How much longer can the current bull market last in corn and soybeans?
That is, without exaggeration, the multi-million dollar question. This current bull market began during the second half of 2020 and has had impressive staying power since then. Is this run different than in the past or are we bound to repeat history, as we usually are inclined to do?
Grain brokers (and stock brokers) have a disclosure paragraph at the end of their email or newsletter stating that “past performance is not an indication of future behavior” or something similar. This is a dubious statement. Of course, past performance can give us insight into future moves; what else gives us a better predictor? Human nature is unchanging, and as much as we like to think we have evolved and people change, they don’t. Individual people can change, but when everyone is put together (the entire market), history tends to repeat itself.
“Those who cannot remember the past are condemned to repeat it.” Whether that quote was from Edmund Burke or George Santayana doesn’t really matter for this discussion. It probably just means something different when you apply it toward the grain markets. We can try to predict what will happen to the markets in the future, but our best guess is to take all current information into account and apply it to the past.
We recently attended the annual meeting of the Iowa Chapter of ASFMRA. This is a two-day meeting when we bring in presenters to talk about a number of topics. One topic that is always important to our group is grain markets. This year’s grain market presenter was very entertaining and got a lot of us thinking about the current longevity of our market.
Grain Markets and Price Trends
Grain markets may not be a physical object subject to the laws of gravity, but they sure seem to adhere well to the old saying that what goes up must come back down. Another way to put it is that markets tend to return to where they came from. Since the beginning of the ethanol boom in 2007, the comfort zone for the corn market has been between $3.40-4.50 per bushel. The market has broken out of that range multiple times since then, but the tendency is for a return back to that range when the supply of corn is not threatened.
The previous bull market started in July of 2010 when corn prices jumped from $3.73 up to an all-time high of $8.49 in August of 2012. It started dropping in March of 2013 until it was over by September of 2013, when prices returned to the comfort zone of $3.50-4.50. That was the longest-running bull market in the last 40 years. This current run started in August 2020 and broke above the $4.50 range in December of 2020, peaking at $8.24 in April of 2022. If history is to repeat itself, there is significant risk of the current market dropping back into its previous range by the end of 2023 or early 2024.
Most Recent Data
The most recent supply and demand data from the USDA projects that 2022 crop ending stocks in August of 2023 will remain historically small for both corn and soybeans. Corn stocks-to-use percentage is projected to be 9.1%, and soybeans are expected to be 5.2%. While our domestic stocks are low, South America has been harvesting a soybean crop that will be one of their largest ever. The majority of South America’s corn is grown as a second crop following soybeans, so their total corn crop size will not be known for some time.
USDA’s Ag Outlook Forum on February 23rd and 24th provided their first estimate of 2023 acres for corn and soybeans. Planted corn acreage is estimated to be 91 million acres, and soybeans are expected to be 87.5 million acres. Other than 2021, which was a very dry planting season, this would be the most corn acres planted since 2016, when we planted 94 million acres. Soybean acres would be exactly the same as last year, tying for the third most ever. The most soybeans we have ever planted in the U.S. was 90.1 million back in 2017.
Estimated Yields and Market Impact
Estimated yields given for 2023 are always a guess since we are more than a month away from planting anywhere in the Midwest during the Forum. The default estimate is an adjusted trendline yield. Many analysts disagree with this method, but we have to start somewhere. The trendline national corn yield is 181.5 bushels per acre, and soybeans are estimated at 52 bushels per acre. A corn yield of 181.5 would be 4.8 bushels better than the previous record set in 2021, when much of the Corn Belt had nearly ideal growing conditions. A soybean yield of 52 bushels per acre would tie the national record set in 2016.
USDA also provides an estimate of the remaining factors that create the supply and demand tables during the Outlook Forum. Assuming both of these yield scenarios come true and the other import/export and demand estimates are correct, corn ending stocks in August 2024 would expand to 1.887 billion bushels (13% stocks-to-use), and soybean stocks would also grow to 290 million bushels (6.5% stocks-to-use). Both corn and soybean prices would drop dramatically if these numbers are accurate. Estimated 2023 crop season average cash prices are $5.60 for corn and $12.90 for soybeans.
Conclusion
The 2023 crop is going to be the most expensive to produce in history. High input prices have pushed breakeven levels to new highs, and the risk to producers is very high. That being said, current prices being offered for the 2023 harvest are still profitable and should be protected with either sales or options.
The last time I wrote about grain markets in this newsletter was the Summer 2021 edition, where I ended with a good quote about the grain markets: “The cure for high prices is high prices, and the cure for low prices is low prices.” We were hoping that the cure for high prices would be delayed for a little while, and our wish came true. Now the question is, for how much longer?
