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There’s more to USDA’s latest report than you think

While it may not contain big shocks, the agency’s latest report includes important clues for the future.

Jim McCormick, Hedging strategist

January 14, 2022

5 Min Read
Flags of China and United States of America covered in corn kernels. Concept of Chinese and American agriculture imports, exp

The final production numbers of the year came out this week, and for the first time in a while, there were no shocking numbers which resulted in a relatively muted reaction.

One of the bigger surprises was USDA raising the 21/22 corn carryout to 1.540 bb (billion bushels) verse their 1.493 bb December estimate. They did this by raising production by 53 mb (million bushels), lowering exports by 75 mb, and increasing ethanol by 75 mb.

The increase in production was due to USDA raising harvested acreage by 300,000 acres.

The demand revisions align with expectations as the ethanol crush has been running very well while exports have been lacking. The two bright spots in exports have been Mexico and Canada. Demand bulls are optimistic that China will be back into the market buying soon. The market will need to see export demand or continued weather problems in South America; otherwise, it could leak lower until the spring acreage battle heats up. Reports that China's AG minister has lowered estimated 21/22 corn consumption to 287.7 MMT (million metric tons), down from the previous estimate of 290.7 MMT, due to slowing demand from both the feed sector and industrial users, should be a concern for demand bulls.

Annual U.S. Corn supply and demand

Like the corn numbers, the soybean report carried minimal surprises. The USDA chose to leave demand alone but increased the national yield by .2 bpa (bushels per acre) to 51.4 bpa while cutting harvested acres by 100,000. The net result was an ending stock increase of 10 mb which was in line with the trade's thoughts.

South America’s weather woes

On the world front, USDA was more aggressive in cutting South American production estimates than most in the trade thought they would. Brazil's output was cut 5 MMT to 139 MMT. Argentina's production was cut 3 MMT, putting production at 46.5 MMT. With these aggressive cuts world ending stocks came in at 95.2 MMT. The cut in domestic soybean demand is a concern, but we could see demand come back to the U.S. if the Brazil crop continues to shrink. Each bushel of lost production opens the door for U.S. exports to fill, so the next few months will be critical in deterring the soybean market's next direction.

This year's winter wheat acres are projected to be the highest since 2016. Wheat seeded area for 2022 is expected to total 34.4 million acres, up 2% (740,000 acres) from 2021. The breakdown by class is Hard Red Winter, 23.8 million acres (up 306,000); Soft Red Winter, 7.07 million acres (up 422,000); and White Winter, 3.56 million acres (up 54,000).

Corn debate

The increase in winter wheat acres adds to the debate of how many acres of corn producers will plant this spring. We will need to plant a minimum of 90 million acres of corn to meet this bare minimum demand expectation if we want to give ourselves some wiggle room. We typically harvest 92.5 % of what we plant, which equals 83.25 million acres. If we take this acreage number times this year's record national yield of 177 bpa, it gives us a total production of 14,735 million bushels which is 100 mb below the current demand estimate for this year's crop.

If demand increases year on year, which typically happens, or we don't produce another record national yield, we will be producing less than we consume for the third time in the past four years. 

Annual U.S. Soybean supply and demand

With the holidays past us and the final production numbers of the 2021 crop in the books, we encourage producers to revisit old-crop grain and the new crop marketing plans. There's a ton of profit on the table, and now is time to develop a plan to lock in these margins if you have not done so. We encourage you to stay flexible but realize your risks and manage them.

As always, feel free to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.

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About the Author(s)

Jim McCormick

Hedging strategist, AgMarket.Net

Before joining AgMarket.Net, Jim was a senior broker with a nationally recognized firm and has 24 years of experience as a registered commodity representative, servicing both commercial and individual trading and hedging customers. He specializes in hedging and trading strategies using combinations of forward contracting, futures and options for corn and soybean farmers and livestock producers. He has a Series 3 futures brokerage license and earned a bachelor’s degree in Agribusiness Management from Purdue University.

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