Fundamentally Speaking

USDA has put out an early release of their 10-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. Hence the need for new crop prices to remain at attractive levels to entice farmers to seed one or the other. It will be a battle to see whether corn and soybeans carry the day.

The USDA budget figures show corn planted area at 90 million acres with harvested at 82.5 million. The 2021 U.S. corn yield pegged at 180.5 bpa, a new record. Production is then estimated at 14.890 billion bushels added on to last month's carry in of 2.167 billion bushels gives total supplies at 17.802 billion bushels.

With 2021/22 total demand projected at 14.825, the 2021/22 ending corn stocks are expected at 2.257 billion bushels with a stock to use ratio of 15.2%. This stocks to use ratio would in fact be above the prior two years.

The problem is that beginning stocks based on the November 2020 WASDE are now 1.702 billion instead of 2.167 billion. This year's corn yield is now at 175.8 bpa instead of 178.4 and demand this year is now at 14.825 billion instead of 14.575 billion.

This graphic is a matrix showing the prospective 2021/22 U.S. corn ending stocks to use ratio. Planted acreage is 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 1.702 billion which is the USDA November 2020 projection for this year's carryout in the latest WASDE report. We are using the USDA budget 2021/22 demand figure of 14.825 billion bushels and assume a 92% harvested to planted ratio.

Cells shaded in red is a stocks/use ratio of less than 5.0%, those in yellow a stock to use ratio of 5% to less than 10%, cells in blue a ratio of 10% to less than 15% and those in orange a stock/use ratio in excess of 15.0%.

Just using the new beginning stocks figure which is 465 million bushels million lower than the baseline number and keeping the demand projection at 14.825 billion bushels, according to the matrix plantings of 90 million acres and a yield of 180.5 bpa would result in ending stocks of 1.822 billion, not 2.257 billion and a stock to use ratio of 12.3%, not 15.2%.

Considerations include beginning stocks may still be too low with perhaps further upward adjustments in exports, feed. Also, we could see additional yield declines in the January report. Demand may turn out to be higher than current USDA projection and attaining the 180.5 bpa yield next season could be stretch.

Early thinking is that with the SX2021/CZ2021 ratio at an already elevated figure of 2.55 and soybeans also being the lower costing crop to seed it may already have a leg up on corn. USDA estimated returns over variable costs work out to $345 per acre for soybeans vs. the $301 per acre return for corn. Yet another reason why farmers may favor soybeans over corn.

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