USDA released its first look at 2022 row crop production and usage early this morning, ahead of the opening sessions for the 2022 Agricultural Outlook Forum, which is held virtually this year. The preliminary forecasts offered early insights as to how USDA sees long-term production forecasts playing out in the 2022/23 marketing year.

Please note, these estimates do not reflect the market dynamics that evolved last night as Russia invaded Ukraine. While Secretary of Agriculture Tom Vilsack and Chief Economist Seth Meyer both acknowledged that this conflict will likely have future impacts on grain markets in the session’s introduction, there are still plenty of reasons to be optimistic about the farm economy in 2022/23.

Acreage shifts

USDA did not deviate significantly from its Baseline Forecasts for 2022 corn acreage, projecting 92.0 million acres of corn will be planted in the U.S. this spring. That marks a 1.4-million-acre decrease (1.5%) from 2021 acreage as high production costs shift corn acreage into crops with more lucrative returns.

Per acre fertilizer costs for 200 bushel per acre corn production in Illinois currently stand 2.1 – 2.3 times higher than year-ago prices. And as concerns grow about chemical availability for the 2022 growing season amid supply chain disruptions, producers can expect to see those prices skyrocket in tandem.

The massive cost appreciation for corn production paired with rallying soybean prices on South American crop shortfalls and record-breaking U.S. crush volumes point to higher soybean acreage in 2022. USDA projects 88.0 million acres of soybeans will be planted in the U.S. this spring, up half a million acres from last October’s Baseline Forecasts and 0.8 million more acres than in 2021.

Bullish wheat prices will likely help propel total 2022 planted wheat acres to 48.0 million acres – a 1.3-million-acre increase from 2021 acreage and the highest planted wheat acreage in the U.S. since 2016 when 50.1 million acres of wheat were planted.

USDA expects spring wheat production could be limited by high fertilizer prices and questionable availability in regions of the Northern Plains and Pacific Northwest where spring wheat acres are typically planted. Much of the fate of 2022 wheat production hangs in the balance of rising winter wheat acreage, which will likely begin emerging from dormancy in the coming weeks.

The soybean acreage results fell short of analyst estimations while corn acres were slightly higher than pre-report trade guesses, suggesting that current market prices may provide enough margin to offset rising costs.

To be sure, a lot of time – and economic volatility – remains between now and planting. And of course, weather will always have the final say in 2022 acreage allocations. Amidst the rise in economic volatility – especially overnight – markets will likely remain guessing at 2022 acreage until the March 31 Prospective Plantings report from USDA’s National Agricultural Statistics Service.

Production hinges on weather

“Weather will have the last say on supplies,” Chief Economist Seth Meyer offered in this morning’s introductory session of the AOF. USDA is already considering the impacts drought in the Plains and Pacific Northwest will have on wheat crops, holding 2022/23 wheat yields below trendline forecasts at 49.1 bushels per acre.

At 1.94 billion bushels, the 2022 wheat crop will likely be the largest harvest produced since 2016’s haul of 2.31 billion bushels. If USDA’s 15.24-billion-bushel estimate is realized, the 2022 corn crop will best 2016’s harvest of 15.15 billion bushels as the largest in U.S. history. Similarly, a 4.49 billion bushel 2022 soybean harvest would top last year’s record high of 4.44 billion bushels.

Corn and soybean production potential also hang in the balance of the weather gods this year. Planting progress will depend on soil moisture levels, which are currently at concerningly low levels across much of the U.S. Heartland.

National drought ratings soared to an eight-week high this week, according to the U.S. Drought Monitor. As of Tuesday, 73.37% of total U.S. acreage was classified in some sort of abnormally dry (D0) to exceptional drought category (D4), with the West and High Plains suffering the most severe soil moisture shortages.

Production costs and input availability will also factor into yields and production this year, not just acreage. As Roundup and Liberty supplies, as well as fertilizers, remain tight and costly, farmers may choose to alter application strategies that could potentially alter yields.

Demand forecasts

USDA’s first look at 2022/23 demand forecasts were widely anticipated in this morning’s reports. And the latest updates did not disappoint.

USDA left 2022/23 corn usage rates slightly unchanged at 14.84 billion bushels, a scant 5 million bushels higher than current forecasts for the 2021/22 marketing year. Regardless, it will be the largest rate of corn consumption on record.

Corn consumption for feed and residual usage was left unchanged from 2021/22, reflecting a shrinking livestock herd and greater forecasting uncertainty in the new marketing year. Export projections fell 75 million bushels from old crop estimates to 2.35 billion bushels as high prices and an anticipated recovery from a North American drought will likely limit Chinese and North American purchases.

Corn usage for ethanol production will likely be the silver lining to strong 2022/23 corn prices. USDA expects 2022/23 corn consumption rates for ethanol will soar to 5.4 billion bushels – the highest volume since 2017/18’s record volume of 5.6 billion bushels.

USDA projects the 2022/23 corn stocks-to-use ratio will rise to 13.2% from its current reading of 10.4%. The supply boost from a record crop means that corn supplies will likely drop from the 10^th tightest on record in 2021/22 to the 21^st tightest in 2022/23.

USDA forecasts this dynamic will lead season-average farm prices for corn to tread closer to the $5/bushel benchmark during the 2022/23 marketing year. Current year forecasts peg that value at $5.45/bushel, though the value will likely be revised higher after Russia invaded Ukraine last night.

December 2022 corn futures shed over $0.30/bushel after USDA announced the record-setting 2022 crop, erasing much of the overnight gains from the news of Russia invading Ukraine. New crop futures prices remained positive at last glance with December 2022 futures trading comfortably above the $6.10/bushel benchmark.

Soybean usage rates will also set new records in 2022/23, rising to 4.525 billion bushels. That volume ranks 143 million bushels higher than current usage rates for the 2021/22 marketing year (4.382B bu.) and will best 2020/21 volumes (4.504B bu.) as the highest on record.

A revival in the export market will highlight 2022/23 soybean demand forecasts. USDA pegs 2022/23 soybean exports at 2.15 billion bushels, up 100 million bushels from projected 2021/22 volumes. Crush volumes will continue a record-breaking streak for another year, rising by 45 million bushels on tight soy oil supplies and growing biodiesel production to 2.25 billion bushels.

That means that soybean supplies will likely tighten to a 6.7% stocks-to-use ratio in 2022/23 from a 7.4% reading currently projected for 2021/22. That will be the 18^th tightest soybean supply in U.S. history if realized.

Because soybean stocks are likely to remain scarcer than their corn counterparts, USDA is only forecasting a $0.25/bushel price drop in 2022/23 average season farm prices for soybeans, landing at $12.75/bushel. USDA currently predicts farmers will receive an average of $13/bushel for soybeans marketed during the 2021/22 marketing year.

Soybean futures markets struggled to maintain overnight gains after USDA’s projections were released. November 2022 futures gave up over $0.77/bushel of last night’s highs on the rising acreage forecasts for U.S. soybeans this spring.

For wheat, high prices will likely limit domestic usage rates more so than in corn and soybeans, allowing wheat supplies to restock following last year’s spring and white wheat crop shortfalls in the Northern Plains and Pacific Northwest. Feed and residual usage will see the biggest decline and export potential could remain limited as high prices persist.

Export volumes are not likely to match 2020 and 2021 highs, but high commodity prices point to another record-setting year of export values in 2022. USDA projects calendar year 2022 ag exports will rise to $183.5 billion. U.S. ag exports soared to a record-breaking high of over $177 billion in 2021.

As evidenced by last night’s market rally, uncertainty and market volatility are likely to remain primary characteristics of the 2022 growing season. Supply chain, freight, and labor issues will continue to plague the global economy for another year. But while commodity prices are likely to moderate from last night’s highs, farm-level profitability will remain strong on the elevated prices.

To read the 2022 Grain and Oilseeds Outlook from USDA’s Office of the Chief Economist in its entirety, click here. If you would like to listen to the OCE’s presentation of the 2022 Grain and Oilseeds Outlook at the Agricultural Outlook Forum tomorrow morning where USDA’s economists will further discuss the details of the updated forecasts, you may register here.