New Corn & Soybean Outlook Webinar · 2020. 7. 13. · Ag Outlook Webinar, July 13, 2020 USDA Balance Sheet Relying on Trend Yield of 178.5 Bu/acre Actual Yield Still Weather Dependent

July 13, 2020

Corn & Soybean Outlook Webinar

James Mintert, Director, Center for Commercial Agriculture

Michael Langemeier, Associate Director, Center for Commercial Agriculture

Ag Outlook Webinar, July 13, 2020

78

97

94

9089 90

92

75

80

85

90

95

100

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Million Acres

Harvest Year

U.S. Corn Planted Acreage

Source: USDA-WADE Purdue Center for Commercial Agriculture

USDA’s Acreage report revised planted acreage to 92 million acres down from 97 million acres on March report

Although lower than pre-release expectations, 2020 acreage is up 2.3 million acres compared to last year


USDA Balance Sheet Relying on Trend Yield of 178.5 Bu/acreActual Yield Still Weather Dependent

175177176

167

179

120

130

140

150

160

170

180

190

96 98 00 02 04 06 08 10 12 14 16 18 20

Bu./acre

Harvest Year

U.S. Corn Yield

Actual Yield

Trend Yield

Source: USDA WASDE Purdue Center for Commercial Agriculture


Corn Crop Positioned for Trend or Above Trend Yield in 2020Weather the Remainder of July?


Trend Yield in 2020 Would Push U.S. Corn Production Back Up to 15 Billion BushelsBut That’s 1 Billion Less Than Expected When Planting Intentions Released

15.1

14.614.3

13.6

15.0

10

11

12

13

14

15

16

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

Total U.S. Corn Production

Source: USDA-WASDE Purdue Center for Commercial Agriculture

Above trend yield would set a new production record


USDA Reduced 2019 Ethanol UsageBut Remains Optimistic About Ethanol Demand Recovery During 2020 Marketing Year

1.60

5.02 5.22 5.43 5.61 5.384.85

5.20

0

1

2

3

4

5

6

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

U.S. Corn Used for Ethanol

Source: USDA Purdue Center for Commercial Agriculture


Gasoline & Ethanol Prices Improved Through June

$1.44

$1.32

$1.15

$1.03

$0.84

$0.59

$0.75 $0.85

$1.89 $1.82 $1.83

$1.78

$1.14

$0.63

$1.06

$1.30

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50

19.01 19.03 19.05 19.07 19.09 19.11 20.01 20.03 20.05

$/Gallon

Year & Month

Monthly Average Unleaded Gasoline & Ethanol Rack Prices

Omaha, NE, January 2019-June 2020

Ethanol Unleaded Gasoline

Source: Taheripour & Mintert, 2020; Nebraska Energy Statistics Purdue Center for Commercial Agriculture


And Ethanol Margins Are Much Improved Since Late March

But Appear to Have Stalled at Less than $0.30/gallon

($0.12)

$0.26

($0.20)

($0.10)

$0.00

$0.10

$0.20

$0.30

$0.40

9/3/19 10/3/19 11/2/19 12/2/19 1/1/20 1/31/20 3/1/20 3/31/20 4/30/20 5/30/20 6/29/20

$/Gallon

Date

Estimated Daily Ethanol Plant Margins

Return Over Operating Costs, $/Gallon of Ethanol

September 3, 2019-July 2, 2020

Source: CARD, Iowa State University Purdue Center for Commercial Agriculture


Improvement in Ethanol Demand Appears to Have Slowed Down

-4%-6%

-1%

-6% -5% -4%-1%

-5% -5%-8%

-23%

-39%

-48%-49%-51%

-45%-44%

-39%

-34%

-30%

-24%-23%

-18%-18%-17%

01

/1

7/2

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01

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4/2

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01

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02

/0

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1/2

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/2

8/2

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/0

6/2

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03

/1

3/2

0

03

/2

0/2

0

03

/2

7/2

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04

/0

3/2

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04

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0

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7/2

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4/2

0

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/0

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/0

8/2

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/1

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6/2

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07

/0

3/2

0

Week Ending

% Change in U.S. Weekly Ethanol Production vs. Week Ending January 10, 2020

Source: U.S. Energy Information Agency Purdue Center for Commercial Agriculture


USDA Forecasts 20% Increase in Corn Exports During 2020 Marketing Year

2.44

2.07

1.78

2.15

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

U.S. Corn Exports



Along With a 5% Increase In Feed UsageBut a Surprisingly Large Corn Stocks Estimate Suggests 2019 Feed Usage Was Disappointing

6.2

4.3

5.45.6

5.9

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

00 02 04 06 08 10 12 14 16 18 20

Billion bu.

Harvest Year

U.S. Feed & Residual Corn Usage

Source: USDA WASDE


U.S. Corn Ending Stock Rising in 2020But Less Than Expected When Planting Intentions Announced

16% 14% 16%16%

18%

$3.36 $3.61 $3.60

$3.35

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$6.00

$6.50

$7.00

0%

3%

6%

9%

12%

15%

18%

21%

24%

10 11 12 13 14 15 16 17 18 19 20

$/bushel% of Usage

Harvest Year

Corn Price vs. U.S. Ending Stocks . Ending Stocks as % of Total Usage .

Corn Ending StocksCorn Avg Farm Price

Source: USDA WASDE


Ethanol Production Increases Have Supported Seasonal Recovery in Corn BasisBut Recovery To The Strong Basis Levels of Last Fall & Winter Not Expected


Looking Ahead to the 2020 Corn CropDec. 2020 Corn Futures @ $3.37/bu.Late Sept. Central IN Basis Forecast =$-0.25/bu.$3.37 + ($-0.25) = $3.12/bu. Expected Sale Price, if hedgedHistory suggests opportunity to roll this hedge forward at harvest time to take advantage of increase in futures market carry

Hedging directly into deferred futures makes it possible to capture expected basis improvement, but locks in weak futures market carry

May 2021 Corn Futures @ $3.54/bu.Late April Central IN Basis Forecast =$-0.10/bu.$3.54 + ($-0.10) = $3.44 Expected Sale Price, if hedged


Today’s Corn Futures Price Structure

Dec $3.37

May $3.54

July $3.59

March $3.47

0.11

0.07

0.05

Storage hedgers choose which futures contract to place hedges in based upon expected changes in the height of the stair steps

If you expect the stair height to increase, place hedge in nearby and roll hedge forward when stair height increases.


Just A Small Rise in Soybean Acreage vs. Intentions Despite Corn Acreage Being Smaller Than Expected

89.2

76.1

83.8

60

65

70

75

80

85

90

95

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Million Acres

Harvest Year

U.S. Soybean Planted Acreage



If Soybean Yields Reach TrendIt Would Be 3rd Highest Yield on Record

5249

51

4750

20

25

30

35

40

45

50

55

00 02 04 06 08 10 12 14 16 18 20

Bu/Acre .

Year

U.S. Soybean Yields

Actual Yield

Trend Y ield (1996-2020)



Soybeans Are Off To A Good StartBut August Usually Determines Soybean Yields


Planting Intentions & Trend Yield Would Push 2020 Soybean Production Up 16% From 2019

4.43

3.55

4.13

2.5

3.0

3.5

4.0

4.5

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Harvest Year

U.S. Soybean Production



USDA Still Expects Soybean Exports to Rebound in 2020 to Over 2 Billion Bushels24% Increase From 2019 Crop Year’s Forecast

2.13

1.751.65

2.05

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Billion Bu.

Crop Year

U.S. Soybean Exports



$8.50 MYA Projection Nearly The Same As In 2019

$8.55 $8.50

$3.00

$5.00

$7.00

$9.00

$11.00

$13.00

$15.00

0%

5%

10%

15%

20%

25%

10 11 12 13 14 15 16 17 18 19 20

PriceEnding Stocks

Year

Soybean MYA Price vs. Ending StocksEnding Stocks as a % of Total Usage

Ending Stocks (%)Avg Farm Price



Soybean Basis Still Above 2-Year AverageBut Trending Back Down Towards The Average


World Stocks of Corn & Beans TighteningBut Recovery in Consumer Incomes Around The World Will Be Needed

16%

33%

27%

22%

33%

26%

10%

15%

20%

25%

30%

35%

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20Harvest Year

World Stocks-to-Use RatiosCorn & Soybeans, by Harvest Year .

Purdue Center for Commercial AgricultureSource: USDA-FAS Purdue Center for Commercial Agriculture

Corn

Soybeans


Looking Ahead to the 2020 Soybean Crop

Nov. 2020 Soybean Futures @ $8.76/bu.

Late Sept. Central IN Basis Forecast =$-0.50/bu.

$8.76 + ($-0.50) = $8.26/bu. Expected Sale Price, if hedged

History suggests opportunity to roll this hedge forward at harvest time to take advantage of increase in futures market carry


ARC-CO and PLC Overview

1. ARC-CO (Soybeans):§ Payments occur when actual crop revenue is below ARC-CO

guarantee§ Data: county yields and marketing year average U.S. prices

2. PLC (Corn):§ Payments occur if the higher of U.S. average market price for the

crop for the crop year less than the crop’s reference price ($3.70 for corn; $8.40 for soybeans; $5.50 for wheat)

§ Data: PLC program yields and marketing year average U.S. prices


$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$3.00 $3.20 $3.40 $3.60 $3.80

2020 Corn Prices

ARC-CO and PLC Estimated Payments for CornWhite County, Indiana

19 - ARC-CO 19 - PLC 20 - ARC-CO 20 - PLC

2019 Corn Price = $3.60


$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$7.50 $8.00 $8.50 $9.00 $9.50

2020 Soybean Prices

ARC-CO and PLC Estimated Payments for SoybeansWhite County, Indiana

19 - ARC-CO 19 - PLC 20 - ARC-CO 20 - PLC

2019 Soybean Price = $8.55


Government Payments per AcreCase Farm, West Central Indiana (Corn/Soybean Rotation)

1. 2018:§ ARC-CO and PLC = $0§ MFP = $52

2. 2019, Projected:§ ARC-CO and PLC = $19§ MFP = $62

3. 2020, Projected:§ ARC-CO and PLC = $23 § CFAP = $21


Net Return Projections

Definitions• Net Farm Income

– Gross revenue minus cash expenses and depreciation; excludes operator and family labor, and opportunity costs

• Net Return to Land

– Gross revenue minus cash expenses (except rent), depreciation, and opportunity costs (except opportunity cost on owned land)

• Earnings

– Gross revenue minus cash expenses, depreciation, and opportunity costs


-$200-$150-$100

-$50$0

$50$100$150$200$250$300

07 08 09 10 11 12 13 14 15 16 17 18 19P 20P

Net Farm Income Sources, Corn/Soybean Rotation ($ per Acre)West Central Indiana Case Farm

Government Payments Crop Insurance Crop Net Returns Net Farm Income


2217

1319

11 10 11 12

5956

42

5249

35 36

45

2227

46

30

40

55 54

42

0

10

20

30

40

50

60

70

4/18 4/19 5/19 12/19 3/20 4/20 5/20 6/20

% of respondents

Month & Year

As of today, do you expect your farm's financial performance to be better than, worse than, or about the same as last year?

Better About the Same Worse

Source: Purdue Center for Commercial Agriculture, Producer Survey, June 2020


-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020P

Difference in Earnings per AcreWest Central Indiana (Corn Minus Soybeans)


$0$50

$100$150$200$250$300$350$400$450$500

07 08 09 10 11 12 13 14 15 16 17 18 19 20P

Cash Rent and Net Return to Land, West Central IndianaNet Return to Land Cash Rents


13 1115 14 15 13 11 8 11 11 8 10 11 11 12 9 11 10

48 47 4840 39

4553 50 49

5357

48 50

59

41

44

40

55

0

10

20

30

40

50

60

70

5/17 11/17 2/18 5/18 8/18 10/18 1/19 3/19 5/19 7/19 9/19 11/19 1/20 3/20 5/20

% of respondentsFarmland Price Expectations, 5 Years From Now

Lower Farmland Prices Higher Farmland Prices

Source: Purdue Center for Commercial Agriculture, Producer Survey, June 2020


Factors Impacting Land Values

Positive Influences:Thin market, low supply of land for saleLow interest ratesLand is a good hedge against inflationInvestment potential for non-ag buyers

Negative Influences:Relatively low net returns to land for operatorsWorking capital is depressed

July 13, 2020

August Crop Report Panel following August Crop Report’s Release

August 12, 2020

More info & register atpurdue.ag/webinar

Documents

New Corn & Soybean Outlook Webinar · 2020. 7. 13. · Ag Outlook Webinar, July 13, 2020 USDA Balance Sheet Relying on Trend Yield of 178.5 Bu/acre Actual Yield Still Weather Dependent