Audio Transcript

Crop Outlook Update

June 13, 2022

James Mintert, Professor & Director, Center for Commercial Agriculture

Nathan Thompson, Associate Professor, Department of Agricultural Economics

 

James Mintert: Good day and thanks for joining us for our Crop Outlook update. I’m Jim Mintert, director of the Purdue Center for Commercial Agriculture. And joining me today is my colleague, Dr. Nathan Thompson, who’s an associate professor of Ag Economics here in the department. We’re going to talk a little bit about the crop outlook today in light of USDA releasing updated world ag supply demand estimates on Friday.

And so, Nathan, let’s just get right to it. There was a lot of information Friday. Fortunately, not a lot of changes, though. So, let’s kind of go through some of those changes. Look at the key changes to the U.S. corn balance sheet. Starting off with the 2021/2022 crop year USDA bumped industrial usage up by 5 million bushels. Pretty small change.

So, a total of 6.815 billion bushels. No change in ethanol usage forecast by USDA. They did reduce the export estimate by 50 million bushels to 2.45 billion bushels and that changes the corn ending stocks estimates, it gives us an increase of about 55 million bushels to 1.485 billion bushels. So, minor changes in terms of what happened there Nathan. If you look at the 2022/2023 crop year, really the big change there was just the fact that we bumped up the carryover for the ‘22/’23 crop, because of the change in the carryover coming out of the ‘21 crop really.

1:25

So, no serious changes on the corn balance sheet relative to last month. Still some uncertainty though. We’re going to talk about that here in a minute. If you look at their 2021/2022 crop trade matrix, there was a small increase in major exporters ending stocks and really all of that increase was in Russia, a very small increase, 0.3 million metric tons.

No change in Ukraine’s estimated carryover compared to the May estimate and there was a big change in May. And then if you look at the 2022/20223 crop year trade matrix world ending stocks (less China) were up by 5.3 million metric tons compared to the May estimate. And US ending stocks were up by about a million metric tons. No change in South America or South Africa’s ending stocks but Ukraine’s ending stocks were up 4 million metric tons and Russia’s, as we indicated before, up by 0.3 million metric tons.

So, you know, the big wildcard there obviously continues to be what’s going on in the Black Sea region with respect to not only Ukraine’s ending stocks, but their ability to get the crop planted, what the production levels are going to be, etc. So that’s really where the uncertainty is. And Nathan, you and I were talking about this before the program, you know, normally you look at an increase in ending stocks and that means you’ve got a surplus right. Or an increase in surplus stocks. But this time around, an increase in ending stocks in Ukraine? Nobody really knows what that means, right?

2:50

Nathanael Thompson: Yeah, I mean, we’re going to talk about it several times, today. I mean, there’s just so much uncertainty with what’s going on over there that it’s just really hard to forecast what we’re going to get out of Ukraine in terms of production and any available exports.

James Mintert: Yeah, you know, one of the big challenges, obviously, was without reopening the Port of Odessa, it’s just unclear how many of those stocks can ever really come to the market. Obviously, in Ukraine, they’re doing everything they can to increase exports by way of rail and truck transport. But that’s going to be small compared to what they could do if those ports on the Black Sea were actually open. And I don’t know about you, Nathan, but I’m not optimistic about seeing those ports reopen.

3:27

Nathanael Thompson: I mean, unfortunately, it doesn’t look like that situation is going away any time soon.

James Mintert: The market’s going to continue to react to talks, and discussion about talks, but it just seems unlikely that we’re going to see much change there over the course of the summer. So that’s kind of one of the biases I think that we have here. Let’s talk a little bit about what’s going on in the US with respect to the corn crop.

I’ve got the map up there of the 2022 corn planted acreage intentions. These are the estimates coming off the Planting Intentions report released back in March, so far through last Monday, and we’re of course recording this at noon on a Monday ,so we don’t have the benefit of this afternoon report reporting what took place last week. But through June 5th, 94% of the US crop was planted versus 92% average.

I think we did make some progress last week so we’re probably getting very close to 100% of the crop. The part that was behind was North Dakota, still behind average, but South Dakota and Minnesota, at least on corn, have largely caught up through June 5. So somewhat late there, but still pretty much a catch-up kind of a situation.

4:31

When you look at the crop ratings 73% of the crop is rated good to excellent again through June 5. Conditions obviously are still going to be extremely variable. I think widespread expectations to see those crop conditions decline, not on today’s report because last week’s conditions were good. But if we get the heat wave that we’re going to talk about here in a minute, I think we’re going to start to see those condition ratings drop over these next few weeks. Do you agree?

Nathanael Thompson: That seems to be the forecast for sure. We’ll see. You know, a week we can handle if it goes beyond that, then I think we’ll start to see even more of a decline.

James Mintert: Yeah, I think it’s going to be critical as the week unfolds, what those weather forecasts look like. If it looks like the heat dome is going to hang in there, this could turn into something serious, if it backs away and we see the heat wave move on and see some precipitation, I don’t think this will be a big deal in the sense that it’s early enough in the crop growth cycle that it’s probably not going to have too much negative impact, although some of the spots in the Western Corn Belt could be an issue.

5:30

Well, let’s just take a look at the drought monitor map. This is the most recent one which was released, I guess last Thursday. So, this is conditions through, I think Tuesday of last week, the new one will come out tomorrow. The concern in the marketplace as you look at that drought map would be that we would see those drought conditions that are showing up in parts of Nebraska, northwest Iowa, a little bit in South Dakota, that those would shift eastward and actually extend the drought into more of the heart of the Corn Belt.

So, it’s going to be interesting to see. Again, I don’t think it’ll show up in this week’s drought map. It’s really going to be interesting to see what that drought map looks like next week. Right? And truthfully, the week after that, whether or not we really see this drought move more into the Corn Belt. And that is the risk, and obviously, it’s a serious risk this year because of the pressure we have to have relatively good yields or hit close to trend line yields, right?

6:19

Nathanael Thompson: Yeah, for sure.

James Mintert: So, let’s just take a look at where the ending stocks are. So, the changes from USDA basically doesn’t give us much of a change in those ending stocks. We were hovering just below 10% of usage. Now we’re pretty much sitting right at 10% of usage. But the risk remains that ending stocks will wind up tighter than projected.

I don’t think there’s a huge risk that we’ll see those ending stocks be significantly higher than what we’re currently projecting. The risk to me is more so on the downside and of course, that would imply some upside on prices perhaps.

Let’s take a look at Ukraine. So, if you look at the Ukraine corn production numbers, 1.658 billion bushels last year before the war started, obviously. And the projection for this year is a little less than a billion bushels. And I have to say that’s an educated guess, right? I mean, one of the interesting stories these last couple of weeks has been some of the reports from the Ukraine government suggesting that planting has progressed reasonably close to normal, much more so than we would have expected perhaps.

7:24

And that’s in large part because the strong corn production regions are not so much in the area where the heavy fighting has been. So that’s the good news. But still, lots of challenges. I suppose most of our viewers have been reading some of the same stories we’ve been reading about the problems with inputs like diesel fuel. Fertilizer is an issue, we don’t know too much about what’s taking place with some of the other inputs like herbicides, but clearly some challenges there.

And clearly, we’re going to see a major drop off in production in Ukraine relative to what would have taken place in a normal year. And that continues to be the wild card, I think, in this marketplace. Really what takes place with respect to Ukraine production and what takes place with respect to their ability to export what they do produce, right?

Now on the US corn side, USDA is actually forecasting a small decline in corn exports in the ‘22 crop year. And I think our view is it is unlikely for that really to happen. In light of what’s going on in Ukraine, I think the US is poised to pick up some exports there and I realize we’ve had some weakness and softness here recently. But longer term, don’t you think that’s going to be the case?

8:33

Nathanael Thompson: I mean, it’s just hard to imagine with the level of uncertainty in Ukraine and their ability to get any sort of crops exported, that some of that won’t be shifted around and change some of those export flows. And so, you know, who really knows. But yeah, I think it’s hard to imagine that going down.

James Mintert: We don’t have any experience with this kind of a shift in production and export availability to have a good job or do a good job really of forecasting here. That’s really the challenge. How much is going to change behind the scenes in terms of changing destinations? But my bias would be that we would benefit and see a little bit of a bump on the export side, but it remains to be seen.

9:12

If you look at the major exporters, corn ending stocks, and I guess I should point out that when I calculate major exporters’ corn ending stocks, I did include the US numbers. I think some people and I think some of the USDA reports, they actually exclude USDA when they do the major exporters, I included it here, but those major exporter ending stocks are really a little tighter than they appear, right?

So, as we pointed out before, those Ukraine stocks, it’s just unclear how much of that might be available. If you literally pull Ukraine out of the computations instead of showing that 5.1% that I’ve got on the chart for the 2022 crop year, it actually does drop back to about 4%. So the ending stocks in those major corn exporters are pretty tight.

Again, you go back to 2011, 2012, we were hovering in that 4% range. We’re in that ballpark or at least very close to it. And puts a lot of pressure on the need for strong yields. We’ve been talking about that over the course of the winter with respect to good yields coming out of South America now we’re talking about it with respect to needing good yields coming out of North America, right?

10:19

Ethanol continues to be an interesting story. Given how strong corn prices are, the ethanol margins on a daily basis continue to be pretty good. This is data through June the 2nd coming out of the Iowa State model, which is a simulation of what margins for an ethanol plant in the upper Midwest would be. And you can see on the chart, it’s still pretty positive. And that suggests relatively strong corn ethanol demand going forward.  The wild card here, I think as we were talking about before the program, Nathan, continues to be the US economy and what happens with respect to what, gasoline usage, right?

10:54

Nathanael Thompson: Yeah. I mean, we just continue to see gasoline prices go up and again, that would be good for ethanol except for when we start to pull back on our gasoline consumption, right? And so, I don’t know, we were talking we don’t think we’re quite there, but anecdotally, right? Even just our own gasoline usage, you’re starting to think about where gasoline prices are, how much I’m actually going to purchase.And if that really starts to pull back, we could see that reflected here in these ethanol numbers.

James Mintert: When we teach in class and talk about inelastic demand, one of the examples we often use is demand for fuel, things like gasoline. Right, because it’s difficult for people to change their behavior with respect to things like commuting, etc. And of course, in inelastic demand, as you stretch out the time frame you start to see people make changes in behavior.

And the question is how far into this do we have to get before people really start to change their behavior? And of course, in the summer, one of the issues is what takes place with respect to summer travel plans. Right. So far, the reports are that most people haven’t really backed away yet. So, it remains to be seen but as we move through the summer, it would not be surprising to start to see some impact from these high prices on consumption patterns.

So that’s the wild card, I think, with respect to ethanol, the margins look good. The question I think going forward is what happens to that gasoline demand itself.

One of the things the USDA did do on this report is they’ve pulled back on feed usage. And of course, we haven’t spent really any time in these webinars with respect to talking about what’s taking place in the livestock industry. But these high feed prices are having an impact, right? We’re starting to see an impact there. With respect to the beef herd, cow liquidation has been up. We’re seeing some impact in the poultry sector. Poultry sector’s feed use, it’s been compounded by disease problems, right, with the flu. So, the USDA has pulled back that estimated corn usage number for feed, which is a residual category. There’s no direct measure here, right? That’s kind of a catch all category. But I think that’s something to keep an eye on going forward. What happens to feed usage? Because, we know from experience high food prices are literally going to hammer the livestock industry, right.?

13:05

Nathanael Thompson: We’ve seen that before, right?

James Mintert: Yeah, we’ve been we’ve been down that path.

USDA, no change in, excuse me, they did raise the 21 crop average by a nickel, but no change in the ’22 crop forecast for the national average cash price. So, they’re at $5.95 for the ‘21 crop average. And that change is really just a reflection of what’s already happened. And then their forecast for the ‘22 crop is still at $6.75 per bushel. That is not record high. Record high was back in ‘12 at $6.89. I would not be surprised to see us take out that record high. What do you think?

Nathanael Thompson: Yeah, we’re certainly moving in that direction.

James Mintert: The question I think going forward is really what happens this summer, both with respect to the Ukraine situation but also obviously growing conditions for the US, right?

All right, you’ve been taking a look at the basis. Give us an update on the corn basis.

13:56

Nathanael Thompson: Yeah, so really not a lot has happened recently. I mean, there’s a lot going on with respect to basis and marketing in general. But when we look at these charts, there’s not going to be any major spikes or anything it’s just kind of following the patterns. I mean, we’ve seen basis continue to strengthen through much of the Corn Belt. 

So here we’re looking at three-year average historical corn basis in central Indiana. The black line there is what’s currently happening this year, the blue line being that three-year historical average. So, you can see we might be slightly below the historical average but again, we’re running right along that same pattern, strengthening pretty much the same pace there.

Looking at the next slide, we’re looking at corn basis there in southwest Indiana. So again, getting a little closer to the river market, maybe being influenced by exports a little bit more. We can see a little different story there. We’ve had some stuff, you know, the Russian invasion of Ukraine back in March had a big impact on corn markets, especially exporters here in the United States as they were kind of looking to get some corn to folks that weren’t able to get it from the Black Sea region. That didn’t really last long. That, you know, as soon as those things kind of got ironed out, we saw basis really drop off and actually below that historical average. But then here over the last couple of months, we’ve seen basis strengthen back up to that historical average. And now it’s really, again, just running right along that historical average that we would expect it to follow based on our forecasts.

15:21

James Mintert: So, it’s interesting, Nathan, as I look at the chart, a lot of week-to-week variation in the basis this year relative to the average. But truthfully, if you look at the pattern, I mean, if you had made a forecast using the average for your basis forecast for here in mid-June, you pretty much nailed it, right?

Nathanael Thompson:  Yeah. If you, in a storage-hedge scenario and you were looking out into mid-June, you would have been spot on. So, and again, we talked about this earlier as we kind of go through some of these basis charts. I mean, I think it’s important to keep in mind, basis has just been extremely volatile, might not be the right word, but very diverse, right?

And so, we see lots of spikes and the spikes go away. And so, you know, this is a particular year where you really, you know, the basis tool gives you a really good kind of index of what’s going on in your region. But you really have to be paying attention to what’s going on in individual locations because this is averaging out those individual locations that might have a really strong or even a really weak basis beat in any particular week.

And so, for folks that normally just sell to the same person every year, this might be a year where you’re wanting to kind of look around and again, we talked earlier about how fuel prices might be impacting some of your decision of your willingness to haul grain. But you definitely want to be looking around because there’s a lot of variability, I guess, on those basis bids.

16:38 

James Mintert: But yeah, so just for kind of a ballpark estimate here, about how many prices are included in the Southwest region, just kind of a ballpark.

Nathanael Thompson: Yeah, that’s a good question. So, it will probably be somewhere between 10 and 15 locations, but they all get averaged in because that’s about a nine county region. So, you know, all of the elevators that I have access to in that region would be averaged. There should be somewhere between 10 and 15.

James Mintert: So that’s smooths things out. And what you’re saying is if you look at individual elevators, within that region, you’re going to see some day-to-day and week-to-week variation across those elevators depending on what their demands are, right? If they’re trying to fill an export commitment or if they’re trying to fill a barge or trying to fill a railcar, there’s going to be some variability. And we’re seeing a little more of that this year than maybe a typical year, is that fair?

17:22

Nathanael Thompson: That’s exactly what I’m trying to convey. You know, you always see those variabilities across locations. But I think I’ve seen more of that this year, and it’s been more you know, it goes up and then it goes down, you know, you really have to be paying attention.

James Mintert: So, you took a look at the river terminals by themselves.

Nathanael Thompson: Yeah. So, kind of zoning in a little bit more specifically on the river terminals kind of along southern Indiana and southern Illinois. You can see again, not really a lot here other than we’re really tracking along that historical average. We had that dip there again following the spike in basis in March with Russia’s invasion of Ukraine. But we’ve seen that kind of come right back up and really tracking right along that historical average.

James Mintert: And so that chart suggests there’s some more upward potential at those river markets, at least based on the average right?

Nathanael Thompson: Yeah, so you know, and again, so the blue line there would be the historical average for the previous three crop marketing years. And based on that, there certainly would be upside potential in that summer market. But again, you know, when we talk about basis forecasting, we always go back to some research that I did with a grad student a few years ago.

I mean, that time of year basis is extremely volatile, right? So again, that peak we see there is an average, but that probably being pulled up by some really good years. There also could be some really bad year. So, you know, we certainly would want to be careful as we forecast that time of year. But the chart certainly indicates some potential for some improvement in basis there.

18:49

James Mintert: Yeah. So, looking at the chart, I think the year that was probably pulling that average up was the ‘19/’20 crop year, right? So be careful thinking about whether or not you’re going to hit that target, is really what you’re saying, I guess. But there is a little potential. But it’s risky. That’s the key.

Nathanael Thompson: That’s right. So then here we’re looking at Indiana ethanol plant basis. So again, this would be kind of as opposed to those river terminals being maybe a little bit of a proxy for ethanol demand. The Indiana ethanol plant basis is giving us an idea, again this is an average of all the ethanol plants in the state of Indiana. So, it’s a little bit of an index you’d want to check any particular location if you want to know exactly what was going on there.

But again, I’ve got lots of lots of lines here just given, you know, the unique years that we’ve had here over the last several years, because when you average them together, kind of like we were just saying, you know, you kind of get lost in the smoothing of that. And I think it’s important to realize what happened there.

Right? So, you had the big spike, the green line there that happened in ‘18/‘19 with planting conditions in the spring of ‘19. You’ve got the red line with the big dip in March that was COVID, right? We saw gasoline demand and therefore ethanol demand really dissipate and have a big drop there. And then the purple line being what happened last year with the big run up in basis over the summer.

20:04 

So, with all of that is kind of context. What I really want to look at is the blue line is what I’m calling the historical average. That’s based on 2015 to 2017 harvest years being the last three normal years. I guess in keeping in mind those other years that I just mentioned are certainly the historical things that have happened, but maybe some unique circumstances.

And then the black line is what’s going on in the current crop marketing year. And so again, you can see we had a little bit of a dip in ethanol plant basis there in March, but since then we’ve seen ethanol plant basis continue to strengthen. And again, I think that goes along with what you showed in terms of the margins, that those ethanol plants have been strong.

Nathanael Thompson

So even with strong corn prices, those ethanol plants continue to bid for corn and bid aggressively for corn. And so, I think the question is where will we see ethanol plant basis go here over the remainder of the summer? There probably are a couple of factors that might go into that. We’ve already talked a little bit about current fuel prices and gasoline demand.

Assuming that gasoline demand is inelastic, as we’ve kind of said, you know, we would expect to see that continue along that trend. You know, we talked earlier that 2018, 2019 green line there be maybe a little bit of a prediction of what we would see? I think it would probably take maybe some weather issues to get to that line. I don’t know, maybe you disagree with me there.

21:22

James Mintert: Well, let’s start off with the purple line. I don’t think the purple line is likely. Right? Some viewers might be wondering about that, it seems like a very remote possibility. The green line, you’re right. I think maybe some kind of a shock to the system this summer could easily do that because really what we’re talking about with basis is what it takes at those local plants, those ethanol plants, in this case to pull corn out of grain bins. To make it attractive locally for people to deliver corn. And those ethanol plants, demand can be pretty inelastic. So, I wouldn’t be surprised if we saw those ethanol plant basis levels approach that green line over the next, what, four or five weeks. But no guarantees, right?

Nathanael Thompson: No, sure, no guarantees. I mean, I think another factor in there, obviously, weather is one. But then we’ve already mentioned what’s going on in Ukraine, right? If we see exporters getting competitive, right. Ethanol plants are going to have to kind of get a little bit of a tug of war if they want to get that corn that the exporters might want to get their hands on, given that Ukraine might not be able to produce or export the corn that they currently are committed to do.

22:27

James Mintert: So, speaking of the tug of war, you took a look at basis using a different tool. So I’ll let you explain this.

Nathanael Thompson: Yeah, so this is interesting. So, this is a map of corn basis kind of across the eastern United States, across the Corn Belt states. This is by Rabobank. So, their research team there put this together. And so, they’re just using basis bids at corn elevators kind of across the region. And then they do some fancy math to kind of fill in the chart in this gridded fashion.

And so, it’s really a heat map, right? And so, colors that are more red and yellow and indicate higher basis levels, greens and blues would be more weak, you know, more negative basis levels. And so, it’s just interesting to kind of visualize where the heat or where the strength in basis is from a geographic perspective. So, our basis tool charts kind of show you where current basis is relative to history. This doesn’t show us anything relative to history. It just shows us relative to other locations. Where is basis stronger or weaker currently in the Corn Belt? And so, you can see, you know, we have kind of some white and yellow definitely along those export markets along the Ohio River, Mississippi River. And then we see some strength over there in western Illinois and Saint Louis.

Right? You see kind of a hot spot there. And so, it just gives you a visual. I think another one we talked about earlier, we there’s livestock and ethanol kind of there in central, west central Indiana, Tippecanoe County, Indianapolis, northeast Indiana. A lot of livestock and ethanol out there. We see another yellow spot. And so, you know, I just think it’s interesting to visualize this and give people a little bit of an idea of where those strengths in basis is currently.

22:24

James Mintert: Yeah. I mean, you can look at the map and kind of picture what’s going on. You’ve got a tug of war between some of these export markets and some of the processor markets, the ethanol plants, right? And you look up in Iowa, you see the strength up there. That’s clearly a livestock/ethanol demand front. So, very interesting. But keep in mind, that this is a point in time, a cross section, right? As opposed to looking at this year versus last year, for example.

Nathanael Thompson: And so then the last thing here on the corn side of things, just having people think a little bit about, you know, pricing new crop opportunities. So, this is the farmdoc Price Discovery tool. We’ve included this before. If you haven’t seen it, essentially, it’s using current futures prices and current futures volatility to give us a distribution of what the price of the December ‘22 corn futures could be at expiration, right? So, between now and December of ‘22, you know, that price could go up, it could go down what is the kind of range of that distribution. And so, you can see you know obviously there is upside potential in prices here. I like to just, you know, kind of pick a price that I think is maybe a price that people would want to think about.

Here I used $6. So, what are the chances that December ‘22 corn futures could be at or below $6? I pick that number because that’s in the ballpark of where Michael has his breakeven prices for ‘22 crop specifically for low productivity, his break evens on higher productivity land or still below $6, but what are the chances of that right? Gives people a ballpark to think about and according to the price distribution tool there’s about a 25% chance, one in four chance, that we could see those corn futures prices drop to that level between now and December.

26:05

So, what do people do with that information right? And that’s the hard thing, so I think we would both agree there is upside potential in this market, you know, but we’ve talked a lot about seasonality in futures and we are kind of smack dab in the middle of the time of year when we tend to see corn and soybean futures kind of reach their seasonal highs. And so, all we’re trying to do here is give people a little bit of perspective of where our current price is. What is the downside risk? All right. The chart here shows there’s upside potential, but what is the downside risk? What are the chances we see prices decrease and have people go through a little bit of a mental exercise of OK, based on where we are based on downside risk?

Is this a time that I’d want to be at least making some pricing decisions on a portion of that ‘22 crop? Because we’ll show you later what net income projections look like on Michael’s case farm. And they’re really good. And so, I think people need to at least go through the exercise of thinking about it, given the time of year that the idea of pricing on these seasonal patterns is not unique. A lot of people talk about this, and this is the time of year when we tend to see those seasonal peaks.

27:08

 James Mintert: The other thing I’d point out looking at this chart is just the tremendous variability that’s out there, right? That’s a $2 spread. Yeah, there’s, you said a 25% chance below $6 there’s roughly a 25% chance of it going above eight and a quarter, right? So, you’ve got a $2.00, $2.25 swing there. That’s huge variability. If we had looked at this same chart for prior years, we should probably go back and try and do that, it would be much narrower. So, it’s a reflection of the huge level of uncertainty that exists in the marketplace out there.

27:40

All right let’s talk a little bit about soybeans and then we’ll wrap it up with some management discussion. Key changes to the soybean balance sheet for the ‘21/’22 crop year. They did increase the export forecast by 30 million bushels. USDA has done that a couple of times in a row now. So, the new total is 2.17 billion bushels. The ending stocks estimate then went down to 205. It was at 235 million bushels. So now it’s at 205 and they did raise the marketing price estimate to $13.35. I think that was a ten-cent increase. And again, that’s a reflection of what’s happened largely as opposed to a forecast. Looking at the 2022/2023 soybean balance sheet, no change in the use categories.

Ending stocks are down 30 million bushels. That’s just because they reduced the carryover coming out of the ‘21 crop into the ‘22 crop year. Interestingly enough, no changes other than that, they did raise the ’22 crop marketing year price forecast by $0.30 to $14.70 which would be record high for a marketing year average. Looking at the soybean trade matrix they raised Brazil’s estimate for the ‘21/’22 harvest by a million metric tons to 126 million metric tons.

That’s still higher than a lot of the private estimates that are out there but that’s where we’re at. Argentina, they raised by 1.4 million metric tons that puts them at 43.4 million metric tons. So took some heat off the supplies for the 21/22 crop year with respect to some increase in South American supplies. And then they continue to expect a big South American production increase in the ‘22/’23 crop year.

29:17

Brazil expected to jump up about 18%, up to 149 million metric tons. Argentina expected to bump up about 18% as well to 51 million metric tons and the result would give us major exporter ending stocks, including the US ,up about 16.4% in the 2022/2023 crop year. Let’s turn our attention to talk a little bit about what’s going on in the US. This again is the map for soybean planted acreage coming off the planting intentions report back in March.

78% of the crop planted through June 5th versus 79% average, so pretty much on track. North Dakota and Minnesota still behind the average and Minnesota remember was caught up pretty well on corn but not so much on soybeans. Other states though, if you look at the major producing states, report average or above average progress. So off to a I call it a decent to maybe good start with respect to planting on both corn and soybeans. We’re a little bit later than perhaps we’d like to be, but still not too bad.

If you look at the export numbers, USDA, as I mentioned earlier, has been raising those export estimates. It would not be surprising to see them bump that again as we head through the summer. I think there are some indications with respect to demand coming out of China and particularly and maybe the tightening of supplies down in South America in terms of already having pretty much booked the bulk of their sales already. It’s looking like that could be conservative.

I would not be surprised to see a change there on the July report. If you look at the major exporter ending stocks, that implies we could see some further tightening. And particularly as you look at the ‘22/’23 crop year, it’s really dependent on a pretty big U.S. crop here in the ‘22 growing season and then a rebound in South American production. A huge rebound, right? And that’s not just coming out of yield, a big chunk of that coming out of acreage. So, this is a chart of Brazil and Argentina’s harvested soybean acreage going back to I think 2006. And you have to kind of look at that chart for a while. It’s kind of stunning when you think about the expansion in acreage that has taken place in South America over the last roughly 15 years or so.

And USDA is forecasting a move of about 5 million acres in this upcoming growing season for South America. And that would be, I think, the largest year to year increase on that chart. I think misspoke there maybe, from ‘12 to ‘13 is probably the biggest jump, but one of the biggest jumps on a year-to-year basis with respect to acreage.

So, it remains to be seen how that’s going to shake out. A lot of issues there with respect to input supplies, particularly fertilizer. So, but as you think about it, there is clearly a risk that stocks could be tighter coming out of that 22/23 marketing year than what USDA is projecting. And that’s kind of back to my original bias at the beginning of this. The risk on these ending stocks is that they wind up being tighter than perhaps what USDA is suggesting. Not that USDA is wrong per se, but I think there’s a risk. Here’s the marketing year average prices. I mentioned earlier that $14.70 projected for the ‘22/’23 crop year is a record high. The previous record high was $14.40 back in 2012, and so we’ll see how that shakes out, but clearly an opportunity there from a pricing standpoint.

So, let’s take a look at the basis on soybean side.

32:51

Nathanael Thompson: Yes, similar to corn here. You know we’ve seen pretty much soybean basis following historical patterns at least in recent weeks. So here we’re just looking at soybean basis in central Indiana, the blue line is the historical two-year average. So, two-year average is what I typically use for soybeans based on some research that we did that was kind of the best forecast, although you can look at three, four or five years because again, looking at two years, you have a pretty narrow window there.

When you add in more years to that historical average, you kind of smooth some of that out. You might get a little bit different story. But again, if you just kind of think about what’s going on there as you add in years, your kind of smoothing it out, that average. The black line, though, you know, running a little bit behind that historical average. But again, following that same pattern consistently kind of strengthening here over the last two or three months in terms of soybean basis in central Indiana. Southwest Indiana, we haven’t seen that little bit of weakness that we saw in that central Indiana chart, really following right along that historical average, especially over the last couple of months, right along that historical two-year average.

James Mintert: Yeah, that’s kind of interesting if you think about the contrast there. So that Southwest market does look a little bit different than Central Indiana basis. And again, there had been some trade reports, particularly as you look at basis levels at some of the individual processors. There’s been some situations where people apparently have gotten caught short and had to bump the basis up pretty substantially, right?

34:21

Nathanael Thompson: Yeah, so you know, we talked a little bit about the tug of war on the corn side between kind of these ethanol plants or end users in the export markets. That’s much more pronounced, I think, on the soybeans side. And again, we’ll see some of that here in these next couple of charts. But that’s absolutely what we’ve seen happen is a little bit of tug of war between soybean processors, which have had really good margins similar to what we talked about with the ethanol plants and then, you know, exporters needing to fill barges.

So, this is soybean basis again, along those river markets are river terminals specifically. Right. So, this isn’t just southwest Indiana. This is only locations that are on the Ohio River through southern Indiana and southern Illinois. And what you can see here is over the last two months or so, we’ve seen a really strong improvement in soybean basis along those river terminals, that appears to maybe have broken a little bit, you know, kind of pulled back here over the last two weeks. But you know, we’re well above that historical two-year average in terms of soybean basis at those locations.

35:27

James Mintert: Indicative of strong export demand, right?

Nathanael Thompson: That’s exactly right. So then compare that with this is Indiana soybean processor basis bids. So again, I’m just taking, similar to the ethanol plants, all the soybean processors in the state of Indiana, averaging them together to give us an index. And again, you can see that there might have been some weakness in those soybean processor bids you know, in the beginning of the 2022 calendar year. But about the same time as we saw those, you know, river terminal bids start to heat up, the processors really followed suit again, thinking of this tug of war between those inland terminals and those river markets, really keeping up to make sure they could get soybeans delivered. Because, again, we’re at a point in the marketing year where there really isn’t a lot of old crop sitting around, right?

And so, we know we have tight stocks and so you know, there are certainly opportunities for people to be bidding up basis as of right now or right there in that historical average. You can see on this particular chart that tends to show that those basis bids maybe fall off as we go further into the summer. But again, you know, that time of year is really hard to forecast. We could see basis really get hot at particular locations that are needing soybeans, or we could see it weaken depending on what happens with other things.

36:45

James Mintert: And it’s clearly a situation where you really want to pay attention if you’ve got some old crop left in inventory and you’re looking for an opportunity to move it at a favorable basis, you’re going have to pay attention.

Nathanael Thompson: Yeah.

James Mintert: You can’t, you know, just check once a week. That’s probably not going to be adequate. You probably need to be checking every day, or at least every other day to kind of pay attention because some of these moves don’t last very long, right?

Nathanael Thompson: That’s right.

James Mintert: So, you took a look at the heat map for soybean basis as well.

Nathanael Thompson: Yeah. So same thing here again from the folks at Rabobank, they’ve kind of just taken current basis levels, mapped them geographically based on, you know, the more red or white yellow locations are stronger basis levels, more positive. The blue and the greens are weaker basis levels. And again, here I think what we talked about earlier is even more pronounced.

You really see the heat or the strength in basis along the Ohio River there in southern Indiana, southern Illinois, up the Mississippi River on the western side of Illinois. And then what I think is really interesting is you see that kind of curve around into north central Illinois. And again, that’s where we’ve had lots of these reports of strong soybean processor bids, again, based on those strong margins that they’ve had in needing to compete for soybeans with those export markets. And so, this chart is even more pronounced than the kind of the tug of war that we talked about on the corn side with soybean processors there in northern Illinois really competing for soybeans with those export markets along the river.

38:15

James Mintert: The Illinois River terminals have been fighting them pretty hard, it looks like. So that’s what that’s what we’ve been hearing. Those are the press reports we’ve been picking up. And that map looks quite a bit different, right, than the corn map. So, it’s really interesting to look at the distinction between those two. So interesting tool. So, you took a look at the price discovery tool for soybeans as well.

Nathanael Thompson: Yep. So just looking at the distribution of soybean prices, what they could look like come expiration of that November 22 futures contract. And so again, you know, you can see upside potential here looking at the range like we talked about on corn is really important. We have a very wide range indicating the volatility in these markets.

Again, I just picked a number $14 to give us something to compare to very similar to what we showed for corn. There’s about a 25% chance that November 22 soybean futures could be below $14 at expiration. Again that $14 mark is pretty arbitrary. I picked that arbitrarily right but it’s just to give people something to latch on to that’s still above at least the breakeven that Michael estimates here, based on the Purdue budgets, but it gives people something to think about in terms of those new crop bushels.

But again, we’re at the point of the marketing year where those futures prices tend to be seasonally high. And so, if you were wanting to take a position on some new crop soybeans, now would be the time of year historically that we would think that that would be a pretty good idea. And again, nobody would recommend pricing everything you’ve got today. But I think that making some decisions on small portions of the new crop could be a good idea in terms of just locking in, right? The risk management strategy, you’re locking in the margin on those bushels at very, very profitable levels. And again, leave some other bushels to be open for upside potential.

40:08

James Mintert: All right. So, one of the things that I wanted to talk about a little bit today and maybe looking ahead a little more than we typically do at this time of year, is thinking about cropping decisions for the 2022/2023 year. So, one of the questions we included on the Ag Economy Barometer this past month that we just released a week or so ago, we asked people about their plans to increase the percentage of their farm’s cropland devoted to a wheat double crop soybean rotation. And this particular response rate is only from people that have some experience planting a wheat double crop soybean rotation in the past.

28% of them said they are at least thinking about increasing the percentage of their farmland devoted to that rotation. And I guess for people here in the Corn Belt, I’m talking to people now in Ohio, certainly the southern half of Indiana, southern half probably of Illinois, stretching over into Missouri, and perhaps even into eastern Kansas as well. If you’ve got some experience with double crop soybeans following wheat, you need to take a look at that budget because it looks very attractive. And we’ll talk about this more on some future webinars. But as you think about making your cropping plans for the upcoming year, if you’re in a position where that’s a viable enterprise for you from a weather standpoint, from a climate standpoint, it’s going to be tough to beat. That combination looks very attractive, and the world needs wheat.

We’re not going to spend too much time on why, but it’s clear from a profitability standpoint, there’s an opportunity there. And then of course, if you’re in a region where that has been a good practice in the past, it’s something to take a look at very, very hard. And I point that out because over the last couple of decades, we have reduced Corn Belt wheat acreage pretty substantially, right?

As we’ve evolved, following the passage of the 1996 Farm Bill, people really got away from planting wheat here in the Corn Belt and that acreage has been down. So, this is a year when you want to think about it, maybe putting some of that back into your rotation.

42:15

So, our colleague Michael Langemeier was not able to join us today, but he did share some information. He has re-estimated his breakeven prices based on the latest round of input prices. And as you pointed out earlier, the breakeven prices for rotation corn covering all costs here in Indiana on the low productivity soils is now up over $6 a bushel. Wow. Yeah, it I mean, we knew it was coming, but it’s hit. For average productivity soils the breakeven is now at $5.60.

And even on the high productivity soils, we’re above $5 a bushel. So, the risk perspective has really kind of changed here with respect to those production costs. If you look at the same computations on the soybean side, we’re not quite at the $14 price on soybeans but we’re getting close on the low productivity soils, a little below $13 on the average productivity and then $11.60 on the high productivity soils. So those rising input cost are being reflected in the rising breakeven prices, across the board

So, let’s talk a little bit about management strategies, Nathan, because I think this is really where you were coming from a few minutes ago, right? This is the net farm income projections. Again, off of Michael’s West Central Indiana case farm. So, it’s a corn/soybean operation. I think Michael’s put together a machinery set for about a 3000 acre farm. So, a fairly typical West Central Indiana operation, good yields using West Central average yields and his updated projections now for the 2022 crop year just as of last week, based on those updated input cost and using recent prices, $320 per acre versus $349 in ‘21. And as you look at that chart, we don’t see any other two years that look like that, right?

44:03

Nathanael Thompson: No, I mean remarkable numbers. I mean I know that folks are feeling the crunch of input prices, but the chart is indicating prices have more than made up for that up to this point.

James Mintert: Yeah. So, the opportunity here, and this is where you’re coming at it from a risk management standpoint, you’ve got the opportunity to be locking in at least on a portion of your acreage, some of the best returns ever, right? I mean, let’s be honest about it, these are record level returns these last couple of years.

And as you point out, that’s despite the rise in input costs, so from a managerial perspective, we’re not saying the prices have peaked. No, there’s a lot of uncertainty there. You can see that with the price distribution tool. But we are saying from a managerial perspective, if you haven’t done any pricing, you really need to look at this chart and think about, you know, where am I at on my operation.

I guess from a managerial standpoint, I know a lot of people don’t routinely do this, but as economists, we would certainly encourage you to do it right, if you haven’t done these kinds of projections for your own farm this year. Or perhaps you did them back in January or February when you were making your initial plans. Now is a good time to sit down and do some updating and figure out where you’re at. But if these kinds of prices, and I recognize today as we are on the air, prices were down hard on the futures market this morning. But for the price levels we’ve been looking at here the last couple of weeks, those are some pretty positive returns, and you probably want to manage accordingly, right? That’s the prudent risk management strategy recognizing that we can’t forecast with a high degree of accuracy what’s going to happen these next couple of months, right?

45:40

Nathanael Thompson: I mean, that’s right. Ultimately, nobody really knows where this thing is going. But what we do know is where we are today and what the opportunities that we have today are. And again, when you look at this chart and you see those bars over on the right-hand side, I mean, those are very, very favorable levels. And again, right, prices have the potential to go up from here. But locking in those levels on a particular portion of your farm could be a really, really good idea. Again, we talked earlier, I think that we often forget, right? We’ve seen prices go up. We’ve seen input prices also go up. I’m not going to project, Jim, I’ll let you project how long we’re going to see these price levels continue. But they won’t continue forever, right?

And we know we can look back on this chart in particular, what happened there? ‘10, ‘11, ‘12. What happens when those price levels come down, input prices are going to come down at a much slower pace than the commodity price levels. And so, now’s the time to be locking in profitable levels on the farm, building that working capital and thinking ahead of when this thing does flip going forward, you know, where is your farm going to be?

46:47

 James Mintert: Yeah. So, to be clear, we’re talking about from a managerial perspective, managing risk and locking in positive returns not because we’re forecasting a big decline in prices. That’s really not the key point here. What we’re really talking about is the difficulty that we have in forecasting prices, period. And managing risk in a way that that helps us be profitable from a long run standpoint.

So that’s one management recommendation. Our other manager recommendation is, if you live in a region or farm in a region where we double crop soybeans is an option, now’s the time to be thinking about that and starting to make some plans and at least evaluate whether or not you want to do that for this fall. That rotation is going to look very attractive relative to rotation corn or rotation soybeans.

So, it’s something for folks that maybe have a history of doing that, haven’t done it perhaps in recent years. Take a look. That budget is going to look pretty good. We’ll talk about that more and perhaps on the July webinar or a future webinar. But that’s going to be an attractive enterprise for folks that are in the right region. I realize it doesn’t fit everybody and there’s going to be some issues with respect to equipment and so forth. But if it’s a viable alternative for you, spend some time thinking about it.

I think the other recommendation we talked about this morning before the program started, Nathan, was thinking about those returns on that chart. You might think about talking to your landlord or your landowner that you work with and ask yourself whether or not this might be a time to have a conversation about how positive things have been, even recognizing that costs have gone up dramatically.

But we still had some pretty good returns and whether or not you want to think about perhaps making a bonus payment on some cash rental land. And I say that because if you don’t, someone else might make that conversation for you. Right? And so that’s really the challenge for you as a somebody who rents a fair amount of your cropland and realize a lot of the producers viewing this have a substantial rental operation.

48:43

Nathanael Thompson: I think that’s a really good point. And you know, we talk a lot about flex leases, right? This is kind of the environment where those really start to have the benefit. You know, in practice, we know those aren’t by any means the predominant lease site for most folks. And so, if you don’t have a flex lease in place, you know, like you mentioned, I think that this would be a time I mean, you want to control the narrative a little bit. Do you want someone who’s kind of trying to come in and outbid you to be the one to tell the landlord that prices have increased so much? Or do you want to be the one to tell them, explain to them margins and then negotiate, you know, a bonus payment or something like that that would be similar to what we’d see in a flex situation.

But really just managing kind of the human risk and the land risk associated with the current environment with people coming in. You know, we’ve heard stories of people coming in and really wanting to bid up cash rent prices. And, you know, it’s a risk for people that they’re going to face. And so, I think getting ahead of that, right. And being willing to kind of have those conversations and talk to folks could be something that could be really beneficial for some people.

49:45

James Mintert: And it’s an opportunity to have the complete conversation, too, as some of those landowners might be looking at corn and soybean prices. And see what’s taking place in the price side, but not be fully cognizant of what’s taking place on the input cost side. And so, it’s an opportunity for you to have a more complete conversation and kind of lay out exactly what’s taking place and what might be equitable and might be fair going forward.

So, and I think our maybe the last management recommendation that we were talking about earlier today, Nathan, was the idea that it’s not too early to start talking to your input suppliers about what you’re thinking about doing with respect to cropping for the 2023 crop season. If you’re thinking about that wheat situation, obviously it’s time to maybe at least initiate that conversation or at least get started on that.

But it’s not too early to talk to your input supplier about what your fertilizer requirements might be and where you’re at with respect to some of those other inputs. And at least let them know what you’re thinking and start getting those plans in place. It’s not clear when the input supply situation is going to resolve itself. I’ll leave it kind of there. I think I can predict with a high degree of confidence; it’s going to continue to be a challenge for at least this next crop year. And so having those conversations would be useful both for you and the input supplier. They need to know where you’re at in terms of acquiring those supplies. You need to know what they’re telling you, what they’re hearing from their suppliers, etc.

So, over these next few weeks is a good time to have that conversation and start making those plans. So, with that, I think we’re going to wrap it up. And our next monthly outlook will be on Wednesday, July 13th. That, I believe, is the day after the USDA releases the state report for July. And of course, the crop acreage report will be coming out at the end of June. Lots of new information to talk about in that early July time frame.

51:39

So, with that I want to thank my colleague Dr Nathan Thompson, and on behalf of the Center for Commercial Agriculture, I’m Jim Mintert.