2023 market outlook: Atypical price trends compared to past years

CHAMPAIGN, Ill. — The current crop marketing year price trends have been unusual compared to past trends.

“We’ve been through this old crop/new crop inverse for the entire year with 2022 old crop prices remaining above 2023 new crop prices since Jan. 1, 2022,” said Joe Janzen, University of Illinois ag economist.

The typical train of thought is prices go down in the long run through the marketing year. However, a number of events kept prices strong.

“The first one for soybeans was in February when got news of a poorer crop in Brazil due to the drought. That really had a big impact, especially on old crop soybean prices,” increasing from the $13 area to around $14.75 per bushel, Janzen said.

“It had a little bit less impact in the corn market, but corn got a big boost from the Ukraine-Russia war, starting at the point of the invasion and sharply rallied the next two months in both corn new crop and old crops prices. That put us in that neighborhood of plus-$7 corn prices and plus-$15 soybean prices.

“Then we get some news of sort of an easing of the supply chain problem coming out of the Black Sea region with this grain deal between Ukraine and Russia and number of other things that led to lower prices in the summer.”

Corn then got a boost with the U.S. Department of Agriculture estimating lower than expected domestic yields. That put some strength especially in old crop corn and new crop followed.

There was a leveling off in the fall to around $6.50 old crop corn and around $6 new crop corn.

Balance Sheets

Janzen reviewed the corn and soybean supply and demand ledgers for 2022-2023 and the current marketing year outlook.

He said U of I’s farmdoc forecasts a 2022-2023 total supply of 15.357 billion bushels with an average yield of 172.3 bushels per acre.

That yield is significantly below where USDA started in early 2022 with a trend line expectation of around 180 bushels an acre national average.

“I think there is a significant amount of uncertainty on the use side for corn,” Janzen said.

USDA estimates 5.275 billion bushels for ethanol while farmdoc projects 5.2 billion bushels. USDA has exports at 2.15 billion bushels and farmdoc estimates 2.075 billion.

“There is a significant amount of uncertainty on the use side for corn.”

—  Joe Janzen, ag economist, University of Illinois

Corn ending stocks are at 1.182 billion bushels on USDA’s balance sheet and 1.332 billion in the farmdoc estimate, resulting in stocks-to-use of 8.3% and 9.5%, respectively.

“Ending stocks might not be quite as tight as USDA is projecting, but 9.5% stocks-to-use is still historically tight, in the range where prices are high, but I think there is some reason to think old crop prices might not maintain the levels that USDA is projecting. There’s room for some downside,” Janzen said.

He added old crop corn prices levels are likely to remain high in the short run. However, higher ending stocks mean higher beginning stocks for 2023-2024 and an increased probability that the 2023 harvest will push prices lower.

“The reason for some of this pessimism is corn export sales are well below the five-year average pace and below last year,” Janzen said.

Corn export sales through Nov. 17, 2022, were about 699 million bushels while the previous five-year average level is approximately 1.047 billion bushels. Sales near this previous five-year average level are necessary to reach the USDA forecast level.

“There is some recent optimism for corn exports given recent large sales to Mexico and improved prospects for barge traffic on the Mississippi River to facilitate grain movement to export terminals, but missing early export sales may be too large to be completely replaced with sales later in the marketing year,” Janzen said.

Soybeans

The farmdoc projections concurred with USDA’s 2022-2023 balance sheet that has an average yield of 50.2 bushels per acre and a total supply of 4.634 billion bushels.

Exports are penned in a 2.045 billion bushels, crushings of 2.245 billion and ending stocks of 220 million bushels, putting stock-to-use at 5%. The season average price is projected at $14 per bushel.

“Soybeans are slightly below trend line projected yields for 2022. It was a slightly smaller crop than we might have planned for. That’s kind of underpinning the market,” Janzen said.

“There is pretty strong use. The crush number is up from the year before. Exports are right around where they have been the last few years. We have a tight market situation where we’re carrying out 5% of use. That means relatively strong prices.”

Soybean export sales to Nov. 17 were similar to last year, above the previous five-year average pace and on track to meet USDA projections.

Wildcard

The wildcard in the current marketing year outlook is basis levels and what’s happening on the transportation side.

“We do have kind of a strange situation that has eased somewhat. In late-October there were very poor basis levels along the Mississippi River and now they’re strengthening to some degree,” Janzen said.

“In the corn market, the large drought area of the Plains is trying to draw corn into feedlots in Oklahoma, Kansas and Nebraska. It was a region where there wasn’t much of a corn crop. The market needs to move corn in that direction. Basis is doing that work by implementing some incredibly strong bids there.

“It’s an unusual spatial market structure that we see ourselves in.”