’ phase in June/July. Using December futures, we would expect a range between $4.70 and $5.70 a bushel.”
Meyers pointed to three considerations. First was South American weather. The harvest was beginning in Argentina. The USDA lowered its forecast for the Argentine crop to 47 million tonnes from 47.5 million as the March outlook because of dryness. The Brazilian second corn crop also will be important because Brazil exports a significant part of it, Meyers said. Brazilian total corn production in 2020-21 was forecast at 109 million bus, and Brazilian 2020-21 corn exports were forecast at 39 million tonnes.
The second market driver was planting progress in the United States.
“If we have more favorable weather than we’ve had the couple years, farmers should be able to get it all planted,” Meyers said. “Then, as we get into the end of June, we’ll get the Acreage report. That will be critically important because were starting the 2021-22 year with sharply reduced carryover stocks of corn and soybeans. We will want to see if those additional acres that a lot of people expect to show up in the report are actually there. But ending up with what the intentions said would imply an even tighter supply-and-demand outlook for next year.”
Meyers said he expected the July corn future to range between $5.25 and $5.90 in the coming weeks.
While soybean futures recently posted new contract highs, nearby contracts have traded in a $1-a-bushel range since the beginning of March. At the same time, the spread between old crop soybean futures and the contracts reflecting expected 2021-22 supply and demand, which has been very wide, has narrowed.
“I think the soybean crop in Brazil is turning out larger than expected,” Meyers said. “Harvest progress there picked up after a slow start. And you’ve had a significant cutback in US soybean export sales. The combination of the things has caused the market to trade sideways.”
Harris added, “The new crop soybean markets (November) made a new contract high in early April and has rallied 47% since last August. The spreads have weakened in recent weeks after the USDA’s March 31 estimate of March 1 soybean stocks came in higher than expected and news out of Brazil of record soybean production there.”
The USDA on April 9 forecast the carryover of soybeans on Sept. 1, 2021, at 120 million bushels, unchanged from the March outlook but down 77% from 525 million bushels in 2020. It would be the smallest soybean carryover since 92 million bushels in 2014.
The USDA’s only adjustments from March applied to the demand side of the balance sheet with 2020-21 exports raised 30 million bushels to a record 2.28 billion, a 10-million-bushel reduction in crushings to 2.19 billion bushels, a 2-million-bushel reduction in seed use to 102 million bushels, and a 17-million-bushel reduction to residual use to 4 million bushels.
Asked his take on the carryover number, Harris said, “We don’t think that the USDA will make any significant changes to the ending stocks over the next few months, preferring to ‘let the market’ do the work in the event that further supply rationing is needed.”
Meyer’s agreed, saying, “I think the USDA forecast will be very close to where we end up, which would equate to an ending-stocks-to-use ratio of 2.6%.”
The stocks-to-use ratio for 2019-20 was 13.3%.
As with corn, export demand has fueled the advance in soybean futures. As of April 1, 58% of all US soybean sales in 2020-21 have been to China.
Harris saw continued strong China buying ahead.
“We expect levels to stay higher than recent years but not quite to the same level in the year that is ending,” Harris. “ASF and lower Chinese crushing margins along with record soybean production out of Brazil will be the drivers here.”
Meyers added, “They’re likely to increase their imports in total, and the United States will pick up a portion of that.”
Both Harris and Meyers said farmers will plant more than the 87.6 million acres suggested by the USDA’s producer survey.
Meyers said he expected soybean plantings to be around 90 million acres, and Harris said he expected soybean acres to be at least 1 million acres above the USDA forecast.
Drought conditions across the northern Plains at this point have affected spring wheat more than corn or soybeans, Meyers added.
“The market is mildly concerned, but I think there’s enough time for some additional moisture to improve planting conditions for all crops,” he said.
Market drivers for soybeans in the next few months will be how aggressive China’s soybean purchases prove to be, even though Brazil will be the major supplier for the next few months, and US spring weather, Meyers and Harris said.
“Weather will be the key here, and we would look for the November soybean contract to range between $11.75 and $13.50 a bushel until we get through the ‘pod set’ stage in early August,” Harris said.
Meyers selected July soybeans as his reference and said he expected in the next few months for that contract to range between $13.50 and $14.25 a bushel.