USDA forecasts mixed prices for commodities in 2021-22

The US Department of Agriculture forecast higher prices for grains, oilseeds and soybean oil but mixed and mostly lower values for dairy, eggs and meat in its initial 2021-22 projections contained in the May 14 World Agricultural Supply and Demand Estimates report.

The higher grain, oilseed and soybean oil prices came as no surprise after those commodities recently set multi-year highs in futures markets amid concerns about strong demand and tight supplies both domestically and globally for some. Although the USDA’s corn forecast was deemed bearish and sent new crop futures sharply lower following the WASDE report (and pulled most other grain futures lower as well), average cash prices forecast for the full marketing year were well above both this year and last year.

The USDA forecast the average price of corn paid to farmers in 2021-22 (beginning Sept. 1, 2021) at $5.70 per bushel, up 31% from $4.35 as the current year forecast and up 60% from $3.56 in 2019-20. The price of all wheat was forecast at $6.50 per bushel in 2021-22 (beginning June 1, 2021), up 29% from $5.05 this year and up 42% from $4.58 last year. Soybean prices were forecast to average $13.85 per bushel next year (beginning Sept. 1, 2021), up 23% from this year and up 62% from 2019-20. The average price of soybean oil was projected at 65¢ a pound in 2021-22, up 15% from 55¢ this year and up 120% from 29.65¢ last year. The price of soybean meal in 2021-22 was forecast at $400 per ton, down $5 from 2020-21 but up 34% from last year. The new marketing years for both soybean meal and oil begin Oct. 1, 2021.

The largest crop in in the United States, corn numbers were of most interest in the WASDE report. The USDA forecast the carryover of corn on Sept. 1, 2022, at 1.507 billion bushels, up 20% from 1.257 billion forecast for the current year. Corn production was forecast at 14.99 billion bushels, up 6% from 2020 and the second highest on record after 15.148 billion in 2016. Projected feed use of corn was unchanged from 2020-21, due mostly to high corn prices, while exports were lowered 325 million bushels, or 12%, more than offsetting a 225-million-bushel, or 4.5%, rise in the use of corn for ethanol.

The 2022 carryover forecast for corn was well above the average of pre-report trade expectations at 1.344 billion bushels, and new crop corn futures fell about 18¢ a bushel on May 14, ending the week down about 60¢ to 90¢ a bushel, or 10% to 15%, across the board.

Some surmised that the USDA data wasn’t exceedingly bearish but that it wasn’t bullish enough to sustain the rally that had fueled corn futures to eight-year highs.

Corn certainly has been the market leader, in part due to recent huge purchases by China and in part on expectations of a resurgence in corn used for ethanol as travel increases amid easing COVID-19 restrictions.

China bought about 3.876 million tonnes of US corn for the current marketing year in March, took a breather in April and then resumed buying again this month, taking another 9.384 million tonnes as of May 20. However, all purchases in May were for the 2021-22 marketing year, and China earlier in May canceled at least 420,000 tonnes originally purchased for 2020-21. China’s total corn imports (from all sources) in calendar 2021 were 8.58 million tonnes, through April, up 301% from the same period last year, according to China’s General Administration of Customs.

On the ethanol front, the USDA left its forecast use of corn in the current year unchanged from April at 4.975 billion bushels (equal to 35% of 2020 corn production), but initially projected 2021-22 use for ethanol at 5.2 billion bushels, which still is below use in 2018-19 at 5.378 billion bushels.

Weather now moves into the forefront as the factor affecting the corn market for the rest of the season. Corn prices got support when the USDA reported planting progress in the 18 major states at 80% as of May 16, ahead of 78% a year ago and 68% as the 2016-20 average for the date, but below the 84% expected by the trade.

The pull of corn on wheat and soybean markets was noticeable after the WASDE report, even if numbers for wheat and soybeans mostly were neutral relative to corn. Wheat futures dropped about 50¢ to 80¢ a bushel, or 6% to 10%, in the week ended May 14, with the largest declines (73¢ to 79¢ a bushel) coming in Kansas City hard red winter wheat contracts, which faced added pressure from improving moisture conditions across the previously parched southern Plains. The USDA projected spring wheat (hard red spring and most durum) production at 589 million bushels, down 10% from 2020. The spring wheat crop was 85% planted as of May 16, well ahead of 57% at the same time last year and 71% as the five-year average.

The USDA forecast 2021 wheat production (which constitutes most of the 2021-22 supply) at 1.872 billion bushels, up 2.6% from 2020, including the first survey-based winter wheat forecast at 1.283 billion bushels, up 10% from last year. Hard red winter wheat output was forecast at 731 million bushels, up 11% from 2020, soft red winter at 332 million bushels, up 25%, and white winter at 220 million bushels, down 10%. The white wheat number was down largely because of dry conditions in the Pacific Northwest.

With the new wheat marketing year beginning June 1, focus was on 2021-22. Carryover on June 1, 2022, was projected at 774 million bushels, down 11% from this year’s estimate of 872 million bushels and the lowest in seven years. The USDA wheat carryover numbers were above trade expectations for both this year and next year. Although 2021 production was forecast higher, lower beginning stocks resulted in a total supply forecast of 2.869 billion bushels, down 3% from the current year. Food use of wheat was raised slightly, while feed use, projected at 170 million bushels in 2021-22 (the highest since 2013-14), was raised 70% as more wheat is expected to flow into feed channels due to high corn prices. US wheat exports in 2021-22 were projected at 900 million bushels, down 7% from the current year as several export competitors are expected to have larger supplies and US wheat prices remain uncompetitive in many foreign markets.

More became known about the hard red winter wheat crop from the Wheat Quality Council’s annual tour last week, which generally saw favorable crop prospects in the top hard red winter wheat state of Kansas.

Unlike corn and wheat, soy complex futures all posted gains on May 12 after the WASDE numbers were released, although only soybean oil was able to hold those gains for the week. Soybean futures saw relatively modest declines of about 4¢ to 33¢ a bushel for the week ended May 14.

USDA carryover forecasts for soybeans were near trade expectations, which confirmed ideas of tight domestic and global supplies. US 2021 soybean production was projected at 4.405 billion bushels, up 7% from 2020, but like wheat, total supply was lower than the prior year due to sharply lower beginning stocks. Strong domestic demand for soybean oil from the growing renewable diesel industry is expected to keep the oil share of the soybean crush above average levels, with total soybean crush forecast at a record 2.225 billion bushels in 2021-22.

Use of soybean oil for biofuel was forecast at 12 billion pounds in 2021-22, up 26% from the current year and potentially igniting a food-versus-fuel debate that has been a feature of the corn market for years.

In contrast to soybeans and soybean meal, soybean oil futures rose about 2% to 5% for the week ended May 14. Cash prices for soybean oil and several other edible oils have been at multiyear if not record highs in recent months with prices not expected to ease until the fall soybean harvest.

Expectations for other commodities, meanwhile, were considerably different compared to those of grains and oilseeds.

Milk production in 2022 was forecast at 230.3 billion pounds, up 1.1% from 227.9 billion pounds in 2021. The average price of all milk was forecast at $18.50 per cwt, down 2.4% from $18.95 as the current year forecast but up 1.4% from 2020. Class 3 milk (used for most types of cheese) was forecast at $16.85 in 2022, down 4.8% from this year, with Class 4 milk (used for butter and dry products) at $15.70 a cwt, down just 5¢, or 0.3%.

Butter and cheese prices were especially volatile during the coronavirus pandemic due to the large share of both consumed via foodservice and support from the government food box program. The USDA forecast cheddar cheese prices to average $1.71½ a pound in 2022, little changed from $1.71 in 2021 but down 11% from 2020. Butter prices were forecast to average $1.79 per pound next year, up 4.7% from 2021 and up 13% from 2020. Prices for the two key dry products were forecast lower in 2022, with nonfat dry milk at $1.19½ a pound, down 3.6%, and dry whey at 47½¢ a pound, down 17%, although both were well above 2020 levels.

Egg production in 2022 (calendar year) was forecast at 9.470 billion dozen, up 1.4% from 9.341 billion forecast for the current year. The average price of eggs was forecast at $1.15 per dozen next year, up 2.5¢ from 2021. Egg prices in the fourth quarter of 2021 were forecast at $1.24 per dozen, up 31% from 95¢.

Red meat also saw wild price swings in 2020 due to COVID 19 (mainly red meat), while some chicken part prices recently have soared to record highs due to tight supplies and strong demand for wings and for breasts, the latter the result of chicken sandwich “wars” among fast-food outlets. Beef production was forecast 2% lower in 2022 while production of pork, broiler and turkey meat was forecast higher, with total red meat and poultry production forecast at 107.228 billion pounds, up 0.3% from 2021.

Prices for steers, broilers and turkeys were forecast higher in 2022, while hog prices were forecast slightly lower. Those forecasts aren’t necessarily an indication of what retail meat prices will do, though.

Markets overall are expected to remain volatile while seeking a new post-pandemic norm for both supply and demand, and the vagaries of weather will buffet grain and oilseed prices during the growing season.

WORLD-GRAIN

Tags: soybean oil, prices, commodities, Grains, oilseeds, USDA