The current high prices have one certain result—more corn acres. To the extent that farmers in Brazil, Argentina, and everywhere else, see these high prices they are going to increase their production. –Daryll E. Ray and Harwood D. Schafer (2012)
A fundamental approach to a commodity price outlook involves plugging in expectations for various components of the supply and demand balance sheet as well as some influence of expected returns of competing crops. How the combination of these factors impact ending stocks provides expected price direction: tighter stocks, higher prices; increased stocks, lower prices. One of the greatest uncertainties related to forming an expected corn price in 2022 is the question of acreage.
Demand. U.S. corn use over the last several years has varied little (Table 1 and Figure 1). Domestic use since 2016 has averaged 12.244 billion bushels, in a range from -178 million to +111 million from that average. Exports have been the use category that has separated total use from low to high. Total use was the lowest of the last six years in 2019/20, coinciding with the lowest exports of the time frame. Total use was the highest of the last six years in 2020/21, the year we set export records for U.S. corn. The export forecast for U.S. corn in 2021/22 is down compared to the previous year as record production is forecast from our primary export competitors: Brazil, Argentina, Ukraine, and Russia.
Table 1. U.S. Corn Use
|U.S. Corn (million bu.)||2016/17||2017/18||2018/19||2019/20||2020/21||2021/22 est.||Average|
Figure 1. U.S. Corn Use
Supply. Since 1950, the average corn yield in the U.S. has increased at the rate of about 2 bushels per acre per year (Figure 2). The trend line yield estimate for the 2021 crop was 176.7 bushels per acre. The latest estimate from USDA for the 2021 corn crop is an average yield of 176.5 bushels per acre. Given ‘normal’ growing conditions in 2022, that trend line yield estimate is 178.7 bushels per acre.
Figure 2. U.S. Corn Average Yield and Trendline Projection
Maximum combined planted acres of corn and soybeans in the U.S. the last five years is about 180 million acres. One early predictor of corn and soybean plantings is the relationship between soybean prices and corn prices prior to planting. Using the base prices for crop insurance set by the Risk Management Agency to calculate the price ratio (February average closing price of November soybean futures divided by December corn futures), shows a range in the soybean: corn price ratio since 2006 of 1.99 to 2.59. Years in which that ratio is relatively low, corn acres tend to increase relative to soybean acres. In years in which that price relationship is relatively high, the difference between corn and soybean plantings decreases (Figure 3). For example, in 2007, the soybean-to-corn price ratio in February was 1.99. Corn plantings that year exceeded soybeans by 29 million acres (93.5 million corn, 64.7 million soybeans). In February 2017 and 2018, the soybean to corn price ratio in February was 2.57. Plantings both those years were virtually the same for soybeans and corn (90.2 and 88.9 corn, 90.2 and 89.2 soybeans). Currently, the price ratio between November soybean futures and December corn futures is 2.25, down from 2.59 in 2021 and below the average ratio from 2006 to 2021 of 2.35.
Figure 3. Corn acres minus soybean acres, millions (2019 intended, all other actual)
But that price relationship may be affected in 2022 by soaring fertilizer prices. The price of anhydrous ammonia reported by the Agricultural Marketing Service is currently $1,135 per ton, urea is $810 per ton, and 28% liquid N is $475 per ton (USDA, AMS, 2021). Compared to the cost of nitrogen fertilizer in southeastern corn crop budgets for 2021, at 200 pounds of N per acre, the cost increases from about $80 per acre in 2021 to $180 per acre for 2022. With a 200 bushel yield, the additional cost of nitrogen alone adds 50 cents per bushel to the cost of growing corn. Soybeans, which have lower fertility requirements, would have a lower increase in the cost of production when compared to corn.
If nitrogen affordability is measured by the number of bushels of corn it takes to buy a ton of fertilizer, the current price increase is somewhat more moderate given higher corn prices (Figure 4). The average price of anhydrous ammonia since September is $884 per ton. At $5.00/bu corn, it takes 177 bushels of corn to purchase one ton of anhydrous. In 2021, that cost was 101 bushels per ton ($552/ton anhydrous and $5.45 per bushel corn), one of the lowest bushels per ton ratios of the last 25 years. The most expensive anhydrous measured in bushels of corn since 1997 was 230 bushels per ton in 2014 ($851 per ton anhydrous, $3.70 per bushel corn). The average cost in bushels per ton since 1997 is 153.
Figure 4. Anhydrous Ammonia Prices
Ending Stocks. Using an estimate of corn use and average yield, we can calculate the planted acres needed to match production to consumption. The likelihood of acres above or below this threshold guides our price outlook based on the number of acres that will tighten or build stocks (Figure 5). If we assume that total corn use in the 2022/23 marketing year is about the same as the higher levels of the last five years (14.8 billion bushels) and a trendline yield of 178.5 bushels per acre, corn plantings of 90 million acres would match production to use (assuming 92 percent of planted acres harvested for grain). U.S. farmers planted 93.3 million acres in 2021.
It seems likely that the soybean-to-corn price ratio and affordability measures of nitrogen fertilizer will influence producers’ planting decisions in 2022. Monitoring changes in these relationships over the winter may provide insight in to how this important piece of the fundamental outlook for corn shapes our price expectations and marketing decisions.
Figure 5. Planted area and yield needed to produce a 14.8 billion bushel corn crop
Daryll E. Ray and Harwood D. Schaffer,” Production destruction leads to both short-term and long-term demand destruction”, Agricultural Policy Analysis Center, University of Tennessee, Knoxville, TN; August 3, 2012.
USDA, AMS, Illinois Production Cost Report. October 21, 2021. Available online at https://www.ams.usda.gov/mnreports/gx_gr210.txtUSDA, OCE, World Agricultural Supply and Demand Estimates (WASDE). October 12, 2021. Available online at https://www.usda.gov/oce/commodity/wasde