High Plains Ag Week 10/11/2021 – Corn & Sorghum Update

This week we’ll take a look at the fall market outlook for coarse grains. Fundamentals for grain prices remain supportive. However, input costs are becoming a concern across the board, potentially cutting 2022 profits.

Dates and Deadlines

10/12/2021 – WASDE, USDA

10/22/2021 – Cattle on Feed

10/22, 11/3, 11/30/2021 – Virtual wheat and soil field days

10/24 – 10/26/2021 – TCFA Annual Convention

10/27/2021 – QuickBooks Pro Training, Stephenville 

What We’re Reading

Comprehensive report on U.S. cattle market published for Congress, USDA – AgriLife Today

Coal Shortages Push Up Prices, Weigh on Economies – WSJ

NCBA supports additional USDA funding for beef supply chains – Morning Ag Clips

Farmer sentiment declines, inflation expectations jump – Morning Ag Clips

What are video auctions telling us about expectations for feeder cattle marketed this fall? – Progressive Cattle

What is “soil carbon”? – Soils Matter

US corn ending stocks down 36% from September 2020 – Morning Ag Clips

A Brief Note on Inputs

I’ve received more questions this fall on input prices than any other topic. The August Prices Paid Index (reported in September) had all production expenses up an average of 7.8% over 2020. However, some key input prices rose significantly more; fertilizer is up 28.64% over last year, feed is up 20.45% over last year, and building materials are up 19% over last year. Chemicals prices are reported down 2.24%, however this masks the fact that many chemicals are simply unavailable.

We will be doing a more extensive post and potentially new curriculum on managing input costs, but for now, a few thoughts. The cost to purchase and apply fertilizer, irrigation, and chemicals account for about 60% of variable cost per acre in sorghum. The cost to purchase and apply fertilizer, irrigation, and chemicals account for about 55% of variable cost per acre in corn, and when you add in seed it accounts for about 70% of variable cost. Irrigation and fertilizer are the two most expensive inputs by percentage of variable costs and they’re both more expensive than last year. In fact, the price of natural gas is at record highs and crude prices hit their highest levels since 2014 this morning. Think of it this way; improving efficiency in fertilizer purchases or use by 5% will save you about $4/acre in sorghum and about $7/acre in corn.

Though options aren’t great some immediate things to think about are:

1. Soil test. They range from $25-$40. I’m told applying N is usually a given but if you find you need even just half the normal P on a corn crop you could save $22/acre ($3,300 on a 150 acre section). That’s an $80-$130 return for every $1 invested in a soil test.
2. Consider waiting to buy P or K. At a farm economic outlook forum last month the presenter discussing inputs advised waiting on these fertilizers. Apparently trade disruptions between the U.S. and a Belarusian firm are holding up access to major P and K supplies. If the dispute is resolved we could see a drop in prices.
3. If you normally hedge fuel use consider waiting. As we move into the holiday season fuel price normally rises in normal years. Transportation bottlenecks, OPECs recent decision to slowly increase production rather than doing so rapidly, and supply shortages in Europe are inflating fuel prices right as the continent moves into colder weather. Some of these pressures may alleviate by spring.

AgriLife faculty will work to have more on efficient and well-timed input use by spring. In the meantime, if you have any questions on budgeting or potential impacts of changing inputs, please reach out to the authors at pancho.abello@ag.tamu.edu or benavidezjustin@tamu.edu

Corn Supply and Demand

The September WASDE estimate of beginning stocks rose 70 million bushels from August. Even so, stocks began the year at their lowest levels since 2012; down 36% from 2020. While 2021 ending stocks are forecast up on increased production, they will remain at the third lowest level since 2012. Stocks of corn in the U.S. on September 1 were 1.236 billion bushels. This is the lowest marketing year ending stock number since 2013/2014.  Beginning the year with short stocks provided the year-long support for prices and is a good sign for price into the new marketing year.

Corn Ending Stocks as % of Total Usage

Though drought persists through much of the Western U.S. and into the western and northern Corn Belt, average U.S. crop condition ratings are well ahead of 2019 and not far behind 2020. About 60% of acres rated Good to Excellent last week. Some of the western Corn Belt states are pulling that average down. For example Minnesota, which ranked fourth in corn production in 2020, has the worst corn crop condition ratings in 5 years. However, corn harvest is ahead of last year’s pace; we’ve harvested more acres than last year at this time, and about 10% more acres than the 16-20 average.

The Texas corn crop is ahead of its historic average in terms of both progress and condition. As of last week crop conditions are at their highest levels since 2017; 60% of the Texas corn crop is rated Good to Excellent. Harvest is also well under way with just under 90% of the crop harvested.

Crop Progress and Condition: United States Corn, 2021

Crop Progress and Condition: Texas Corn, 2021

The September WASDE reported an increase in planted acres of 0.6 million acres, and a corresponding increase in harvested acres of 0.6 million acres, from 84.5 million to 85.1 million. Further increasing expectations for total corn production, forecast yields increased from 174.6 bushels/acre to 176.3 bushels/acre. The increase in total acres and average yield combined for an expectation of 14.9 billion bushels produced; a 1% increase. Many industry estimates forecast another increase in expected yield in tomorrow’s WASDE. Even without an increase in yield tomorrow, the forecast for U.S. corn production is near  record breaking levels.

Total U.S. Corn Production

The most exciting story in much of the grain complex has been ongoing strength in exports. Forecast exports of corn are the second highest in history (2.475 billion bushels), trailing only last year in which the U.S. exported 2.75 billion bushels of corn. A lot of the export volume last year went to China, and they remained strong customers this year as well. For some perspective, in 19/20 China imported about 17.5 million metric tons of corn. In 20/21 and 21/22 China’s imports are estimated to hit 45.9 million and 45.7 million metric tons, respectively. That means that for two years, China will represent approximately 20% of world corn imports.

U.S. Corn Exports

Total feed and residual of energy feeds (corn, sorghum, barley, oats, and wheat) are projected to be 151.5 million metric tons in 2021/22, down from the previous year (153.4 million MT) and 2019/20 (157.4 million MT). A decrease in total grain consuming animal units and strong grain prices should couple to decrease total use for feed. The WASDE has ethanol production up over 19/20, but with increased fuel prices and continued pressure from COVID-19 on travel there is a strong possibility that ethanol will be fighting headwinds. Unless there is progress with year-round E15 expect downward adjustments in ethanol production.

Corn Price

The factors in supply and demand have coupled to provide uncertain signals for price. Stocks are low, but forecast use through 21/22 is mixed, and production expectations rose from August to September. Industry expectations seem to be leaning toward further increases in production in tomorrow’s WASDE. On each WASDE that has introduced more total production through calendar year ’21 the board price has fallen. If tomorrow’s WASDE shows another increase, expect another step down.

CME Corn DEC ’21 (10/10/2021)

That being said, falling prices will still remain above 19/20 values, and very likely above the previous 5-year average. The September WASDE established a season average farm price of $5.45/bu., nationwide, a 30 cent drop from August, but still well above any price since 2012. The Economic Research Service forecast of season average farm price for 21/22 between $5.14/bu. (futures market) and $5.75 (WASDE Midpoint estimate) on Sept. 2. Neither price will provide a PLC payment, and it will take severely damaged yields to yield an ARC payment with those prices. At the time of writing, CME DEC ’21 Corn was $5.30/bu., and CME DEC ’22 Corn was $5.25/bu.

U.S. Average Corn Price

As of Friday, corn for immediate delivery at Central Texas Panhandle terminals posted an average $0.53/bu. basis, yielding a price of about $5.83/bu. We can assume a $0.50/bu. basis over season average price for the duration of the marketing year to estimate profitability for the Texas High Plains. Using a low of $5.65/bu. and high of $6.25 local prices, and keeping input prices as they were for this crop year, returns over fixed costs for the crop currently in harvest will range from $375/acre to $509/acre. You can estimate the expected returns for your own crop with your own input prices and sales using our Crop Profitability Analyzer.

Grain Sorghum Supply and Demand

The September WASDE saw surprisingly large jump in projected ending stocks for the year, i.e. beginning stocks for the upcoming year. The projection for harvested acres jumped 12%, from 5.8 million acres in August to 6.5 million acres in September. Though this was offset by a 1.1 bu./acre decline in expected yield, the forecast for production jumped 45 million bushels. Coupled with a drop in usage, this increase in production (to 454 million bushels) led to a nearly doubling of expected ending stocks to 32 million bushels. That puts ending stocks right back in line with the all but two of the last seven years.

U.S. Grain Sorghum Production

U.S. Grain Sorghum Stocks

The drop in forecast yield from August to September followed the steady decline in crop condition ratings throughout the U.S. Initial crop condition ratings were the highest they’ve been for the U.S. sorghum crop in five years, however as we roll through harvest Good to Excellent ratings have dropped to around 55%. Though drought is not hitting major sorghum country in the same way as the western half of the U.S., lower rainfall in Kansas (which plants more sorghum acres than the states ranked second through fifth combined) is pulling down the condition ratings.

Texas harvest remains ahead of the historic average; more than 80% of the crop is out of the field as of last week. Conditions remain above the national average with 60% rated Good to Excellent in the state.

Crop Progress and Condition: United States Sorghum, 2021

Crop Progress and Condition: Texas Sorghum, 2021

The big run-up in grain sorghum price over the last 365 days has been almost entirely the result of exports, specifically exports to China. In fact, domestic use of sorghum has fallen somewhere between 33 and 50% over the last year as its price rose. Last year, sorghum exports rose 83 million bushes over the 19/20 year, and this year exports have risen again, from 285 million bushels in 20/21 to a projected 320 million bushels in 21/22. Chinese demand for increased feed grain drove almost all of this export activity.

U.S. Grain Sorghum Exports

At the same time, the increased export demands for U.S. sorghum lifting prices lowered sorghum’s use in feed, and continue to do so. The use of sorghum in feed and its price are strongly negatively correlated. Similarly, sorghum’s increased price lowered demand for food, seed, and industrial uses as well. Total domestic use fell from 19/20 to 20/21 from 172 million bushels to 105 million bushels. As of September however, increased production and the expectation of larger ending stocks led to a WASDE forecast of lower prices and therefore increased domestic use.

U.S. Grain Sorghum Feed Use versus Price

Grain Sorghum Price

Sorghum has been the breakout crop this year, in terms of price. The increased demand for sorghum exports during the last crop year and the current crop year drove prices from a three year stagnation of about $3.50/bu. to almost $6.00/bu. Even though total use is up, production gains from August to September estimates led to a drop in expected price, from $6.15/bu. to $5.85/bu. Both prices remain well above the PLC reference price of $3.96/bu.

U.S. Average Grain Sorghum Price

 

 

As of Friday, sorghum for immediate delivery at Central Texas Panhandle terminals posted an a price of about $5.65/bu., barely trailing corn. Using a low of $5.65/bu. and high of $6.25 local prices, and keeping input prices as they were for this crop year, returns over fixed costs will range from $123/acre to $196/acre. You can estimate the expected returns for your own crop with your own input prices and sales using our Crop Profitability Analyzer.