Grain outlook into year-end
As we head into the last month of 2021 and look forward to 2022, there are many continuing unanswered questions for the grain markets. Did the extreme heat during July and parched soils lower the U.S. corn crop even lower than trade is currently realizing? Did the beneficial August rains create a record yield for U.S. soybeans? With corn input prices so high, how many acres will get switched to soybeans in the spring? Wheat prices are strong: How many new acres of wheat will be planted in the United States this coming crop year?
All of these important questions are keeping grain prices well supported, yet in limited trading ranges. Right now, fundamentally, wheat is the leader of the grain complex, corn is in second place, with soybeans now the follower in terms of friendliness.
In the big picture, the grain markets have underlying price support due to smaller supplies in the United States and around the world. Demand remains strong. What can we expect for prices for the remainder of 2021?
Ending stocks for corn for the 2020/21 season are still substantially lower than one year ago. One year ago, trade was battling the notion of 2.5 billion bushels of corn carryout and $3.00 corn. Ending stocks for the 2020/21 season are currently half that, with the most recent USDA report pegging supplies at 1.236 billion bushels. Corn carryout is pegged at 1.5 billion bushels (for the 2021-22 crop year). As long as corn carryout for the 2021-22 crop year does not get larger than 1.5 billion bushels, we may see $5.50 to $6.00 corn futures stick around for a while.
With ending stocks for the 2020/21 season so tight, that is keeping the corn futures price supported, and basis levels strong. Also strong are the Dec 2022 futures contracts. Why? Because with extremely expensive input costs, the market is fearful that farmers will plant fewer corn acres in the spring. Many producers have told us their cost of production for next year will be closer to $5.00 a bushel. December 2022 futures are trying to entice acres with prices slowly inching higher.
Soybean futures had been trending lower since midsummer. The August rains were beneficial; farmers tell us their local yields have been coming in on the higher side. Ending stocks have increased on each USDA report since summer.
Note that ending stocks for the 2021-22 crop went from 140 million bushels up to 155 million bushels in June. The USDA kept ending stocks at 155 million bushels in July and August, which kept November 2021 soybean futures prices in a sideways price pattern. The September report saw ending stocks notch higher to 185 million bushels, and soybean futures prices drifted lower in response. Then fast forward to the October USDA report, and ending stocks for the 2021-22 crop year ballooned to 320 million, which sent soybean prices spiraling lower. The market found support when the November USDA report was not quite as negative as anticipated. Ending stocks continue to get larger however, now pegged at 340 million bushels.
Because the report was not as negative as anticipated, prices were able to rally from that report, even pushing higher than the down trend line that had held it captive since summer.
The market needs to see strong export demand to keep prices above the $12.50 level.
Looking ahead to next year, much depends on South American weather during the heart of its growing season during January and February. If the La Niña conditions occur, that will bring hot and dry weather to South America and could justify higher prices in January or February. However, if their growing season has timely rains, South America has the potential to produce a record crop. Trade seems to be holding onto the scenario of possible record South American production, along with the current perception that many U.S. farmers may plant higher soybean acres in the spring (due to high input prices), which would lead to higher endings stocks both in the United States and world.
After finally working through the global glut of wheat supplies from previous years, wheat inventories are now on the opposite side of the spectrum with tight ending stocks, both here in the United States and around the world. Demand has remained strong. Enough countries around the world this summer had production issues, which is why ending stocks are now tight.
Ending stocks in the United States for the 2021-22 growing season are pegged at 580 million bushels, nearly half the level as just a few years ago. Each category of wheat production is facing tight supplies. While there may be an increase of acres this year, concerns now rise regarding fertilizer availability, and what that may do to final yields if less fertilizer is applied. In addition, the Northern Plains are not out of drought at this time, and they could be facing another growing season of limited precipitation. Wheat prices will likely stay firm into year-end.
As we progress, trade will continue to monitor three things: the value of the U.S. dollar, U.S. demand for corn and soybeans (exports, biofuels, and feed) and South American weather. Just remember, if perception is that ending stocks are growing, grain prices will continue to slide lower. However, if perception is that ending stocks are starting to again get tighter, that will be supportive for prices going forward.
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