Today was all about acreage. While the USDA’s quarterly Grain Stocks report was supportive for corn and did not change anything regarding the tightness in the old crop soybean balance sheet, it was not the report, for a change, which provided the fireworks for the limit up move. With historically tight old crop balances in the making, the market needed to see large new crop acreage ideas from USDA, but just the opposite was provided as unexpectedly low 2021/22 corn and soybean acre estimates were revealed. While most will expect acres to be moving higher in future updates, history is not supportive of that view, leaving the market in a position to do all it can to find/buy additional acres.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file. NOTE: USDA does not provide balance sheet updates with the March 31 reports, as those will next published in the April 9 WASDE report, incorporating implications of today’s March 1 stocks figures in the 2020/21 supply/demand tables. USDA’s first official 2021/22 balance sheets will be released in May.
Corn
The USDA’s March 1 U.S. corn stocks estimate provided a supportive element to old crop balance sheet and provides another reason for USDA to lower 2020/21 ending stocks in the April WASDE report, but it was the prospect for another year of tight stocks following the much lower-than-expected 2021/22 planted acreage estimate that provided the shock value for the limit up move.
Starting with the Grain Stocks report, USDA reported March 1 U.S. corn stocks at 7.701 billion bushels, moderately below the average trade estimate of 7.767 billion bushels and down 3.2% from last year’s 7.952 billion bushels. Compared to the numerous 150-300 million bushel surprises in past March 1 stocks reports, today’s 66 million bushel “bullish surprise†was a sleeper in comparison. In addition, USDA revised December 1 stocks down by 28 million bushels originally reported in the January 12 Grain Stocks report, effectively leaving March 1 stocks only 38 million bushels lower than expected based on pre-report demand perceptions.
In the big picture view, March 1 stocks of 7.701 billion bushels are the lowest in 7 years, while the March 1 stocks/Sept-Feb usage ratio of 0.92 is also the lowest since 2013/14’s 0.91. Additionally, on-farm stocks of 4.037 billion bushels are down solidly from last year’s 4.454 billion and the lowest outright since 2014, while accounting for only 52.4% of total March 1 stocks, the lowest percentage of total March 1 stocks since 2013 and the 3rd lowest we have in our data back to 1970. Simply put, while still well above the 2011-2013 on farm stocks levels, in terms of relative demand, there’s not a lot left for the farmer to sell into the market through the end of 2020/21.
Based on March 1 stocks of 7.701 billion bushels, 2nd quarter (Dec-Feb) feed/residual usage was implied at 1.415 billion bushels, up 7.2% from last year’s 1.319 billion and followed 1st quarter feed being up 4.6% on the year. Once again, the “relationship†between actual animal numbers and implied feed/residual usage leaves a lot to be desired as cattle on feed was nearly unchanged year-over-year for the quarter, while both hogs and broiler hatch were down modestly from year ago levels, yet feed/residual usage was implied up 7%. Through the first half of 2020/21, total feed/residual usage is implied at 4.168 billion bushels, up 5.5% (215 million bushels) from last year. Based on the USDA’s 5.650 billion bushel annual estimate, 2nd half feed/residual usage would need to be down nearly 24% from last year, which would be the 2nd largest year-over-year percentage cut in feed usage of the last 37 years, only surpassed by 2010/11’s 34% cut. While high prices should negatively impact feed demand, the task at hand is simply massive, and unlikely in our opinion relative to the USDA’s current ideas. Accordingly, we have raised our 2020/21 feed/residual estimate to 5.725 billion bushels, 75 million above USDA and questioning whether it is enough as it would still require 2nd half rationing of 20% from last year. While there has been plenty of debate over the 4th quarter feed/residuals in recent years as 2018/19’s jump to 913 million bushels dwarfed anything seen over the previous 10 years, which ranged from 247-687 million bushels, last year’s 952 million bushel 4th quarter feed/residual supported what was previously viewed as a statistical anomaly the year prior. The job of old crop prices is now to sharply curtail demand through the end of the marketing year.
Keep in mind, not only does feed/residual usage appear likely to exceed the USDA’s current ideas, but exports are on pace to notably surpass the USDA’s 2.600 billion bushel estimate, as well, as we’re currently estimating 2020/21 U.S. corn exports at 2.800 billion bushels. In addition, we’re also leaning higher on 2020/21 corn for ethanol usage as even at 5.000 billion bushels, 50 million higher than the USDA’s current estimate, ethanol production through the end of the year would still be able to run nearly 7% below 2018/19 levels (our current measuring stick as the comparison to 2019/20 is no longer valid due to the COVID impact), vs the less than 5% decline experienced over the last four weeks.
All told, we feel 2020/21 U.S. corn total demand could exceed current USDA balance sheet estimates by 300+ million bushels, pushing our ending stocks estimate down to 1.176 billion bushels (7.9% stocks/usage) vs USDA last at 1.502 billion (10.3% stocks/usage), the lowest since 2012/13.
With this being the backdrop for 2021/22, the market was geared up for a potentially massive new crop acreage estimate today with outright prices and insurance guarantees the highest in years and an old crop balance sheet moving strongly into historically tight levels. And then comes the surprise…USDA estimates U.S. corn planted area at 91.144 million acres, 2.1 million below the average trade estimate, down nearly 1 million from the USDA February Ag Outlook Forum ideas and up only 325k acres from last year. Corn prices are up more than 40% from last year heading into the planting season and acreage is estimated to be essentially unchanged on the year?
A look at the state-level estimates adds even more questions as USDA estimated corn acres will decline in nearly all of the major states (IL, IN, IA, NE, OH, MO, KS), while only the Dakotas reflected noteworthy increases from last year. While combined corn acres in these 7 major stocks were estimated to decline by 1.8 million acres from last year, soybean area in the same states was estimated up only 1.2 million acres from last year. A 600k acre decline in combined corn/soybean area in 7 of the top-producing states in the country with prices at current levels?
While many will look for corn acres to move potentially solidly higher in subsequent revisions, history is clearly not on the side of that argument. The acreage issues in the last few years are well known with final corn acres proving 6.2 million acres below the March estimate last year and 3.0 million less in 2019, but before that, only one of the previous 9 years saw final corn acres prove 1+ million acres larger than the USDA’s March estimate, while 5 of those 9 years saw final acres lower than estimated in March. Given the “total acreage discussion,†which we address at the end of this post, we do feel corn acres may prove larger than today’s estimate in the end, but we are leery to push them much more than 1 million acres higher than the USDA’s 91.1 million acre estimate today.
With that in mind, 2021/22 is shaping up to be a year of modest demand rationing needs in order to keep ending stocks at bearable, but certainly historically low levels. An exceptional yield performance year could change that view quickly, but based on 91.1 million acres and a 178.5 bushel/acre yield assumption, which already would be a new record, we estimate total demand would need to be rationed roughly 1.5% (225 million bushels) from this year to keep next year’s ending stocks around 1.350 billion bushels, holding the stocks/usage ratio near 9%. Should acreage prove 1.0 million acres larger than today’s estimate, an additional 140 million bushels or so would be pushed into the balance sheet, providing a modest amount of help to the new crop situation, but hardly a game-changer. Conversely, should even a modest crop problem be seen this summer, trimming 3.5 bushels/acre off of our starting point ideas, nearly 300 million bushels gets cut from the top line, pushing ending stocks ideas back toward 1.0 billion bushels in quick fashion.
Soybeans
USDA reported March 1 U.S. soybean stocks at 1.564 billion bushels, 30 million above the average trade estimate of 1.534 billion, but 691 million bushels below last year’s 2.255 billion and the lowest since 2015/16’s 1.531 billion. The slightly higher-than-expected figure was due to the 2nd quarter residual coming in a historically significant -55 million bushels, just shy of the -57 million bushel record, while the average trade estimate reflected expectations for a more “typical†Dec-Feb residual around -25 million bushels. The slightly higher-than-expected March 1 stocks figure was also influenced by a modest upward revision in December 1 stocks by 13 million bushels to 2.947 billion.
Despite March 1 stocks coming in a bit above expectations, there was no material impact on the big picture of the 2020/21 balance sheet as soybean stocks sit at the lowest level in five years heading into the 2nd half of the marketing year with demand continuing to run at unsustainable levels. The March 1 stocks/Sept-Feb usage ratio of 0.51 is the 3rd lowest on record, only above 2012/13 and 2013/14, setting the stage for a needed slowing of demand through the end of the marketing year in order to maintain ending stocks at pipeline minimal levels.
Similar to corn, March 1 on-farm soybean stocks of only 594 million bushels are sharply down from last year’s 1.012 billion and the lowest since 2014, and only represent 38% of total March 1 stocks, among the lowest percentages on record. While the market will have its mind set on pulling every last bushel of old crop stocks from farmers’ hands over the coming months, there are not too many bushels out there to actually pull.
Simply put, there is no room in the 2020/21 balance sheet for demand to prove even minimally higher than current USDA estimates. Crush did slow considerably in February, but with continued respectable crush margins and solid soybean meal export and domestic demand, along with strong domestic soybean oil demand, there is little expectation for the solid pullback in February crush to continue in the months ahead. 1st half soybean crush is estimated at 1.113 billion bushels, up 3.8% from last year’s 1.073 billion. Based on the USDA’s 2.200 billion bushel annual crush estimate, March-August crush would need to total 1.087 billion bushels, nearly identical to last year’s record 1.092 billion. Overall, crush can continue to run near/at last year’s record pace during the 2nd half of the marketing year and still squeak by with minimal stocks, but every bushel counts so the market must do its job to prevent any degree of higher crush demand than last year moving forward.
Similarly, the significant slowdown in old crop export sales activity in recent weeks absolutely must continue through the end of 2020/21 in order to not exceed the USDA’s 2.250 billion bushel annual estimate, which again, the balance sheet can ill-afford. We estimate soybean sales cannot average any more than 2-3 million bushels/week to avoid surpassing the USDA’s annual target – a level which seems very difficult to achieve, but has been accomplished a few times in the past when needed. For example, 2012/13-2014/15 each saw April-August soybean sales average only 2.3-3.4 million bushels/week.
There’s simply not much room in the old crop balance sheet for differing views from current USDA projections. We are expecting 2020/21 crush and exports to prove 10 million bushels each higher than USDA ideas, but offset by slightly lower residual usage and slightly higher import ideas. There continue to be questions about potential imports in the final months of the year, as marketing year to date (Sept-Jan) imports were only 5 million bushels, while total imports of 40-45 million bushels are seen needed simply to make the balance sheet “balance.†Without those imports, the late season demand ration job becomes even greater. We estimate 2020/21 U.S. soybean ending stocks at 116 million bushels vs USDA last at 120 million.
The Prospective Plantings report provided the true shocker for the soybean market today, prompting the limit up move and putting the market in a position of attempting to add acres over the next two months. USDA estimated 2021/22 U.S. soybean planted area at 87.6 million acres, 2.4 million acres less than the average trade estimate of 90.0 million, as well as the USDA’s February Ag Outlook Forum ideas, while reflecting only a 4.5 million acre increase from last year. The 2.4 million acre “bullish surprise†was the 2nd largest friendly surprise on record for the March estimate and continued the strong bias for this report to indicate less soybean acres than the market anticipates. With the large amount of “free acres†viewed to exist relative to the considerable reduction in total acres planted in recent years, the lack of a larger increase in soybean area from last year is simply shocking.
USDA estimated combined North and South Dakota soybean area to increase 2.0 million acres from last year, leaving a total increase of only 2.5 million acres in all other states. The other 7 top-producing soybean states of IL, IN, IA, MN, MO, NE and OH were estimated to increase soybean area by a combined 1.65 million acres from last year. If ever there appeared to be a year to push soybean acres back near record levels, this would be it, yet today’s estimate still reflected planted area nearly 2.6 million acres short of the 2017/18 record of 90.2 million.
As in corn, the expectation will be for soybean acres to move higher in future updates, with the market needing to maintain elevated price levels as enticement. Again, though, history presents a challenging picture to that view with only four years over the last 23 years seeing final soybean acreage prove more than 1 million acres higher than the March estimate. The two largest March to final increases, though, were in years that clearly needed it, 2012/13 and 2014/15, both coming off what were deemed historically tight old crop situations as final acres proved 3.3 million and 1.8 million acres larger than estimated in March, respectively. While a 2+ million acre add would be extremely welcome, we’re leery to make such an assumption based on the overall limited change in final acres relative to the March estimate in the past. We are working with the assumption of final acres up 1.5 million from today’s estimate at 89.1 million, but even with that, the 2021/22 situation remains extremely concerning.
Based on 89.1 million acres and an average yield of 51.0 bushels/acre, we still see 2021/22 total soybean demand needing to decline by roughly 50 million bushels from this year simply to maintain new crop ending stocks at pipeline minimums nearly 120 million bushels. A record 52.0 bu/acre yield would add roughly 90 million bushels to the balance sheet and would be very helpful, but that’s nothing more than wishful thinking until a clearer summer weather outlook is available. Similarly, we’re simply not comfortable with a blanket assumption several million acres will be found when all is said and are hard-pressed to anticipate anything more than a 1.0-1.5 million acre add to today’s estimate.
Wheat
The wheat market simply went along for the ride today as neither March 1 stocks or new crop acreage estimates were fundamentally supportive. March 1 stocks were higher than expected, while December 1 stocks were also revised higher. In addition, USDA reflected a record January to March increase in estimated winter wheat acres, while their initial estimate of spring wheat area was slightly higher than expected, as well.
USDA estimated March 1 U.S. wheat stocks at 1.314 billion bushels, 36 million bushels above the average trade estimate of 1.278 billion, and also revised December 1 stocks up by 29 million bushels to 1.703 billion. The 42 million bushel “bearish surprise†was the 2nd largest on record and continued the overall bias for higher-than-expected March 1 stocks, now occurring in 6 of the last 9 years. Generally speaking, March 1 stocks, while down from recent years’ levels are deemed a middle-of-the-road type affair.
The combination of the upward revision in Dec 1 stocks and the March 1 stocks estimate put the combined 2nd and 3rd quarter feed/residuals at a -87 million bushels, with the 3rd quarter (Dec-Feb) residual of -44 million bushels being just shy of the record negative residual for the quarter of -45 million. After what appeared to be a fairly solid wheat feeding story developing, the combined 1st-3rd quarter feed/residual of 129 million bushels (216 million in the 1st quarter) now appears quite disappointing.
Based on total 1st-3rd quarter feed/residual usage of 129 million bushels, the 4th quarter feed/residual would need to be a mere -4 million bushels based on the USDA’s 125 million bushel annual estimate. However, as seen in the following chart, the 4th quarter residual is almost always negative and typically ranging from -25 to -75 million bushels, while last year’s -86 million bushel March-May residual was just shy of the record -87 million. While the argument can be made of the “need†for higher wheat feeding given the corn balance sheet, it simply does not typically occur in the 4th quarter. Accordingly, we have scaled back our 2020/21 annual feed/residual usage estimate to 100 million bushels, 25 million less than the USDA’s current estimate.
We continue to feel 2020/21 exports have the potential to slightly exceed the USDA’s 985 million bushel projection, encouraged by the recent pickup in shipment activity, while sales on the books largely support the USDA’s projection already. Based on these ideas, we estimate 2020/21 U.S. wheat ending stocks at 851 million bushels vs USDA last at 836 million.
Moving to the Prospective Plantings report, we typically would begin with the spring wheat acre estimate, but USDA provided quite the shocker in raising winter wheat area by a record 1.1 million acres from the January estimate of 31.991 million to 33.078 million today. The previous record Jan to March winter wheat acreage increase was 791k acres in 2009. Nearly all of the upward revision came in Texas, raised 700k acres from January to 5.5 million. March to final winter wheat acreage revisions have been very limited in recent years so we will adopt the USDA’s new estimate moving forward. On a by-class basis, USDA estimated hard red winter area at 23.2 million acres, up roughly 900k from the January estimate of 22.3 million (21.4 million last year), soft red winter area at 6.42 million vs 6.23 million January (5.56 million last year) and winter white at 3.48 million, unchanged from January (3.49 million last year).
The USDA estimated 2021/22 “other spring†wheat area at 11.740 million acres, slightly above the average trade estimate of 11.644 million and reflecting a 600k acre decline from last year’s 12.25 million. Somewhat interestingly, despite the large increases in soybean and corn area estimated for North and South Dakota, total spring wheat/durum area in the two states combined was estimated down only 280k acres from last year. The largest reduction was in Montana, down 400k acres from 2020. On a by-class basis, hard red spring wheat area was estimated at 10.93 million acres vs 11.48 million last year, while spring white wheat of 814k acres is little-changed from last year’s 769k. USDA estimated durum area at 1.540 million acres vs the average estimate of 1.641 million and last year’s 1.684 million. All together, 2021/22 all wheat planted area of 46.4 million acres was 1.4 million acres above the average trade estimate, 1.4 million higher than the USDA’s Feb Ag Outlook Forum ideas of 45.0 million and up 2.0 million acres from last year. Of all the crops that didn’t really need to see an acreage increase, wheat saw the most bearish numbers today.
The higher than expected acreage pushes our 2021/22 U.S. wheat ending stocks ideas up to 814 million bushels vs USDA’s Feb Outlook ideas of 698 million and reflecting a mostly steady balance sheet relative our old crop stocks ideas of 851 million bushels.
2021/22 Total Acres
There will be plenty questions over the coming weeks of “Where are all the acres?†It appears to be a valid question as if ever there were a year to potentially explore just how many farmable acres are out there, this would appear to be it. However, USDA’s estimates today reflected a disappointing assessment to total acres expected to be in production for 2021.
Starting with the main crops of corn, wheat and soybeans, today’s combined estimated area of 225.1 million acres obviously reflected an increase from last year’s 218.3 million and was still even below the 2015-2018 period of depressed prices in which 225.7-227.6 million acres of combined corn, wheat and soybean area was planted. That, in and of itself, raises many questions. Heading into today’s report, the general thought process was for a likely return to near the 2012-2014 levels of 228.4-230.7 million acres.
Adding in the other “major†crops of cotton, sorghum, barley, oats and rice reflected total 2021 area of 251.9 million acres, again up from last year’s 244.9 million, but below 2015-2018 area of 252.1-253.9 million acres and well short of the 2012-2014 range of 256-258 million acres. Based on this view, the easy assumption would be there has to be at least another 3-4 million acres that could/should come back into production relative to today’s USDA estimates, but as discussed earlier, finding/adding large amounts of acres relative to the March estimates has been a difficult task over the year.
In a final big picture look at acreage, today’s USDA estimates put total principal crop area for 2021 at 316 million acres from last year’s 310 million, but well below even the 2015-2018 depressed price era of 318-319 million acres and significantly below the 2013-2015 range of 324.4-326.6 million acres, keeping hope alive for final numbers to show solid gains from today’s estimates.