On Thursday, USDA releases one of its most consequential World Agricultural Supply and Demand Estimates reports of the year: the first look at 2022/23 marketing year global production, supply and demand forecasts. These are the fundamental figures that will largely dictate pricing for 2022 crops over the next year and a half or so.

There will be a lot of fundamental information to unpack in Thursday’s report. I’m highlighting a few of the key issues below. Join us on Thursday, May 12 as our team provides live coverage of the report release and real-time analysis. USDA releases the May 2022 WASDE at 11 a.m. CDT – check out www.farmfutures.com or www.twitter.com/farmfutures for the most current insights!

Several of our contributors have also written fantastic preview pieces about Thursday’s USDA reports over the past couple weeks. I’d be remiss if I did not say these articles aided my own research and I would like to encourage readers to check them out!

New crop production

Let’s be clear – these are not the calculations that will move markets on Thursday. The corn and soybean figures are a combination of March 31 Prospective Plantings and trendline yield forecasts issued at the February 2022 USDA Ag Outlook Forum.

So this information is already widely known by the markets. USDA’s National Agricultural Statistics Service will update acreage in its June 30 Acreage Report and the first estimate of 2022 yields will be released in the August 2022 WASDE. But we will get some further guidance on 2022 wheat production in Thursday’s Crop Production report from NASS released in conjunction with the WASDE report.

To be sure, it is still premature to be estimating final U.S. wheat yields. But based on the turbulent spring this crop has endured, these pre-report estimates could be on the optimistic side.

Even the lowest trade guess for total production aligns with 2021 production volumes, despite a 2% increase in total wheat acres from 2021. Planting progress on the spring wheat crop in North Dakota and Minnesota is well behind historical paces and the winter wheat crop is currently competing with 1996 and 1989 as one of the most stressed crops the U.S. has grown over the past 36 years.

Old crop usage – U.S.

Old crop corn and soybean usage are both expected to increase (by approximately 28 million bushels for corn and 35 million bushels for soybeans), which will further tighten old crop ending stocks in Thursday’s report. Corn exporting paces are not showing signs of increasing, especially with China’s ongoing COVID lockdowns slowing economic growth. Marketing-year-to-date corn consumption for ethanol through March 2022 is nearly 10% higher than a year ago, so I expect corn’s usage gains will come primarily from ethanol adjustments.

I’m less certain about which category USDA will increase for domestic soybean usage. Marketing year-to-date crush volumes are barely 1% higher than the same time a year ago. But exporting paces – particularly to China – have been unseasonably high over the past two months amid Brazilian crop shortfalls.

For example – over the last nine weeks, soybean shipping volumes are 73% higher than a year ago. Purchases from China have made up 43% of that total during that period. The short Brazilian soybean crop is the main force driving Chinese purchases of U.S. soybeans higher – starting in February, U.S. soybean volumes shipped to China have nearly tripled (2.8x) year-ago volumes.

Wheat stocks are likely to increase (a bearish price signal) as high wheat prices and a soaring dollar have largely kept U.S. wheat supplies uncompetitive on the global market. Weekly export volumes are 24% lower than a year ago with only a handful of weeks remaining in the 2021/22 marketing year. High prices and drought in the Plains mean that wheat is not an affordable feed substitute for livestock currently.

Wheat’s only hope of bullish price action will come from domestic human consumption. January through March 2022 (Q3 2022) wheat flour milling data came in at 230.3 million bushels – a 2.6% increase from Q3 2021 volumes. USDA has lowered the food wheat usage metric by 4 million bushels over the past year to its current level of 959 million bushels, so any potential gains in this category will be slight.

New crop usage – U.S.

At first glance, the ending stocks suggest tighter corn and wheat stocks next year. Smaller corn acreage and a potential wheat yield shortfall will be the key contributors here. But there is certainly more to say about corn than wheat, by my estimations.

My redneck math puts feed and residual usage largely unchanged for corn, though I expect if we do start to see cattle market expansion it will come late next year. I think ethanol production could increase higher than the 5.4 billion bushels currently forecasted in USDA’s Ag Outlook Forum estimates. Current year estimates are butting up against the 5.4 billion benchmark and the bullish winds stimulating biofuel expansion are likely not going away anytime soon.

The black horse for 2022/23 U.S. corn usage will undoubtedly be export volumes. A smaller crop will certainly limit available exportable supplies. But with Ukrainian supplies inaccessible or dwindling through the 2022/23, I expect the U.S. will continue to be the global supplier of choice for corn buyers – especially if USDA issues further reductions to South American corn crops grown during the 2021/22 year.

Corn stocks are going to continue being tight thanks to robust ethanol and export usage rates for corn. Though the current trade estimates vary wildly, the average ending stocks guess (1.352B bu.) suggests a stocks-to-use ratio of 9.0% for 2022/23 corn supplies, with would be the ninth tightest on record if realized.

Domestic wheat consumption for human food is historically steady. As I mentioned earlier, high wheat costs and herd contraction in the Plains will likely keep an excessive amount of wheat from being fed to livestock in 2022/23, especially since the cattle market is not likely to expand until late 2023.

And I expect high freight costs and wheat prices to continue to keep U.S. wheat less competitive against other global exporters in 2022/23. I’d be happy to be wrong on this issue, but until we see U.S. export paces pick up over the next couple months, I’m going to continue to be skeptical about the prospects for the U.S. wheat export market. Until that time, expect supply shortfalls to be the primary price driver for the wheat market in 2022/23.

U.S. soybean production is expected to boom to new records thanks to record-high acreage expected to be planted this spring. And domestic and global soybean end users are primed to take full advantage of the supply influx.

With more soybean processing capacity slated to come online over the coming year, domestic usage will put up some stiff competition against soybean exporters eager to sink their teeth into a robust American soybean crop this coming fall. But tight global edible oil supplies mean that even if Chinese export demand lags in the second half of 2022, there are still plenty of global buyers eager for U.S. soyoil supplies.

Ultimately, that will put U.S. soybean ending stocks for the 2022/23 season at the highest level since 2019/20. Trade estimates suggest that the 2022/23 soybean STU ratio will settle around 6.9%, ending the 2022/23 marketing campaign with the 19^th tightest soybean supply on record, up from the 13^th place finish currently expected for 2021/22.

In short, soybean stocks will have more room to breathe relative to the past two years. But demand is likely increasing just as rapidly as the prospects for a record soybean crop and will put any extra acreage to good use.

South American production

Dry weather in Brazil over the past month has triggered concerns about the country’s second corn crop harvest, more commonly known as the safrinha crop. The safrinha crop accounts for the majority of Brazil’s annual export sales, so despite a favorable start to the crop’s growing cycle earlier this year, markets could see bullish price action in the corn market if USDA issues any yield downgrades to the 2021/22 Brazilian corn crop.

The trade is expecting cuts across the board for South American corn and soybean crops, which is likely based on recent USDA attaché reports from the region. Amplified soybean export paces in the U.S. over the past couple months suggests that USDA will scale back crop forecasts in Thursday’s report, which will play a big role in further tightening global corn and soybean stocks.

Old crop usage – global

I think South American corn and soybean production estimates will be the driving force behind any potential changes USDA may make to current marketing year ending stocks. Those changes are likely to be bullish because of the potential supply cuts anticipated by the trade.

Chinese grain and oilseed demand will also be closely evaluated in this space. Specifically, the impacts of current lockdown measures on economic growth and consumer eating preferences will play a big role in any changes USDA makes in its forecasts for China.

We are rapidly moving into a market environment where crop timing matters, so I think old crop grain futures stand to benefit from these cuts more than new crop futures. Keep an eye on those price differences after the report’s release.

New crop usage – global

THIS! This is the section of WASDE that markets have been dying for more insights on since Russia invaded Ukraine in late February. And there will be a lot to unpack from this data!

First, USDA’s forecast for Black Sea trade flows will likely be one of the most significant price movers of Thursday’s reports. Ukraine is struggling to unload 2021 corn stocks and is likely to plant more small grains readily accessible for human consumption during the current growing season than exportable grain crops as the Russian war continues to linger.

So I am expected Ukraine to take a muted role in the global grains trade in the coming year. The May 2022 WASDE will show who will step into supplier roles (the European Union, Australia, Canada) and who will scale back food consumption (North African and Middle Eastern countries) in response to the shifting Black Sea market dynamics.

Second, this will be the first long-term look at impacts of Russian sanctions on global trade flows. Russia is slated to harvest a record wheat crop this summer. I am in the camp that believes Russia is going to find a way to sell its crop regardless of banking sanctions (my conspiracy theory is that Russia will become a primary grains provider to China), but I’m curious to see who USDA thinks will be buying it.

Third, we cannot underestimate the impact that Chinese imports, production, and consumption have on global grain and oilseed pricing and availability. The efficacy of China’s COVID vaccinations has been significantly lower than Western vaccines (i.e. Sinovax only had a 55% efficacy rate against COVID at its inception while Pfizer’s efficacy rate was 95%) leaving the country at higher risk of rampant virus outbreaks.

That has been the driving factor behind China’s strict COVID lockdowns recently. The lockdowns have closed factories and delayed port activity, which means slower economic growth is likely in the cards for China this year, especially if another virus outbreak takes hold later this fall and the government doubles down on its zero-COVID stance.

The biggest sign that zero-COVID will directly impact U.S. growers? China’s soy import volumes. China is planning on expanding soybean acreage this spring. But a struggling winter wheat crop and fewer corn acres could mean that China could remain reliant on global grain and oilseed imports for another year.

Fourth, crop inputs are more expensive and more difficult to source. While most growers in the Northern Hemisphere have adequate fertilizer and input supplies for their 2022 crops, growers in the Southern Hemisphere could scale back production gains in 2022/23 if fertilizers are inaccessible or unaffordable in the next six months.                                                                                                                    

This is likely a more viable concern for 2023/24 grain and oilseed production as commodity prices are currently high enough to support 2022/23 crop production estimates. However, the surge of input prices is a dangerous omen in a world where food and feed demand is rising faster and more consistently than production gains. It will undoubtedly have an increased impact on food pricing and availability as the 2022/23 marketing year progresses.

There will be a lot of dynamics to watch in Thursday’s reports. I’ve been tracking recent USDA attaché and other market reports released over the last month that could show up in Thursday’s estimates as well as potential market implications. My cheat sheet on those fun facts is compiled below if you are interested – I expect many of these issues will prove to be talking points for digesting Thursday’s results.

Good luck!