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Colossal Crops, Measly Prices Could Be Ahead for U.S. Farmers

by Alan Guebert

Published: Friday, May 26, 2023

The following is from Alan Guebert, a freelance agricultural journalist from Illinois.

The U.S. Department of Agriculture's most recent World Agricultural Supply and Demand Estimates report confirmed that a freight train of grain is barreling toward 2023-24 markets and farmers everywhere need to prepare for the rockier prices sure to follow in its wake.

The report was succinctly summarized by DTN market analysts shortly after its release May 12: "USDA projects farmers are in the midst of planting the country's largest corn crop on record at 15.265 billion bushels (bb) and a record soybean crop at 4.51 bb ..."

As every grain market participant knows, the double corn/soybean production record is a double-edged sword because the records will lead to larger, price-flattening carryovers. Again, per DTN: The huge crops mean "2023-24 'new crop' ending stocks for corn (are) projected at 2.22 bb and soybeans pegged at 335 million bushels."

The corn carryover is 805 mb higher, or 68%, than the 2022 carryover and the soybean carryover is 119 mb higher, or 55% larger.

The projected corn crop, which USDA forecasts will top 2016's record 15.1 bb, will slap the coming year's average price down to $4.80 per bushel, a profit-clipping $1.80 below this year's average price.

Likewise, this year's likely record soybean crop means its projected average price will slide from $14.20 per bushel to $12.10, or $2.10 per bushel.

While $1.80 per bushel lower for corn and $2.10 per bushel lower for beans sound modest, the declines—taken across the record production for both crops—mean a chunky, multi-billion drop in gross U.S. corn income and a smaller but still substantial drop in gross U.S. soybean revenue.

And that's if either or both projected record crops hit their forecasted targets. If good weather boosts either crop's final production—a hard number not known until November—carryover will climb even higher, average prices will fall, and farm income will slip even lower.

In the middle of all this good-news-is-really-bad-news data for U.S. corn and soybeans farmers, American wheat farmers couldn't tell if their section of the WASDE was a pat on the back or a kick in the pants—a distance, the all-but-sainted former USDA chief Earl Butz liked to remind audiences, "is only 18 inches apart."

The headline to the wheat forecast, Bloomberg blared, was that "America's wheat fields have become so plagued by drought that farmers are now poised to abandon crops at the highest rate in more than a century."

In fact, the news service went on, "Producers are expected to harvest about 67% of their planted acres ... (that) if realized would be the lowest ratio since 1917 ..."

So, the shorter U.S. crop means taller U.S. prices, right?

Bloomberg said that's a rock solid, ah, well ... maybe: The acreage abandonment "to lower levels than analysts were expecting ... could keep domestic prices elevated, even with rival producers such as Canada and Argentina likely to boost output."

USDA's wheat price projection, however, did not agree. Indeed, government forecasts didn't say "could" at all. Instead, drought or no drought, the WASDE pegged 2023-24 wheat prices at $8 per bushel, or 85 cents lower than last year's average price.

Which just goes to show the world why America's farmers continue their more than a generation-long love/hate relationship with wheat: they just can't catch a break with it.

For example, strong 2022 prices—buoyed by both lower U.S. acres and the Ukrainian/Russia war—encouraged hesitant growers to sow 10% more wheat this marketing year. Last summer's drought, however, continued into winter, then spring, to deliver—holy cow—record acreage abandonment, normally a booster rocket for prices.

But, no, Chicago July wheat futures continue their sleepy, slow slide. On Dec. 30 July futures closed at $8.03. By mid-May, though, the July contract had slipped below $6.50 per bushel and now has the grease to slide more.

Given 2023's soaring production-sinking price forecast, maybe Old Earl the Pearl had it right with his back patting-back side kicking wisecrack.

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