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USDA predicts prices, demand will remain high

Planting

Agricultural markets were ruled by uncertainty at February’s close, and the growing season is likely to see a lot of volatility.

USDA market and trade economist Michael McConnell said on Feb. 25 at the USDA Agricultural Outlook Forum that much of the uncertainty comes from ongoing geopolitical conflict, the pandemic, inflation and supply chain pressures.

“Many of these are always thought about, but heading into 2022-23 there are heightened factors that could affect trade flows and markets,” McConnell said, with Russia having launched an invasion of Ukraine only 48 hours prior to the presentation. “A lot of our early February numbers didn’t have that factored in, but we will take those into account going forward.”

Crop markets have seen a good deal of support, largely due to tighter global supply. The stocks-to-use ratio for corn, wheat and soybeans are all near recent highs, combined with increased consumption and production disruption all supporting crop markets, McConnell said.

In an annual tradition, the outlook forum gave producers a first glimpse at acreage estimates for the upcoming growing season. Soybeans are expected to be planted on 88 million acres, which would be up 800,000 acres from last year. Corn is expected to decline 1.4 million acres from last year to 92 million, while wheat is expected to set a record at 48 million acres.

Higher input costs may be one of the factors driving soybean acres higher, as producers may not be willing to spend as much on fertilizer, causing a switch from corn. However, corn acres were not reduced as much as analysts expected due to the current high crop prices.

“Costs of production are rising, but so have crop values,” McConnell said. “Cash markets are higher than the lows that started in 2014 and 2015. Prices appear to be able to remain at elevated prices for 2022-23.”

Despite a smaller projected acreage, projected trend yields are 4 bushels higher than the 2021-22 crop, which would mean higher overall production. The USDA also increased the expected demand for the upcoming crop season, largely in the ethanol market. Expectations are for the pandemic to become less of a factor and allow for increased driving.

Andrey Sizov, editor of the Sizov Report, said the increase in global fertilizer prices is going to have an impact, but the possibility of smaller overall yields would mean continued tighter stocks and high prices.

“It’s fair to say fertilizer will come into the equation in overall production,” he said. “But will it have an overall impact on our prices or yield forecasts is uncertain. We don’t have a good methodology to see what impact it will have.”

Another factor driving soybean acres and prices is a good outlook for renewable diesel, Bill Lapp, president of Advanced Economic Solutions, said at the forum. Renewable diesel prices are setting new highs in the market. Lapp said federal incentives have driven possible demand for the future.

“There are some that argue renewable diesel is a better way to incorporate biofuels into our transportation system,” Lapp said. “It’s aided a lot by tax credits.”

The challenge for renewable diesel is finding ways to increase consumption in the coming years. Projections are for an increase of 1 billion gallons in 2021 to 4 billion gallons in 2024. To reach that level, it would mean an increase of 24 billion pounds of feedstock or raw material. Lapp said there are a lot of questions to answer before we get to that point.

“Are there enough soybeans to crush? Is there a role for canola? And where does the soybean meal go?” Lapp said. “For every pound of soybean oil, you get 4 pounds of soybean meal. It’s going to be a tremendous challenge.”

One possible solution to move closer to that point would come in the form of a 400 million bushel increase to domestic soybean crush. That would equate to 4.5 billion pounds of soy oil, Lapp said.

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