North Carolina State University is a landgrant university and a constituent institution
of The University of North Carolina
Department of Agricultural and
Resource Economics
Campus Box 8109
Raleigh, North Carolina 27695-8109
919.515.3107
919.515.6268 (fax)
Please reply to:
Professor Nicholas E. Piggott
Dept. of Agr. and Res. Econ.
Campus Box 8109, NCSU
Raleigh, NC 27695-8109
Phone: (919) 515-4668
E-mail: [email protected]
February 23, 2015
MARKET OUTLOOK FOR CORN, SOYBEANS, AND WHEAT
Background: Decision time has rolled around for North Carolina (NC) farmers to make some
important choices about what they will plant in 2015 based on the current market situation and to
formulate a marketing plan for this expected production. As is usually the case at this time of the
year, there is much speculation about what new-crop corn, soybean, and wheat prices will be at
harvest. The answer is no one really knows and so it begs the question: Why do we spend so much
time worrying about the things we cannot control? A fundamental concept in agricultural economics
is that individual farmers are price-takers. A similar thing can be said about the weather, some things
are just not in a farmer’s control, but they do impact their bottom line. Yes, NC farmers must make
planting and marketing decisions based on the uncertain expectations of the prices they will receive
at harvest and on the weather during the growing season—that is farming. However, farmers also
must take into consideration other factors that impact their planting decisions and bottom lines and
that are known with much more certainty at this decision time. This can help significantly. For
example, the current new-crop basis being offered (a signal of the expected local demand and supply
situation), a well-penciled enterprise budget which provides a reasonable “guesstimate” of the
expected costs of production for each crop, and historical yields for their farms. It is indeed useful to
have a good handle on the current situation in the U.S. and in N.C. and market outlook as a guide in
the spirit of being fully informed. Ultimately, farmers need to put their own pencil to paper and decide
which will be the most profitable planting choices in 2015 for their own operation, taking into
consideration their own farm’s characteristics. Below is a brief discussion of the current situation from
both the US and NC perspectives for corn, soybeans, and wheat which will hopefully lead NC farmers
to make more informed planting and marketing decisions in the 2015/2016 season.
US markets: If one had to choose a single word to describe the current US markets based on
the data presented in the latest available WASDE (February 10, 2015), it would have to be “record”.
Motivated by an extraordinarily high new-crop soybean price over new-crop corn price ratio
(significantly greater than its long-run average of 2.3) around this time last year, the 2014/15 markets
are now assimilating several records for soybean and corn markets which will impact these markets
moving forward. This in turn, has implications for other markets of interest, such as wheat and grain
sorghum. The upshot of the enticing soybean price during the January-March 2014 time period was
US soybean acres in 2014 were a record 83.7 million acres (up 6.9 million acres) with corn acres
bearing the brunt with 90.6 planted acres (down 4.8 million acres) in 2014. Wheat acres in 2014
remained flat with 56.8 million acres planted as compared to 56.2 million acres in 2013. Combine
with this record soybean acreage and, with favorable growing conditions, a new record U.S. soybean
yield of 47.8 bushels per acre (shattering the previous record of 44 bushels per acre by 8.6%) was
achieved in 2014. It only makes sense that record soybean acreage and yields would combine to
also make a record soybean production of 3.969 billion bushels (up 611 million bushels). So with a
record supply of soybeans on hand exceeding 4 billion bushels (for the first time), soybean prices
plummeted to around an expected season mid-point $10.20 per bushel or $2.80 less than the
previous marketing year. As expected, there was a significant demand response and a record total
use was established of 3.701 billion bushels, led by a record amount of exports of 1.790 billion
bushels and an almost record level crush of 1.795 billion bushels. The end result of the record supply
and use was that 293 million bushels of soybeans were added to ending stocks, which were only
previously 92 million bushelsa whopping gain of 318%. This significant increase in ending stocks
serves as downward pressure on the potential upside for soybean prices for the 2015/16 in general
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and is the key message for producers to keep in mind in making planting and marketing decisions in
2015/16.
The corn market, despite relinquishing acreage to the soybean market, apparently decided it was
not going to miss out on also making records in 2014. Also prospering from favorable growing
conditions, the previous U.S. corn yield record of 164.9 bushels per acre (2009) was smashed; an
amazing new record of 171 bushels per acre was achieved in 2014, or 12.2 bushels per acre more
than the previous year. This record yield more than made up for the relinquished acreage to set a
new record corn production of 14.216 billion bushels, which when combined with the healthy ending
stocks on hand of 1.232 billion bushels, also led to a record U.S. corn supply of 15.472 billion
bushels. With a record supply on hand exceeding 15 billion bushels (for the first time), corn prices
plummeted to around an expected season mid-point of $3.65 per bushel or $0.80 less than the
previous marketing year. As expected, there was also significant demand response and a record
total use established of 13.595 billion bushels, led by a record amount of Food, Seed & Industrial use
(driven by ethanol) of 6.645 billion bushels and a recovering increase in corn for the feed market (143
million bushels). The end result of the record supply and use is 593 million bushels of corn being
added to ending stocks which were previously 1.232 billion bushelsa respectable gain of 48%. As is
the case in the soybean market, this increase in ending stocks serves as downside pressure on the
potential upside for corn prices for the 2015/16 in general, and is the key message for producers to
keep in mind in making planting and marketing decisions. A notable point moving forward is that the
addition to corn ending stocks is several magnitudes less in percentage terms, than the gain to
soybean ending stocks, which could lead to more upside potential for corn price relative to soybean
price in the marketing year ahead.
As mentioned earlier, the wheat market was subdued with wheat acres in 2014 remaining flat with
56.8 million acres planted and so, essentially, sat on the sidelines of the record breaking corn and
soybean action. Wheat yields actually declined 7.8% to finish up at 43.7 bushels per acre yield and,
with flat acreage, meant a decline in wheat supply of 245 million bushels compared to last year.
Driven by a significant decline in wheat being fed, total use fell by 348 million bushels meaning
ending stocks increased 102 million bushels and wheat price declined to an expected season midpoint of $6.00; a decline of $0.87 compared to the previous marketing year.
In sum, the current state of the US corn, soybean, and wheat markets can be characterized as
having retreated to significantly lower prices with all three markets experiencing increasing ending
stocks for 2014/15. The lower corn and soybean prices can be attributed to record breaking supplies
due to record breaking yields that surpassed record levels of use. In the case of wheat it can be
attributed to lesser demand for wheat that managed to be even greater than the reduced supply due
to poor yields and flat acreage. In all, higher ending stocks all around serves as dampener on upside
pricing opportunities for 2015/16, perhaps more so for soybeans than corn, and will mean that
profitable marketing opportunities will be much more limited. It will take an even sharper pencil and a
keener eye on opportunities when they arise and courage to pull the trigger. Finally, based on
February 22, 2015 CME new-crop futures, the important new-crop soybean over new-crop corn ratio
was 2.35 = ($9.79/$4.16)very close to its long-term level of 2.3, a neutral stance between soybean
and corn acreage, suggesting that current US soybean and corn acres will be similar in 2015 to their
levels in 2014.
NC markets: Not surprisingly, NC farmers followed the same trends in terms of planted acreage
as the US markets enticed by the higher new-crop soybean prices in January-March 2014 by planting
270,000 more soybean acres (1,750,000 total soybean acres), planting 90,000 less corn acres
(840,000 total corn acres), planting 160,000 less wheat acres (830,000 total wheat acres), and with
cotton acres unchanged planting 465,000 acres. Notable in the planted acres are no records and a
reduction in the feed grain acres of 250,000 acres (corn + wheat). With respect to production,
however, NC producers did some of their own record setting. A record soybean yield was set of 40
bushels per acre, surpassing the previous record of 39.5 bushels per acre set in 2012 by 0.5 bushels
per acre. Similarly, corn producers had a next-to-record yield of 132 bushels per acre failing to break
the previous year’s record corn yield of 142 bushels per acre in 2013 by 10 bushels per acre. Finally,
wheat growers, due to unfavorable conditions, managed to produce 58 bushels per acre which is 10
bushels per acre less than the 2011 record of 68 bushels per acre. This unfavorable yield combined
with the reduction in wheat acres of 160,000 acres meant there was about 8 million bushels of wheat
less to market in NC in 2014 compared with 2013.
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Conclusion: At the time of this writing new-crop futures present a sobering reduction in recent
price-levels with corn ($4.16), soybeans ($9.79), and grain sorghum ($3.95=0.95*$4.16) reflecting the
record production and plentiful ending stocks from 2014 going into the 2015 planting period. Newcrop wheat futures prices ($5.11) also reflect an expected increase in ending stocks for this marketing
year. Remember, these are the prices that NC producers cannot influence and no one knows for
sure where they are headed. Nonetheless, knowledge of the current situation sets the stage to make
a fully informed planting and marketing decision for 2015.
In making planting and marketing decisions NC producers should investigate some of the healthy
new-crop basis currently on offer from motivated livestock integrators eager to secure feed grain
acres in 2015. Consider locking in favorable offers with a basis contract now, with a view to pricing
the futures component of the net price, on the possibility of new-crop futures price upswings due to
weather concerns throughout the growing season. Producers will need a sharp pencil and good
records to compare crop choices with expected variable expenses at risk and with potential yield
expectations in mind. For producers who struggle to consistently make 120 bushel per acre corn
yields in NC, they might consider growing the less expensive grain sorghum (full-season) if they
believe they can make 100 bushel per acre or better grain sorghum and even possibly doublecropping grain sorghum with wheat should also be evaluated. This is especially important, given the
large increase in soybean acres NC had in 2014 and that soybeans behind soybeans tend to come
with reductions in soybean yields in subsequent years. There are significant yield benefits from
taking a more complete systems and multi-year approach and including a rotation such as grain
sorghum to help future soybean yields. Finally be sure to visit your crop insurance agent as it is hard
to beat the safety net afforded with the crop insurance revenue products on hand to make more
confident marketing decisions earlier than you may have previously if the opportunity arises.
Sincerely,
Professor and Extension Specialist
Department of Agricultural and Resource Economics
North Carolina State University
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