In May 2021, the U.S. economy reported its biggest inflation jump in 13 years, at 5% from a year earlier.¹ Over the past year, food and beverage industries experienced increasing input costs due to surging agricultural commodity prices, in addition to higher labor and transportation costs. Food manufacturers saw cost levels grow 7.9%, while corn and soybean prices increased over 60%, reaching their highest points since 2014.¹ Farmers are responding to these higher agricultural commodity prices and gearing up production across a wide range of crops. The combination of strong demand and leaner inventories should support a broad upward trend in agricultural commodity prices with a few exceptions into market year (MY) 2021/2022.
Rising crop prices affect food manufacturers' costs
Monthly changes in U.S. producer price index for food manufacturing and prices for corn and soybeans (%)
Agricultural production in the United States is poised to expand
Encouraged by rising prices and positive market momentum, U.S. farmers are planning to plant more row crops in the 2021/2022 crop year. The expanded acreage should boost supplies following a tumultuous year characterized by a significant lift in demand for agricultural products and tight markets. Except for rice, nearly all major row crops are expected to increase planted acreage in 2021. Total row crop planting area is expected to increase by 6.1 million acres, a 2% increase from 2020. Soybeans should lead the increase in U.S. row crop acreage, with 4.5 million more acres planted than the previous year, accounting for nearly 74% of the estimated increase in U.S. row crop planted area. Corn, the leading row crop by total area, will also add 0.4 million acres in 2021. The overall rise in row crop planted acres largely reflects high demand for grains and oilseeds globally since the second half of 2020. The expansion in planned productions is expected to provide partial relief for the currently tightened markets.
Planting progress is nearly complete for U.S. corn and soybeans
As of early June 2021, major row crop planting was nearly complete and ahead of both 2020 and the average for the period 2016 to 2020, benefiting from desirable weather 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 90% complete as of June 7, compared well above the average 82% completion rate for the same period during 2016 to 2020 and slightly higher than the 87% completion rate realized in 2020. Soybeans were also ahead of the five-year average pace, with planting progress in the 18 top states (96% of U.S. soybean acres) 90% completed on June 7, well above the average of 79% complete during 2016 to 2020 and ahead of the previous year’s 84% completion rate. Rice planting was at 91% complete on June 7, on par with the five-year average of 91%. Cotton stands out as an exception, with 71% of plantings complete, below the average 78% during 2016 to 2020. Yield and quality performance could now become the key determining variables of the production estimates for assessing final production for the MY 2021/2022. The limited precipitation experienced in the first half of 2021 was a positive factor in the timely completion of planting, but if it were to continue into the second half of the year could negatively affect production for MY 2021/2022.
Most major row crops see added acreage in MY 2021/2022
U.S. row crop planted acres (million acres)
Major row crops see limited positive market momentum into MY 2021/2022
Farmers make planting decisions based on the profitability of the previous crop year and expectations for the upcoming crop year. Looking ahead to MY 2021/2022, most major row crop prices are projected to post double-digit percentage increases from the previous marketing year, as stock-to-use ratios remain at one of the lowest levels since 2013.
Prices are projected to soar for most major row crops in 2021/2022
USDA MY 2021 crop price projections (US$)
Source: USDA World Agricultural Supply and Demand Estimates, June 10, 2021, Years are marketing years: 2020/2021 estimated, 2021/2022 projected. A hundredweight (cwt.) is a standard unit of weight or mass used in certain commodities markets; in North America, a hundredweight is equal to 100 pounds.
The USDA estimates corn price to increase 31% from US$4.35 per bushel in MY 2020/2021 to a projected US$5.70 per bushel for the MY 2021/2022, reaching the highest level since 2013. Corn prices are expected to respond to recovering demand and still uncertain production expectations. On the demand side, U.S. domestic demand for corn for ethanol production is projected to increase by 150 million bushels in MY 2021. This builds on a surprising 193 million bushel increase in MY 2020, when most analysts were pessimistically anticipating corn demand for ethanol production to slip lower due to reduced energy demand during the pandemic. On the supply side, the increase in planned acreage for corn in the United States (0.3 million acres) fell significantly below the consensus forecasts (2.4 million acres).² In addition, beginning corn stocks were further drained down by 42% due to surprisingly large exports. Overall, with growing demand and the less-than-expected growth in supplies, we believe the U.S. corn stock-to-use ratio will likely remain low.
Soybean prices are projected by the USDA to maintain solid forward momentum, increasing 31% from MY 2019/2020 to US$11.25 in MY 2020/2021 and then to increase another 23% to a projected US$13.85 per bushel in MY 2021/2022. On the demand side, U.S. soybean exports are forecast to remain above two billion bushels in MY 2021/2022, as China continues to rebuild its feed stockpiles. On the supply side, despite leading other crops in added planting acreage this year with 4.5 million more acres, added acreage still fell short of the consensus view, which anticipated a seven million acre expansion.² The beginning soybean stock level for MY 2021/2022 is expected to fall 74% from the previous year. With limited supply growth, the U.S. soybean stock-to-use ratio is expected to remain below 5% in MY 2021/2022.
Corn and soybean inventory levels have fallen
Soybean and corn stocks-to-use
Source: USDA oil crops and feed grains yearbook; USDA, June 10, 2021, World Agricultural Supply and Demand Estimates. Years are marketing years.
In MY 2020/2021, rice prices are forecast to increase, gaining 2% to reach US$14.20 per hundredweight. The modest gain in rice prices is expected due to reduced production. Area planted to rice in the United States is estimated to plunge in MY 2021/2022, dropping 11% year over year. Rice production is expected to be buffered by high beginning stocks. With no major changes anticipated to demand factors, stock-to-use ratio for rice should remain relatively unchanged in MY 2021/2022, at about 16%.
In MY 2021/2022, wheat prices are expected to increase 29% to US$6.50 per bushel. The primary driver of higher prices is the 17% drawdown in carry-in inventories, which should offset a modest 4% increase in production. U.S. export volumes of wheat for MY 2021/2022 are forecast to trend lower due to limited availability. Domestic total use of wheat is projected to move up 7%, resulting in a 37% stock-to-use ratio, the lowest since MY 2013/2014.³ Globally, wheat ending inventory levels in MY 2021/2022 for five major exporters, the United States, Canada, Australia, Argentina, and the EU, are forecast to fall to the lowest level since MY 2007/2008.
While planted acres are estimated to be virtually unchanged in MY 2021/2022, U.S. cotton production is expected to rebound 16% from the MY 2020/2021 crop year, benefiting from projected improved growing and harvest conditions. Over the past four years, U.S. cotton acreage has shrunk 15% due to declining demand for cotton used in apparel and textile industries as well as increasing international export competitions.⁴ Despite the estimated increase in cotton output, the drastic drawdown in cotton inventories due to disrupted harvests and recovering exports in MY 2020/2021 are expected to more than offset the production bump and result in a nearly 8% lower supply level in the United States for MY 2021/2022. Furthermore, with domestic use forecast to move up 9%, the overall stock-to-use ratio for U.S. cotton in MY 2021/2022 could slip below 20%, the second-lowest level since 2013. This tightening in market conditions for cotton should support higher prices, translating into an estimated US$0.75 per pound increase for MY 2021/2022, pushing cotton prices to their highest since 2013.
Expected cotton and rice inventory levels remain tight, while wheat stocks fall
Cotton, rice, and wheat prices and stocks to use
While not planted each year, bearing acreage (acreage mature enough to produce crops) for major permanent crops is a key supply indicator. The two largest U.S. permanent crops by acreage and production value in the United States, almonds and wine grapes, are expected to move in different directions, with an increase in bearing acres for almonds and continued declines in bearing acres for wine grapes.
Permanent crop bearing acreage is expected to increase again in 2021 for almonds, pistachios, and walnuts, reflecting positive margins in recent marketing years. Almond production in California was estimated at the record level of 3.2 billion pounds in the first subjective forecast by the USDA published in May 2021. Bearing acreage is expected to hold relatively steady for apples and cranberries where crop returns have been more muted. Wine grape bearing acres are expected to hold steady or move lower in 2021, reacting to continued lower prices. The weak market conditions for wine grapes have already resulted in the removal of less-productive vineyards, with a net loss of 15,000 bearing acres in 2020.³
Almond bearing acres expansion are expected to continue as development acres mature
U.S. almond bearing acres and annual change (%)
Wine grape acreage growth plateaued in 2019 as prices stalled
California wine grape bearing acres and annual change (%)
The agricultural market outlook in the near term is expected to be positive, with a supportive macroeconomic backdrop, significant market tightening in the United States and globally, and a resumption of international trade as global pandemic-related restrictions begin to lift. The increased intended plantings for row crops and expanded acreage for tree nuts in the United States are expected to generate higher revenue for the industry, reflecting positive sentiments among the agricultural sector for MY 2021/2022. On the flip side, there’s uncertainty around growing conditions for the current crop year, as water stress and precipitation abnormalities persist, posing threats to crop yields in important growing regions. In addition, as inflationary pressure builds, costs associated with farm inputs, supply chain bottlenecks, and international freight rates could cut into margins and dampen the overall positive outlook. Looking forward, as the U.S. economy continues to recover from the pandemic-induced recession, the market fundamentals for U.S. agriculture remains positive.
1 U.S. Bureau of Labor Statistics Economic News Releases, May 2021 and June 2021; USDA National Agricultural Statistics Service, May 2021. 2 CIBC World Markets, sourced from AlphaSense on April 2021. 3 USDA Oil Crops and Feed Grains Yearbook, as of December 2020. 4 USDA Cotton and Wool Yearbook, as of November 2020.
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