Grain markets in 2019 had a familiar feel – a late-June rally that faded as concerns about the U.S. corn and soybean crops subsided. That was especially frustrating for producers hoping for a substantial price improvement after spring-planting challenges and record prevented-planting acreage. Given Mother Nature’s best efforts to implement a supply-management plan, it’s worth stepping back to consider how much grain-outlook conditions changed in 2019. This week’s post reviews how projections of grain production and ending stocks changed throughout 2019.
Corn numbers better than projected
Figure 1 shows the U.S. corn ending stocks-to-use ratio since 2000. Additionally the graph includes the projection from the U.S. Department of Agriculture’s May World Agricultural Supply and Demand Estimates outlook, in orange. The May World Agricultural Supply and Demand Estimates represents the early-spring forecast – before the widespread planting challenges were evident.
U.S. corn ending stocks currently are 13.7 percent of usage. While stocks are projected to be the smallest in four years, they remain at more than the 20-year average of 13.1 percent. Furthermore they remain at more than the sub-10-percent level observed when corn prices soared. While the corn-stock situation has improved in recent years, conditions remain on the inflated side.
Stepping back a bit, keep in mind that the USDA’s May projection was much bleaker. With corn stocks-to-use ratio at almost 17 percent, corn stocks had a real possibility of increasing in 2019, especially if yields came in at more than trend. And the spring outlook was for corn stocks at the fourth-greatest level in 20 years.
Soybeans story more dramatic
While the story for soybeans is similar to that of corn, the magnitude is much more dramatic. In May the USDA projected soybean ending stocks would exceed 23 percent of use, the greatest level in 20 years and at slightly more than 2018 levels.
Currently the soybean outlook for 2019-2020 is an ending stocks-to-use ratio of 11.9 percent. That’s the result of a dramatic reduction in expected acreage, thanks to Mother Nature. While current levels remain at more than the 20-year average of 8.3 percent, the adjustment has been significant and was difficult to imagine just six months ago.
Wheat has similar story
Figure 3 shows the same data for wheat. Wheat has not captured as much attention as corn and soybeans but has had a similar story. In May the USDA had projected U.S. 2019-2020 wheat stock would be at the greatest level observed during the past 20 years, 56 percent of usage. Currently the outlook is much improved at 48 percent stock-to-use ratio. That said, current levels are at more than the 20-year average of a ratio of 35 percent.
Acreage, yield hit numbers
Table 1 shows the change in key 2019 grain-production and ending-stock figures from the November and May World Agricultural Supply and Demand Estimates reports. We can see how acreage, yield, production and ending-stock projections change during the seven months. We will point out a few key observations.
Mother Nature hit soybean production the hardest in 2019. Between May and November, estimated production was reduced by 14 percent and ending stocks decreased by 51 percent. Corn-production estimates decreased 9 percent while ending stocks contracted 23 percent. U.S. wheat production actually increased by 1 percent while ending stocks decreased 11 percent.
Not included in the table are other key factors, including usage and beginning stocks.
While not shown directly in Table 1, it’s worth pausing to consider which had a more significant impact on production in 2019 – the acreage hit or yield hit.
- For corn the decline in yields accounted for 56 percent of the reduction in estimated production. Acreage accounted for 46 percent.
- For soybeans acreage at 67 percent accounted for a majority of the decline in production with yields at 36 percent.
Wrapping it Up
While record prevented-planting acreage and less-than-trend yields failed to move prices as greatly as many hoped, commodity prices alone don’t tell the entire story. Current conditions are significantly different from those projected back in May. While production declines were most significant for soybeans, production and ending-stock adjustments also occurred in corn and wheat as well.
It’s important to keep in mind that 2019’s production hiccups occurred when ending stocks were already great; the starting point matters. The balance sheets for corn, soybeans and wheat improved, but ending-stock improvements were from “very high” to “high” levels.
While most were hoping for a significant improvement in the farm economy and commodity prices, 2019 is likely a year where the “good news” is that a potential price disaster was avoided. It’s a bit sobering to consider how depressed commodity prices might be today had May projections became a reality. Moreover consider if 2019 had been another year of more-than-trend yields.
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