WASHINGTON — Cautious optimism sprinkled with a considerable portion of macroeconomic, geopolitical and weather-related uncertainty.
That was the overarching theme during the annual grains and oilseeds outlook for 2023-24 last month at the US Department of Agriculture’s 99th Agricultural Outlook Forum.
The calculus for 2023-24 involves numerous factors. The Federal Reserve, for now, maintains an aggressive campaign to combat inflation with interest rate increases. Tied to that is a strong US dollar expected to stay elevated through 2023. Costs are higher for inputs such as fertilizer. War rages on in the Black Sea, a key production area. Plus, the annual surprise that is crop weather.
Tight commodity supplies have pushed prices higher, as exemplified by the cereal and bakery products group posting a 13% increase in 2022 compared to 10% across the broader food category.
“Price inflation was elevated for a broad array of products within this grouping,” said Andrew Sowell, an agricultural economist in the Crops Branch, Market and Trade Economics Division at the Economic Research Service of the USDA and the coordinator of the agency’s Wheat Outlook Program since June 2021.
“Flour, breakfast cereal, bread, lots of things this is particularly interesting because cereal products are normally a category that doesn’t see substantial price inflation,” he said. “That’s really changed a lot in the last year. That being said, demand for cereal products is generally considered to be pretty inelastic to price in the US.”
Wheat and corn stocks remain relatively tight amid a general decline for the past several years. Soybean stocks have been relatively steady, but still below the elevated levels posted in 2018-19 during the US-China trade war. Prices for the three major ag commodities remain elevated, but down slightly from a year earlier and off the peaks registered in 2022, Mr. Sowell said.
Fighting in Ukraine pumped uncertainty and volatility into the three markets, but most substantially for wheat, which reached historic peaks in May 2022. Drought conditions in the US southern Plains pulled prices higher still, but they began to ease when new crop wheat eased tight-supply concerns, the Black Sea Grain Initiative allowed resumed exports from the region and Russia began a robust shipment program. Farm expenses remain elevated but are trending lower for supplies such as diesel fuel and fertilizer. Base materials for the latter often are produced in Russia, so war continues to be a factor in price due to sanctions. Elevated input costs could influence farmer seeding of soybeans, since the crop features a generally lower cost structure.
The USDA’s crop projections for 2023-24 assume normal planting progress and growing conditions along a trend yield; assume current policies will remain in place; and assume status quo regarding the Russia-Ukraine conflict. The USDA projects area seeded to wheat, corn and soybeans to be up nearly 3% to 228 million acres. If realized, it would be the largest acreage for the three crops in nine years.
By commodity, the USDA projects corn acres to rise about 2.4 million acres, to 91 million, with production boosted by a larger area planted based in trend yields. Domestic feed and residual use are expected to rebound with higher supplies while exports are expected to increase along with modest growth in global trade, tighter exportable supplies in Ukraine, and growing imports for China. Ethanol use is projected unchanged at 5.25 billion bus amid steady gasoline consumption. Corn ending stocks will be rebuilt, the USDA believes.
As for soybeans, the USDA projects acreage to hold steady at about 87.5 million acres and production to increase on a return to trend yield. Larger soy oil and biofuel use are seen leading to increased soybean crush levels. Exports are thought to see a slight increase but remain constrained by large Brazilian supplies and larger stockpiles will lead to lower prices, according to the USDA.
The wider soy complex is expected to see some important developments as increased crush produces more soy oil and soymeal, according to the USDA. As larger supplies increase soymeal’s profile in feed rations, domestic meal use is expected to shoot higher. Soymeal exports are expected to strengthen in the initial months of the 2023-24 crop year, since Argentina’s supplies will tighten on unfavorable crop weather. Soyoil exports also are projected to move higher, and biofuel use for soybean oil is projected up about 8%, Mr. Sowell said.
“Crush margins are expected to continue to be strong,” he said. “Maybe not as high as the past three years, but still strong by historical levels. The oil side is projected to account for a slightly smaller percentage of the overall value of soybeans. Crushed still above 40%, keeping with the recent trend of oil representing a large share of the value of soybeans. Growth in the biodiesel industry is a key factor behind oil representing such a strong share of the overall value, but meal is still very valuable, particularly in the current high price environment.”
The USDA projects wheat acres, driven by strong pricing, to jump 3.8 million acres, to 49.5 million acres, which, if realized, would be the largest in seven crop years. The USDA used winter wheat planted projections taken from the Jan. 12 Winter Wheat and Canola Seedings report and calculated a harvested-to-planted figure based on a 10-year average for most production states. In consideration of drought conditions, the Department used the 2022-23 ratio for Kansas, Oklahoma and Texas, which lowered slightly the ratio for harvested to planted. Other spring wheat and durum are assumed by the USDA to be up marginally year-over-year.
“There are strong prices for spring wheat and durum but also plenty of alternative crops in the Northern Plains that are also profitable: corn, soy, canola and several others,” Mr. Sowell said. “But once again, we’re assuming normal planting conditions, and up in that region of the country that’s where that comes into play a lot. Harvested area at 38.4 million acres up about 8%.”
Wheat yields are thought to return to trend levels following two drought years. Food use is expected to maintain a slow growth pattern along historic trend lines while larger supplies are thought to increase feed and residual use. Wheat could be competitively priced in some locations in June, July and August with exports increasing but still relatively low under stiff competition. Stocks should rebound slightly but remain tight, Mr. Sowell said.
Declining US market share is an important factor guiding USDA’s export expectations for wheat, corn and soybeans, Mr. Sowell said.
“The US has lost its historic position as the world’s leading exporter,” he said. “Going back 15 years the United States had nearly 30% of the world wheat market. But now we’re only at about 10%. Russia and the European Union have been the largest exporters for much of the past decade. Australia and Canada have also been large exporters, recently surpassing the US. Wheat exports in the coming year are seen rebounding from the 51-year low we saw in the current year but will still be pretty weak by historic standards with that same competitive dynamic remaining.”
US corn and soybean exports have been under pressure from increased shipments out of Argentina and Brazil. In the case of corn, US exports remain the largest in the world. But for soybeans, Brazil has taken the top position as a supplier. The USDA expects prices to remain elevated overall but moderate somewhat as supplies increase. The Department projects corn prices to decline $1.10 a bu to $5.60, wheat prices to fall 50¢ a bu to $8.50 and soybeans to drop $1.40 a bu to $12.90.
For the crop year ahead, many factors remain at play, Mr. Sowell said.
“Does drought in the Great Plains continue?” he asked. “What will spring wheat planting conditions be like? Will Ukraine be able to produce and export? Will we continue to see a strong US dollar? What other global supply shocks could we see? What about weather in South America? These are all wildcards. These projections are our best estimates based on the assumptions that we have laid out.”The next release of fundamental data from the USDA comes in late March with the release of the annual Prospective Plantings report containing farmers’ detailed extended acreage for the major commodities. Within, market participants will find the first survey-based data on what spring wheat and durum plant intentions. In May, complete forecasts for new crop and NASS production estimates for winter wheat will be released and, in subsequent months, a wheat-by-class supply and demand projection and a wide-ranging trove of NASS data beginning in August.