2023 market outlook: Early look at new crop balance sheets

CHAMPAIGN, Ill. — Penciling in the possibilities for the 2023-2024 corn and soybean marketing year found an uptick in supplies and slight downturn in prices.

Scott Irwin, University of Illinois ag economist, gave farmdoc’s preliminary look at the next marketing year’s crop balance sheets during the recent Farm Assets Conference.

The first obvious question is where planted acres with the corn-to-soybean price ratio slightly favor corn.

“You might think that total crop acreage is a relatively fixed number — and, in some sense, it is — but there is important variation over time, and I think there is some relationship to prices,” Irwin said.

The total crop base has declined from 330 million acres in the late 1990s to a low of 320 million in 2006.

The ethanol-led boom in corn prices led to an increase in planted in 2013 and 2014 that brought total crop acres up to 330 million.

“With the drop-off in prices after 2014 we basically shrunk back to about 320 million acres. That’s not such a large change off of such a big acre base, but it is an important variable as we look forward,” Irwin said.

“I mistakenly thought that in 2022 we’d see a little bit more of an uptick in total crop acres than we did, given the high profitability. I’m going to go out on a limb and think I was just a year early. We’ll probably see a tick up of another few million acres in total crop acreage in 2023.

“That’s a little bit on the speculative side because of the severe drought in the Great Plains states in Oklahoma, Kansas, Nebraska, and somewhat into the Dakotas. That’s where we would expect maybe 2 or 3 million more acres to creep back into production, but there is some caution about that given the severity of the drought.

“It’s something to keep an eye on. I still think that’s my biased of the direction that we’ll see in next year’s acreage reports in March, June and August slightly bigger overall acreage. That’s important because that sets the stage for what our corn and soybean acres can look like.”

Corn

The farmdoc 2023-2024 marketing year balance sheet includes a projection of 92 million planted acres of corn, compared to 88.6 million in 2022, and 88 million planted soybean acres, one-half million higher than 2022.

The U.S. Department of Agriculture’s baseline released in October also had 92 million planted acres for corn in 2023-2024 and projected 87 million soybean acres planted.

“That would be a return to what I would call our norm now of 180 to 181 million acres total of corn and soybeans, not taking into account prevented plant,” Irwin said.

For yields, USDA’s baseline is a 181.5 bushels per acre for the 2023 growing season.

“USDA has been fairly aggressive on their trend yield estimation for a number of years. We’re not quite that optimistic and we think 180 bushels an acre is fine. With beginning supplies of 1.332 billion bushels, 92 planted acres and an average yield of 180, total supply is estimated at nearly 16.5 billion bushels for the 2023-2024 marketing year,” Irwin said.

On the use side, farmdoc estimates feed and residual 100 million bushels below USDA’s baseline to 5.6 billion.

Ethanol at 5.325 billion bushels and food, seed and residual at 6.775 billion match USDA’s projection. The farmdoc estimate for exports of 2.25 billion bushels is slightly below USDA.

“Exports are a wildcard right now. Much will depend on what happens to corn coming out of Ukraine,” Irwin said.

The farmdoc’s estimate of new crop ending stocks are 1.871 billion bushels compared to 1.722 billion by USDA, putting stocks-to-use at 12.8%, 4.5% above the current marketing year’s projection.

The projected result puts the 2023-2024 season average farm price by farmdoc at $5.40 per bushel and USDA’s at $5.70. The 2022-2023 estimated average price is $6.80.

“If there’s a number we’re most uncomfortable with in these projections, it’s the price forecast. That is a very high price level for a stocks-to-use ratio that’s clearly going to significantly exceed 10%. At roughly 9% or 10% you tend to get premium pricing in the corn market, and you don’t have to go much above that, and you no longer have premium pricing,” Irwin said.

“So, there are some real concerns about $5.40 even though clearly bids are at that level or above, but it indicates to us some concerns about downside risk levels on the corn balance sheet.

“This is only a good-weather scenario. I’m 100% sure that in a good-weather year there’s 185-bushel U.S. average corn crop sitting out there, and I don’t think it would take really great weather to even get there. That would add another 400 million bushels onto your ending stocks without any increase on consumption.

“Now you would have more consumption with lower prices, but in a good weather year you’re looking at stocks that would go well north of 2 billion bushels. If that makes it sound like I have a bearish bias in market outlook, you’re hearing right.”

Soybeans

The 2023-2024 farmdoc soybean balance sheet has 88 million acres planted and an average yield of 51.5 bushels an acre, compared to USDA’s baseline of 52.

Beginning stocks of 220 million bushels and production of nearly 4.49 billion bushels puts total supplies to 4.724 billion bushels in estimates by farmdoc.

On usage, the farmdoc estimates match USDA’s with 2.295 billion bushels, exports of 2.05 billion, and seed and residual at 100 million and 23 million bushels, respectively.

The sum is 256 million bushels of soybean ending stocks and a 5.7% stocks-to-use ratio by farmdoc, and year-end stocks of 247 million bushels and a 5.5% ratio in USDA’s projection. Both estimates result in a season-average price of $13 a bushel for 2023-2024.

“Of course, you have to take into account the increase in acreage and potentially big crops coming out of South America before we get too excited, but at least the U.S. balance sheet looks like it’s reasonably tight going forward to next year,” Irwin said.