Fundamentally Speaking

Last Friday USDA put out an early release of their ten-year baseline balance sheet projections, which are used for government budgetary purposes.

The full baseline report, including the typical USDA commentary, will be released in February as usual.

Our interest lies in the fact that with both corn and soybean ending stocks this year seen at the lowest point in seven years, with world coarse grain and oilseed inventories also pared from high levels seen in recent years, it appears that both U.S. corn and soybean acreage will have to expand rather substantially next year in order to build supplies.

It may be difficult to get the necessary hike in planted area for both crops and hence the need for new crop prices to remain at attractive levels to entice farmers to seed one or the other and it will be a battle to see whether corn and soybeans carry the day.

In that regard we present a matrix showing prospective 2021/22 U.S. soybean ending stocks in million bushels (mb) with planted acreage going across the x-axis at the top in millions and prospective 2021 yield in bushels per acre going down the y-axis on the left.

Assumptions include beginning stocks at 190 mb, the USDA November 2020 projection for this year's carryout in this week's WASDE report.

We have estimated 2020/21 demand of 4.615 billion bushels (bb) which is the average 20-year annual percent increase of 2.1% applied to this year's offtake of 4.516 bb.

We also assume a 99% harvested to planted ratio. Cells shaded in yellow are ending stocks that are less than zero, those in orange between 0 and 200 mb, cells in gray at 200 to 300 mb and cells in green above 300 mb.

The graphic below shows these stocks as a percent of the estimated 2021/22 estimated demand of 4.615 bb.

Considerations include the fact that the beginning stocks may still be too low with the USDA facing such a tight soybean stocks it couldn't even hike crush or exports by even one bushel even though the current overseas sales and processing pace mandates that such a move be made while we could see additional yield declines in the January report.

Our demand estimate for 2021/22 could be high but is the average annual increase over the past 20 years.

The point here is that the USDA on Friday pegged 2021 U.S. soybean plantings at 89 mb and as matrix shows we would need a record yield of 52.7 bushels per acre just to keep 2021/22 ending stocks just where they are pegged now at 190 mb, assuming just a modest 100 mb increase in next year's use.

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