The outlook for U.S. agriculture remains mildly positive in 2022. While global economic growth began to feel the weight of rising inflation, U.S. row crop producers are benefiting from attractive margins due to high crop prices. Gradually reopening from the pandemic, U.S. consumers increased spending on food-related products in 2021, with inflation-adjusted food-at-home and food-away-from-home expenditures increasing 14% from the prior year, signaling strong demand for U.S. farm goods.1 International trade also registered a record year in 2021 and is poised for another strong year in 2022. Overall, elevated crop prices due to higher demand and increased economic activity coming out of COVID together with supply impacts caused by Russia’s invasion of Ukraine will continue to fuel increased U.S. agricultural production. Lingering issues remain due to global geopolitical uncertainty, inflation-induced economic slowdowns, and weather- and climate-related challenges.
Crop acreage in the United States is forecast to reshuffle
Positive market outlooks are forecast to support planting at similar levels to a year ago. According to the USDA’s World Agricultural Supply and Demand Estimates (WASDE) projections on May 12, the combined acreage of total U.S. row crops is expected to expand by 200,000 acres in market year (MY) 2022/23 to 317.4 million acres, relative to 317.2 million acres in the prior year (a 0.1% increase). For key crops, due to increasing input costs and projected relative profitability, acreage is expected to reshuffle. Corn acreage is expected to decline by 3.9 million acres (–4.1%), while soybeans are expected to increase by 3.8 million acres (4.3%). Cotton and wheat are also projecting added acreage, as farmers seek to capture historic high cotton and wheat prices. Cotton acreage is expected to increase by 1 million acres (9%) from MY 2021/22, while wheat is expected to add 650,000 acres in MY 2022/23. The overall change in row crop-planted acres largely reflects the continued global high demand for agricultural products since the new year and demonstrates the adaptability of U.S. farmers as they adjust their production under evolving market conditions.
Planting progress is among the slowest for U.S. corn and soybeans
The USDA’s Crop Progress report released on May 16 shows that plantings of major row crops have been affected by weather conditions as of mid-May 2022. Corn and soybean planting progress significantly lags both the prior year and the average for the period 2017 to 2021, due to wet and cold conditions that characterized the first half of this year in major growing states. Corn planting in the 18 top states (92% of U.S. corn acres) was 49% complete as of May 12, which is well below the average completion rate (67%) over the same period during 2017 to 2021 and significantly lower than the completion rate (78%) in the same week of 2021. Soybeans were also behind their five-year average pace, with planting progress in the 18 top states (96% of U.S. soybean acres) only 30% completed on May 12. This is below an average of 39% for the prior five-year period and is at only half of the previous year’s 58% completion rate at the same point in the growing year. Other row crops have experienced mixed planting seasons: Rice planting was at 80% complete on May 12, slightly above the five-year average of 79%. Cotton planting is on par with the past five-year average completion rate, at 37%. Winter wheat planting is slightly challenged, with planting progress at 48% completion in the 18 states that are responsible for 89% of U.S. winter wheat acreage. This is slightly below both the five-year average rate of 53% and the 51% reached in 2021. Late planting bears the risk of delayed pollination occurring during the hotter summer season, which limits yield and in turn casts further uncertainty around final production estimates for MY 2022/23.
Row crop prices expect continued positive momentum into MY 2022/23
Farmers make their planting decisions based on the profitability of the previous crop and market expectations for the upcoming crop year. Looking ahead to MY 2022/23, most major row crop prices are projected to post marked increases from the previous MY. Corn, soybeans, and wheat, the top three U.S. crops by production size, anticipate continued price increases following a strong 2021. Cotton price is projected to be the exception, down 2% in 2022 from 2021, yet still recording the second-highest price in history.
The USDA estimates corn to increase 14% from US$4.53 per bushel in MY 2021/22 to a projected US$5.90 per bushel for MY 2022/23, reaching its highest level since 2013. This marks the third consecutive year of strengthening corn prices, as global demand remains strong while production is projected to decline. On the demand side, U.S. domestic demand for corn for ethanol production is projected to remain unchanged from the prior year. This represents a significant improvement from levels attained in 2019 and 2020, when most projections pessimistically anticipated lower corn demand for ethanol production due to flattening requirements for ethanol and reduced energy use during the pandemic. Increasing gas prices and the relaxation of ethanol blending limits are major factors contributing to the rebounded ethanol demand for corn. On the supply side, the 4% decline in planted acreage for corn in the United States (–3.9 million acres) fell significantly more than previous forecasts (–1.4 million acres), partially due to significantly higher input costs. In addition, the Russia-Ukraine conflict dealt significant shocks throughout the global supply network for corn. Ukraine was the fourth-largest corn exporter, behind the United States, Brazil, and Argentina, accounting for 12% of global corn exports in 2021.2 Projected exports from Ukraine are expected to fall 61% (14 million metric tons) in MY 2022/23, significantly reducing global availability. Overall, given growing demand and a challenged outlook for global supply, the U.S. corn stock-to-use ratio is forecast to retreat for the fourth consecutive year, driving up price expectations.
Soybean prices are projected to continue strengthening to a projected US$14.4 per bushel (9% increase) in MY 2022/23 by the USDA, following a 23% increase in MY 2021/22. On the demand side, U.S. soybean exports are forecast to remain above two billion bushels in MY 2022/23, as China continues to rebuild its feed stockpiles. Domestic crushing demand is expected to post consecutive years of gains, up 2% in MY 2022/23 (10 million bushels). On the supply side, soybeans led other crops by added planting acreage for the second year in a row with 3.8 million more acres, beating the previous estimate of an 0.8 million acreage expansion. In addition to anticipating high market prices, producers have also shifted to soybeans from corn due to their lower fertilizer requirements. Expanded production in the United States is expected to provide partial relief to current tight market supply conditions, with the U.S. soybean stock-to-use ratio projected to rebound to 7% in MY 2022/23.
In MY 2022/23, U.S. wheat price is expected to soar 40% to reach US$10.75 per bushel according to the USDA WASDE’s first estimate of the year. The primary driver of higher prices is international supply uncertainty due to the Russia-Ukraine conflict. Russia is the world’s leading wheat exporter, accounting for 17% of global exports in 2021, while Ukraine, a top ten wheat exporter, accounts for another 10% of global exports. The military conflict between the two countries has seen Ukrainian exports through Black Sea ports come to a halt, which has significantly affected the country’s production and exporting infrastructure, lowering its wheat output by 35% and exports by 47% in MY 2022. In terms of U.S. wheat demand for MY 2022/23, U.S. export volumes of wheat are forecast to trend lower due to limited availability, while domestic wheat use is projected to see no major change from the prior year. On the production side, U.S. wheat planting increases lag previous forecasts by 50% (0.6 million added acres relative to the 1.3 million acres projected in early 2022), due to competing alternative crops. The less-than-expected acreage expansion results in a 33% projected stock-to-use ratio, the lowest in a decade, providing additional support for continued elevated wheat prices in the current market year.
In MY 2022/23, rice prices are forecast to continue their upward trajectory, gaining 13% to reach US$17.8 per hundredweight (cwt) in MY 2022, marking their fifth consecutive year of price increases. Strengthened rice prices are based on the continued drawdown of stock levels and shrinking acreage according to May USDA WASDE estimates. The area planted to rice in the United States is estimated to decline again in MY 2022/23, dropping 3.2% year over year, with lower production forecasts expected to push inventory levels down further. With no major changes anticipated to demand factors and lower production, stock-to-use ratio is expected to decline in MY 2022/23 to 15%, the lowest point in five years.
While planted acres are estimated to increase by 1 million acres in MY 2022/23 in the first acreage rebound in five years, U.S. cotton production is expected to decline 6% from the prior year, due to unfavorable growing and harvest conditions. Over the previous four years, U.S. cotton acreage had shrunk 15% due to declining demand for cotton used in apparel and textile industries as well as increasing international export competition. The drawdown in cotton inventories is due to recovering demand from domestic markets and exports in MY 2020 and 21, and ending inventories through 2021’s crop are projected to dip below 3 million bales. This results in an overall stock-to-use ratio for U.S. cotton in MY 2022/23 of 17%, the second-lowest level since 2013. This tightening in market conditions for cotton should support higher prices, translating into an estimated US$0.90 per pound for MY 2022/23.
While not planted each year, bearing acreage (the acreage mature enough to produce crops) available for major permanent crops is a key supply indicator. The two largest U.S. permanent crops by acreage and production value, almonds and wine grapes, are expected to see increases in bearing acreage amid challenging weather and climate conditions.
Permanent crop-bearing acreage is expected to increase again in MY 2021 for almonds, pistachios, and walnuts, reflecting positive margins in recent marketing years. Almond production in California was estimated to reach 2.8 billion pounds in MY 2022, posting a second year of lower production due to lower yields despite an increase in bearing acres. Bearing acreage is forecast to increase by another 50,000 acres, while the expansion pace is decelerating at 4% year over year, the lowest since MY 2017. Water scarcity issues and the increasingly severe drought conditions in California continue to weigh on production as yields remain challenged. Both lower production and slowing expansion are expected to reduce high almond inventory levels, which are a result of challenging export conditions. Wine grape-bearing acres are expected to hold steady or move lower in 2022 as the market continues to rebalance. Weak market conditions for wine grapes have already resulted in the removal of less productive vineyards and 100,000 fewer bearing acres (2018–2021 average of 467,000 acres) relative to the previous four-year average of 561,000 acres (2014–2017). Wine grape prices have already started to show improvements on lower production and recovering demand. Continued production adaptation will be needed for wine grape markets to regain positive momentum.
A positive outlook amid geopolitical, inflationary, and climate-related challenges
The agricultural market outlook in the near term is expected to be positive, with solid market demand fundamentals and expected improvements to the global supply chain. Projected higher crop prices in the United States are expected to generate higher revenue for the industry, reflecting positive sentiment among the agricultural sector for MY 2022/23. On the flip side, uncertainty remains around growing conditions for the current crop year as crop progress lags the average pace for most producing regions, posing threats to crop yields and undercutting total volumes. In addition, as inflationary pressure builds up, the costs associated with farm inputs and international freight rates are anticipated to cut into margins and dampen overall profitability. Nevertheless, for the current market year, crop prices are expected to offset input cost increases and provide farmers with another record year. Looking forward, as U.S. farmers continue to adapt to different challenges in production and distribution, the market fundamentals for U.S. agriculture remain upbeat.
1 USDA ERS, as of April 2022. 2 USDA Production, Supply and Distribution, as of May 20, 2022.
Farmland market indicators: Q1 2022
"The agricultural market outlook in the near term is expected to be positive, with solid market demand fundamentals and expected improvements to the global supply chain."
Global corn production is expected to reach 1.18 billion metric tons (MMT) in MY 2022, 3% lower than MY 2021, driven by lower production in the United States, the EU, and China, offset by higher outputs from Brazil, Argentina, Serbia, and South Africa. In 2022, U.S. corn production is forecast to decline by 4% to 367 MMT, primarily driven by declining acreage. Brazil 2021 (MY March 2021–February 2022) production is estimated to increase by 33% from MY 2020 to 116 MMT due to improving growing conditions. Brazil 2022 (MY March 2022–February 2023) corn production is expected to increase further based on the projected expansion of acreage in Brazil in light of high prices and strong export demand. Argentina’s corn production is forecast to increase slightly to 55 MMT in 2021 (MY March 2022–February 2023) because of improved returns for corn.
Global MY 2022 soybean production is expected to increase 13% to nearly 395 MMT, with Brazil accounting for nearly half of the projected increase. U.S. soybean production is forecast to increase by 5% to 126 MMT because of an increase in area and average yields (MY September 2022–August 2023). Brazilian production is estimated at 125 MMT in 2021 (MY February 2021–January 2022), followed by a projected increase of 19% in 2022 (MY February 2023–January 2024) to 149 MMT. Argentina’s soybean production is also forecast to increase by 21% in 2022 (MY April 2023–March 2024) to 51 MMT.
The U.S. dollar (USD) finished the first quarter of 2022 mixed against most competing currencies. The dollar depreciated 17% against the Brazilian real while appreciating 10% against the Russian ruble and 7% against the Argentinian peso. The USD also slightly depreciated slightly against the Canadian (1%) and Australian dollars (3%) as of last quarter. The USD is forecast to gradually rebound during the remainder of 2022 as the global economy wades through economic turbulence.
Global corn exports fell in Q4 2021, partly because of tight corn supplies in Brazil due to dry weather conditions in the previous season. Brazil’s four-quarter moving average exports were down 41% from last year at 5 MMT and 26% lower than last quarter, as record exports in the previous year and drought conditions in MY 2020 depleted Brazil’s corn stocks. A major tailwind for Brazil’s grain exports in the future is the paving of the BR-163, a highway that runs through Mato Grosso and Pará and ends at the river terminals of Miritituba, the site of several major grain-trading companies. U.S. four-quarter moving average corn exports at 17 MMT were 35% higher than last year and slightly higher than the previous quarter. Argentina four-quarter moving average exports at 10 MMT were up 10% from last year and up 11% from last quarter. Depleted corn export quantities in Brazil and the depreciation in the Argentinian peso favor exports from Argentina.
In Q1 2022, U.S. and Argentina soybean exports decreased from the previous quarter. On a four-quarter moving average basis, at 12.7 MMT, U.S. soybean exports were down 7% from last quarter and 27% year over year coming off a record export year. The four-quarter moving average of Brazil soybean exports at 23 MMT was up 6% from last quarter and up 13% year over year. Argentina’s soybean exports at a four-quarter moving average of 1.1 MMT were 25% down from last quarter and down 31% from last year.
In Q1 2022, U.S. corn, soybeans, and wheat began the year with increasing prices. Corn prices increased 16% to US$6.08 per bushel in Q1 2022, still up 31% from last year. Soybean prices increased 18% in the last quarter while up 17% from last year at US$14.37 per bushel. Prices for corn and soybeans remained elevated because of uncertainties surrounding global crop supplies in the new MY. Wheat prices have risen by 10% since last quarter and were up 61% from last year to US$9.20 per bushel amid concerns around a shortage of high protein wheat.
MY 2021/22 tree nut prices present a mixed picture due to various market conditions. Almond prices are expected to finish the year slightly higher than MY 2020/21 due to lower production and higher export demand; however, due to global supply chain challenges, shipments in MY 2021/22 have been slower than the previous year, weighing on prices. Pistachio prices are forecast up, driven by projected increases in both domestic and export demand, reflective of the sector’s continued strength despite higher production estimates. Walnut prices are estimated to finish MY 2021/22 significantly higher than the year before on the continued balancing of market supply and demand for mature tree nuts.
The first quarterly NCREIF row crop returns in 2022 were 4.4%, their highest quarterly return since Q1 2013. High prices helped boost farmers’ returns and provided support for better appreciation returns. USDA farm income and wealth statistics project 2022 row crop cash receipts to reach US$462 billion, up 5.1% due to higher total crop receipts and 8.9% higher receipts for animal products.
A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange-trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other preexisting political, social, and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment.
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.
The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.
This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.
Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here. All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment or legal advice. This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.
Manulife Investment Management
Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than a century of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model.
This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at manulifeim.com/institutional.
Australia: Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad 200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.
Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.