It looks like 2021 will be a banner year when it comes to crop statistics. Guy Allen, senior economist with Kansas State University International Grains Program, told participants in the 2021 Double-Crop Farmers Forum that wheat, soybeans and corn will all likely set various domestic and world records for production and consumption this year. The forum was sponsored by ISA, the Illinois Wheat Association and several other partners.
“I don’t know if I have seen such a plethora of issues driving the commodity markets,” Allen says. Here is a look at the macroeconomic factors he believes could impact price direction:
- The U.S. dollar is driving the economy. Significant weakness in the dollar, which is near a three-year low, has contributed to U.S. commodity price strength.
- Concern for inflation is developing in the U.S. which could increase interest rates.
- COVID-19 is an uncertainty.
- Changes are coming in U.S. trade and foreign policy.
- Recovery in China from African Swine Fever is increasing feed demand there.
- New bird flu outbreak is taking place in Asia.
- Dry weather in South America, Indonesia and Malaysia is affecting oilseed production.
- Export taxes are possible in Argentina and Russia.
- Soaring ocean freight rates and container shortage can affect U.S. exports.
When it comes to the wheat market specifically, Allen says the commodity has been a “follower,” with support spilling over from the corn and soybean markets. He cites record world wheat production of 772 million metric tons (mmt), including record wheat production in Australia, that is balanced by record demand for wheat worldwide as a feed source.
“We have seen more wheat feeding worldwide with low wheat prices and that includes going into China feed rations,” he says. “Record global exports of 194 mmt are expected, with Russia being the largest exporter, followed by the Ukraine, U.S. and Canada.”
Egypt will be the biggest wheat buyer, followed by Indonesia, China, Turkey and others.
At the U.S. level, total wheat production is just under 50 mmt. Allen says feed demand is up in the States as well and exports are at a four-year high with plenty of stocks available.
As for soybeans, record world production of 361 mmt is forecast with record consumption of 343 mmt predicted. World exports could set a record at 169.1 mmt this year.
“Both oil and meal are supporting the soy complex which is unusual. There is good demand for both products,” he says. “China recovery in feed demand is driving strength.”
U.S. production of 112.5 mmt would be an increase, but would be welcome, given strong crush margins and a record exports forecast. That would place ending stocks at the lowest level in seven years and keep soybean prices poised for a potential run to $16 per bushel.
“I would not be surprised, but the market is volatile and can rally quickly and drop off more quickly. Take advantage of pricing soybeans when you can,” he says.
On the corn front, record global production of 1,134 mmt is expected with record feed demand of 725 mmt driving the need for those extra bushels. World exports could reach a record 184 mmt, depending on China’s hog herd recovery and demand growth across all meat sectors. World corn ending stocks continue to drop and may reach the lowest level in six years.
U.S. corn production down to 360 mmt and record exports of 67 mmt have tightened the stocks-to-use ratio at an historic 13 percent. “Corn prices are chasing soybeans, but there is more upside potential for corn prices driven by export sales,” he says. “China needs corn. We will see a rise in sorghum acres replacing some corn acres in the Plains. Sorghum is also going to China.”
Allen encourages farmers to use market volatility as opportunity to be creative and forward looking in pricing production. “Look at your own operation and determine your appetite for risk. Use a market advisor to make comparisons of marketing alternatives,” he says.
Click here to watch the recorded session of the Double Crop Farmers Forum.