Virtually everything in our lives was changed by the pandemic in 2020. One of the surprises was the significant increase in corn and soybean prices as the year progressed.
Dr. James Mintert, professor and director of the Center for Commercial Agriculture at Purdue University, recently published his thoughts on the developments in 2020 and expectations for 2021.
It’s not unusual to have the corn and soybean outlook change during the course of the year, but the speed with which conditions changed in 2020 was indeed unusual. Last spring, as the pandemic was unfolding, concerns focused primarily on declining economic activity and the resulting spillover effects on commodity markets. By late spring and early summer, the focus was on prospects for the combination of a rebound in planted acreage compared to 2019 and good growing conditions leading to record corn and soybean crops. Combined with soft demand, it looked like the U.S. would carry over large ending stocks of both corn and soybeans from the 2020 marketing year into the 2021 marketing year. But as the year progressed, it became clear that was increasingly unlikely.
To see more clearly how much the outlook changed during 2020, we can review how USDA’s forecasts changed throughout the growing season.
Each month, USDA’s World Agricultural Outlook Board releases an updated World Agricultural Supply and Demand Estimates report, commonly referred to as the WASDE report.
The report includes crop production estimates as well as USDA’s estimates for various usage categories for each crop. The key variable in each set of supply and demand forecasts is USDA’s estimate of the quantity of corn and soybeans that will be carried over from the current marketing year into the next, in this case from the 2020 marketing year, which ends Aug. 31, 2021, into the 2021 marketing year, which begins on Sept. 1, 2021.
In mid-June, USDA’s forecast for corn to be carried over from the 2020 marketing year into the 2021 marketing year was 3.3 billion bushels which, if realized, would have been the largest corn ending stocks since the late 1980s. USDA’s forecast for 2020 marketing year ending stocks were pulled back in July and August to about 2.7 billion bushels and then began to decline sharply as we entered the fall. September’s ending stocks estimate was 2.5 billion bushels, October’s was 2.2 billion bushels, and the most recent estimate available when this report went to press from the November WASDE was just 1.7 billion bushels, equivalent to approximately 11% of total usage.
That’s a reduction in the ending stocks estimate of 49% from June to November.
This is not intended as a criticism of the World Board’s forecasts, but rather it indicates just how much the corn outlook picture changed in a short period of time.
An even more dramatic shift in the soybean outlook occurred this year. USDA’s peak estimate of soybean carryover stocks from the 2020 marketing year into the 2021 marketing year occurred in August when it forecast ending stocks of 610 million bushels. USDA’s projection of ending stocks declined 150 million bushels in September to 460 million bushels before declining again in October to 290 million bushels, and the forecast issued in November was for a soybean carryover of just 190 million bushels, which is just 4% of total usage.
What was behind the dramatic shift in ending stocks estimates? In the case of corn, it was primarily attributable to smaller estimates of 2020 corn production, combined with a reduction in the carryover from 2019 into the 2020 marketing year. In June, USDA forecast that 2020 corn production would total nearly 16 billion bushels. However, planted corn acreage turned out to be 91 million acres, instead of the 97 million acres estimate found in USDA’s Prospective Plantings report released at the end of March, and that, combined with a 3 bushel per acre reduction in the forecast national average yield from June to November, pushed the corn production estimate down by nearly 1.5 billion bushels to 14.5 billion bushels.
In the case of soybeans, it was attributable to much higher usage rates both within the 2019 crop marketing year, resulting in a smaller carryover from the 2019 marketing year into the 2020 marketing year, and from expectations of higher usage during the 2020 marketing year. The single biggest change was an expectation for stronger soybean exports, with the bulk of the soybean export increase going to China.
What does all this mean for the outlook as we head into 2021?
In corn, the two usage categories to keep a close eye on are exports and corn used for ethanol production. USDA is forecasting record corn exports for the 2020 marketing year, an increase of nearly 50% compared to 2019. What’s driving the increase in exports to China? Setting the trade dispute issue aside, the underlying driver behind increasing demand for corn and soybeans in China is the rebuilding and restructuring of the Chinese hog sector. China is the world’s largest pork consumer and pork producer, and African swine fever decimated pork production in China. China is in the midst of expanding and restructuring their hog industry. Feed required for the hog sector’s expansion, combined with a transition toward a commercial production industry model, is what’s driving the increase in China’s imports of U.S. corn and soybeans.
Read Mintert’s full report at bit.ly/purdueAER