The 2019 crop just recently concluded, and opportunities to market 2020 crop are already occurring.
Extension Grain Marketing Specialist Dr. Todd Davis, with the UK Grain and Forage Center of Excellence at Princeton, was in Owensboro recently to explain that December 2020 corn and November 2020 soybean contracts are trading near their contract highs, providing an opportunity to price some 2020 crop.
His concern, explained in this article, is what will happen to ending stocks and the U.S. marketing year average from price for corn and soybeans, assuming various levels of domestic and export demand.
Over the past five years, U.S. farmers have planted about 180 million acres of corn and soybeans. The average allocation is 52% corn and 48% soybeans. Using trend yields that have proven a yield increase of 2 bushels of corn and.5 bushels of soybean over the past 30 years, this projects a national trend yield of 175 and 49.5 bushels respectively in 2020.
The USDA currently projects 2019 corn ending stocks at 1.9 billion bushels and a U.S. marketing year average price of $3.80/bushel. A typical planted area in 2020 of 93.6 million acres would be an increase of 3.7 million acres from 2019. A trend yield of 175 bushels/acre would be a 6.6 bushel increase over the projected 2019 yield. If 2020 is a typical corn year, total production could be 15.02 billion bushels, 1.05 billion bushels larger supply than the 2019 supply.
Corn stocks are likely to increase in 2020 with typical acreage and yield. If use is similar to the 2019 marketing year, stocks could increase to 2.8 billion bushels and push price to a market year average of $3.30. Stronger demand will be needed to offset the 2019 residual inventory and the 15 billion bushel 2020 crop.
The demand growth that would be needed would require exports to increase by 200 million bushels and feed and industrial use to increase by 300 billion bushels from current 2019 levels. The demand categories are facing challenges in export and ethanol use which makes a large year-to-year increase unlikely.
Soybeans face a similar story. If 2020 soybean-planted acres are typical, they will increase by 9.9 million bushels over 2019, with a trend yield of 2.6 bushels more than the projected 2019 yield. 2020 could result in a production of 4.7 billion bushels, a 274 million bushel increase over 2019.
If soybean demand remains at 4 to 4.1 billion bushels, ending stocks will increase 200 to 300 million bushels from 2019 ending stocks. Because of the increase in stocks, the market year average price could decline to as low as $7.62 from the October 2019 market year average price estimate of $9.00.
The soybean market needs total use to increase to 4.3 billion bushels to cushion the impact of the 4.27 billion bushel soybean production potential in 2020. If use is 4.2 billion bushels, stocks might increase by 100 million bushels, and the 2020 marketing year average price would be about $8.60, 40 cents lower than the 2019 market year average price estimate.
Total use of 4.2 billion bushels would require exports to increase by 177 million bushels from 2019 without domestic use declining. In other words, soybean exports would have to rise to levels achieved before trade disruption.
See Prices/page D4
Corn and soybean stocks are likely to increase substantially from the 2019 marketing year with a resulting decline in prices. Weather that prevents planting and reduces yield would improve this negative price forecast by limiting growth in ending stocks.
Counting on poor yields across the U.S., with the exception of the Ohio Valley, is not good strategy. Creating trade agreements for corn with Japan and Mexico and for soybean with China would also curb growth in ending stocks, but counting on that is not good strategy either.
Good strategy is watching the December 2020 corn and November 2020 soybean contracts to lock in prices when opportunities arise. The historical trend of both markets indicates the best pricing opportunities occur in late winter, early spring.
Begin developing 2020 corn and soybean enterprise budgets to determine price required for profit, and be ready to make sales when profit can be made.