As we thought about what 2019 production might have in store, we realized we didn’t have a great handle on how corn and soybean usage varied from year to year. We knew usage was impacted by a variety of factors – such as demand by different end-users and price – and that usage has increased through over time. We just hadn’t dug into the data much. Specifically we didn’t know what a big annual change in usage might be. For this week’s post we reviewed annual corn and soybean usage data.
Annual usage increases
Figure 1 shows annual U.S. corn usage from the 2000-2001 marketing year through the current year. As with production, a linear trend line fits the data quite well. During that period annual usage has increased at an average annual rate of 288 million bushels per year. That annual increase equals 2 percent of 2018-2019 usage levels. Starting at almost 10 billion bushels, corn usage underwent a rather rapid increase from 200-2001 to about 2007-2008. Since then it has been at more than 12 billion bushels except for the drought and inflated-price year of 2012-2013. Since 2016-2017 it has exceeded 14 billion bushels.
Figure 2 shows data for soybean usage. The overall upward trends are similar for corn and soybeans. The linear trend line for soybeans is also a good fit but accounts for a slightly smaller share of the total variation – R-squared of 0.82 for soybeans compared to 0.87 for corn.
During the time series, usage has increased at an average annual rate of 84.9 million bushels per year. That annual rate of increase is equal to 2.1 percent of 2018-2019 usage.
Given the data trends and how well the trend line fits – high R-squared values – that left us to think about usage similarly to how we think about yields. Specifically we can use the forecasted trend value for 2019 as a starting point, and then consider historical variations to understand the range of possible outcomes for 2019.
Usage relates to yields, prices
In Figure 3 the annual error – or difference between the trend-line estimate and what was observed – for corn usage is shown, ranked from least to most. As one would expect the years when usage decreases tends to correspond to years when yields are depressed and prices are increased. For instance in 2012 usage was 15 percent less than expectations and in 2002 usage was 7 percent less than the trend. On the other hand 2007 showed an increase of 10 percent and 2009 showed an increase of 7 percent. Those were years when usage exceeded trend substantially. In most other years usage was quite close to trend.
Figure 4 shows the distribution of error for soybeans. Again depressed-yield years when price must ration demand corresponded with years where the actual was less than the trend line. Perhaps most interesting is how much more variation – or error – there has been for soybean usage. Consider again the years with errors of plus or minus 5 percent. In eight years – or 42 percent of the time – usage varied by more than 5 percent. Four years were greater than 5 percent and four years were less than 5 percent. Outside of the trade uncertainties of recent years, soybean usage has been more vulnerable to year-to-year changes when compared to corn.
Export numbers affect usage
One of the most important factors in usage of those crops is exports. U.S. soybean usage has consistently been increased by increasing exports – with China being the major contributor. On the other hand corn exports account for a much smaller share of corn usage and have remained relatively stagnant as a share of usage.
That can be seen in Figure 5 where exports as a percent of use for corn in blue and soybeans in orange have trended in different directions for the past 20 years. While corn exports started the period at 20 percent of consumption, they ended at 16 percent. Soybeans started at 36 percent of consumption and ended at 46 percent.
Wrapping it Up
While we have focused a lot on trying to understand the variation of annual yields, we have not spent much time focused on corn and soybean usage. When looking at the annual data through time, it was surprising how much of the year-to-year variations were explained by a simple trend line.
The trend line is a helpful starting point for thinking about 2019-2020 usage. It suggests usage of 15.1 billion for corn and 4.2 billion for soybeans. For reference, those estimates are quite a bit more than current 2018-2019 expectations for corn at 14.6 billion. They are only slightly more than soybean expectations at 4.1 billion. Again, those are simply starting points.
When one considers the errors between the trend line and actual, another layer of insights emerges. First the error for corn usage – between the trend line forecast and actual – was plus or minus 5 percent for 21 percent of the time. That level of error was more common for soybeans, at 42 percent of observations. That’s to say that usage is more variable for soybeans than corn, even before the trade war uncertainties that began in 2018. Soybeans are significantly more reliant on exports for usage.
The linear trend lines – while admittedly simple – provide many insights into corn and soybean usage. Like any estimate or forecast, the process has limitations. That said, this is a simple starting point for thinking about potential levels and variations from the mean.
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