FOCUS ON AG

Written by Kent Thiesse

Farm Management Analyst and Senior Vice President, MinnStar Bank
January 18, 2021

USDA DELIVERS SURPRISING WASDE REPORT

The monthly USDA World Supply and Demand Estimates (WASDE) Report released on January 12 presented
some rather surprising numbers that pushed corn and soybean prices to the highest levels in seven years. The
January WASDE Report, which is often known as a “market mover”, showed increased demand and much
tighter ending stocks by the end of the 2020-21 marketing year than existed a year ago in 2019-20. The
surprising WASDE report has left many farm operators re-analyzing corn and soybean marketing decisions,
both for remaining 2020 grain in storage and for the 2021 crop that will be planted this Spring.

CORN
One of the major surprises in the latest USDA reports was the reduction of 3.8 bushels per acre in the National
Ag Statistics Service (NASS) final estimated 2020 U.S. average corn yield. The national average corn yield
declined from an average of 175.8 bu./acre in November and December to 172 bu./acre in January, which was
the largest two-month adjustment in the national corn yield in several decades. Nearly every major corn
producing State had a lower estimated corn yield in January than in November. Minnesota topped the list with a
reduction of 10 bushels per acre, dropping from 202 bushels per acre in November to 192 bushels per acre in
January. Other 2-month lower yield estimates were declines of 6 bu./acre in Iowa, 4 bu./acre in Nebraska, 3
bu./acre in both Illinois and South Dakota, and 2 bu./acre in Indiana.

The latest WASDE report lowered the total 2020 U.S. corn production by 325 million bushels from the
December report, with the 2020 corn production now estimated at just under 14.2 billion bushels. In June of
2020, the 2020 U.S. corn production estimate was well over 15 billion bushels. USDA also increased total
demand for corn usage in 2020-21 by 612 million bushels above the 2019-20 levels, primarily due to an
expected increase of 772 million bushels in the corn export levels for the coming year. The export increase was
somewhat offset by a likely decrease in corn used for feed in the coming year. Corn used for ethanol production
is projected to be slightly higher in 2020-21 than year earlier. In addition to the lower 2020 corn production
numbers and the increased corn demand in 2020-21, USDA also lowered the projected beginning stocks in the
January report to 1.92 billion bushels, which was a reduction of 302 million bushels from a year earlier.

USDA is now estimating 2020-2021 U.S. corn ending stocks at 1.55 billion bushels, which is down 150 million
bushels from the December WASDE report. In the Spring of 2020, USDA was projecting corn ending stocks to
be over 3 billion bushels by the end of the 2020-21 marketing year on August 31. The projected 2021 ending
stocks compare to corn carryout levels of 1.19 billion bushels for 2019-20, 2.11 billion bushels in 2018-19, and
2.14 billion bushels in 2017-18 and 2.29 billion bushels in 2016-17. The U.S. corn stocks-to-use ratio is now
estimated at 10.6 percent for 2020-21, which would be the tightest ratio since 9.2 percent in 2013. The 2020-21
ratio compares to stocks-to-use ratios of 13.7 percent for 2019-20, 14.6 percent for 2018-19, and 14.5 percent in
2017-18. This means there could be some potential for short-term rallies in the cash corn market in the coming
months, especially in areas of the U.S. with tight supplies and high local corn demand.

USDA is currently estimating the U.S average on-farm cash corn price for 2020-2021 at $4.20 per bushel,
which is an increase of $.20 per bushel from the December estimate and an increase of nearly $1.00 per bushel
from the Spring of 2020. This is the highest WASDE estimated average corn price since the 2013-14 marketing
year. The 2020-21 USDA price estimates are the expected average farm-level prices for the 2020 crop from
September 1, 2020 to August 31, 2021; however, they do not represent estimated prices for either the 2019 or
2020 calendar year. The current projected 2020-21 average price of $4.20 compares to national average corn
prices of $3.57 per bushel for 2019-20, $3.61 per bushel for 2018-19, and $3.36 per bushel for both 2017-18
and 2016-17.
SOYBEANS
There was also a decline in the 2020 U.S. soybean yield in the latest WASDE report, which was a drop of one-
half bushel per acre from the November and December reports. The 2020 U.S. soybean yield is now estimated
at 50.2 bushels per acre, which is still well above the final yield of 47.4 bushels per acre in 2019. The big news
on the soybean side is the large increase in demand. Soybean exports are now estimated at 2.23 billion bushels,
which is an increase of 33 percent or 55 million bushels from 2019-20 export levels. The total U.S. soybean
supply for 2020-21 is estimated to be up by 219 million bushels from 2019-20 levels; however, the total
soybean usage for 2020-21 is projected to increase by 603 million bushels compared to a year earlier.

The 2020-21 U.S. soybean ending stocks in the latest WASDE Report are estimated at 140 million bushels,
which was a decline of 35 million bushels from the December WASDE report. The projected 2020-21 soybean
ending stocks are at the lowest level since 92 million bushels in 2013 and are considerably lower than the very
high ending stocks of 913 million bushels that existed as recently as 2018-19. The projected 2020-21 soybean
ending stocks are also much lower than other recent year-end carryout levels of 525 million bushels for 2019-
20, 438 million bushels for 2017-18 and 302 million bushels in 2016-17.

The soybean stocks-to-use ratio for 2020-21 is now estimated at 3.1 percent, which is at the lowest level since
2.6 percent in 2013. The projected 2020-21 ratio has declined considerably from soybean stocks-to-use ratios of
23 percent for 2018-19 and 13.3 percent for 2019-20. The expected large decrease in soybean ending stocks
may offer some opportunities for improved soybean prices in the coming months, especially if there are further
increases in soybean sales to China.

USDA is now projecting the U.S. average farm-level soybean price for the 2020-2021 marketing year at $11.15
per bushel, which was an increase of $.60 per bushel from the December estimate. The estimated 2020-21 U.S.
soybean price would be the highest since the 2013-14 marketing year. The 2020-21 soybean price estimate of
$11.15 per bushel compares to other recent yearly average soybean prices of $8.57 per bushel for 2019-20,
$8.48 per bushel for 2018-19, $9.35 per bushel for 2017-18, and $9.47 per bushel in 2016-17.

Marketing Decisions
Many farm operators will tell you that grain marketing decisions are the hardest pat of farming and this is
especially true when there are highly volatile markets such as we have experienced the past year. A year ago at
this time, December corn futures on the Chicago Board of Trade (CBOT) were around $3.90 per bushel for
“new crop” 2020 corn, with a local Southern Minnesota 2020 Fall harvest price of around $3.40 per bushel. By
July, the futures price dropped below $3.40 per bushel and the local harvest cash corn price to below $2.90 per
bushel. Similarly, CBOT November soybean futures for 2020 were near $9.15 per bushel in January last year,
with a local cash contract price near $8.35 per bushel for the Fall of 2020. By late July, the CBOT futures price
had dropped to near $8.90 per bushel and the local Fall harvest price to below $8.25 per bushel.

As a result of this scenario, many farmers began selling their 2020 soybean crop once the local cash price got
above $8.50 per bushel this past Fall and had most of their 2020 soybeans sold well before the current run-up in
soybean prices. Similarly, many farmers began selling their 2020 corn quite aggressively once the local cash
price got in a range of $3.50-$4.00 per bushel. Given the scenario during the first half of 2020, with projections
of a large 2020 U.S. corn and soybean crop and only limited growth in demand for both crops, these were not
bad marketing decisions. However, now producers are wondering what to do about protecting prices for the
2021 corn and soybean crop. Being able to “lock-in” local cash prices over $4.00 per bushel for corn and over
$11.00 per bushel for soybeans is the best opportunity that we have had in January prior to Spring planting in
many years. This may not be a bad place to reduce some financial risk and begin some grain marketing
strategies for 2021.

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Note --- For additional information contact Kent Thiesse, Farm Management Analyst and Sr. Vice President,
MinnStar Bank, Lake Crystal, MN. (Phone --- (507) 381-7960)
E-mail --- kent.thiesse@minnstarbank.com) Web Site --- http://www.minnstarbank.com/