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Last month, MRP noted the US Department of Agriculture left its outlook for domestic corn and soybean supplies unchanged at seven-year lows.
In an even worse turn for crop supplies, the USDA’s Prospective Plantings Report, released last week, showed corn and soy plantings significantly below analyst expectations of 93.2 million and 90 million acres, respectively.
Corn plantings were recorded at 91.1 million acres and soy plantings covered 87.6 million acres. Though each of those figures represents multi-year highs, analysts expected already tight inventories and favorable pricing to incentivize the strongest planting season ever.
As of March 1st, corn stocks were 7.701 billion bushels, down 3% YoY, and a six-year low. The indicated disappearance for December 2020 through February 2021 was 3.59 billion bushels, compared to 3.38 billion during the same period a year ago. Wheat stocks were also at a six-year low, totaling just 1.314 billion bushels, 7% less than last year.
Soybeans came out at 1.564 billion bushels, a drop of 31% YoY, marking the tightest supply in five years. The indicated disappearance during the second quarter of the 2020/21 marketing year was 1.38 billion bushels, up 39% from the second quarter of 2019/20.
As the Star Tribune writes, smaller-than-expected plantings of the two main cash crops in the United States would heighten concerns about global food and animal-feed supplies after importers and domestic processors loaded up on grain and oilseeds earlier this year. The United States is the world’s biggest corn exporter and the number two soybean supplier.
Several external factors like weather, biodiesel demand, and China’s ongoing bout with hog-borne illness are expected to have an impact on global crop supplies throughout the year.
Almost half of the United States, is currently experiencing some level of drought, and it is expected to worsen in upcoming months. According to the US Drought Monitor, huge swathes of key crop states like Nebraska, Iowa, California, Texas, Kansas, and the Dakotas are abnormally dry or experiencing severe to extreme drought.
Per SciTechDaily, the current event fits the pattern of a long megadrought episode over the past two decades. A recent study in Science Magazine showed 2000-2018 has been the driest period in the U.S. Southwest since the late 1500s.
La Niña conditions have also played a significant role in stifling precipitation. La Niña occurs when the surface of the Pacific Ocean cools, triggering an atmospheric chain reaction that roils weather around the globe. In Brazil, the phenomenon has clouded the outlook for production of arabica coffee, expected to drop by about a third in the 2021-22 season amid dry weather. Lower-than-expected output forecasts are apparent across Central America. Bloomberg reports that coffee stockpiles have sunk to a six-year low in the US.
MRP covered the potential for a further leg up in coffee prices late last month.
Futures for soybean oil have seen big recent gains, rising close to 30% this year. As MRP noted last month, part of that surge can be chalked up to President Biden’s promised ‘Clean Energy Revolution’ plan, which would ignite biofuel demand. Procuring soyoil, which is 100% biodiesel, means a significant number of soybeans are going to be directed away from the food supply and into the energy industry, pushing up food prices even further.
A continued rise in agricultural commodity prices would flow down the supply chain to the meat market. When you raise the cost of feeding livestock with corn and grains, prices of beef will be marked up on the grocery shelf. The cost to feed one cow historically averages between $400 to $500 per year, but in 2020, costs jumped by $200 per cow throughout 2020, Rock Ridge Farm Owner John Van Vught told Fox Business. “We are going to have to raise our prices at the retail side”, he added.
As MRP has covered for years now, China is still struggling with ongoing outbreaks of African Swine Fever (ASF), a hog-borne virus that carries a near-100% fatality rate for the animal. ASF and the mass culling of potentially infected pigs that comes along with efforts to contain the virus devastated China’s pork supply in 2018-2019, killing off about half of the country’s entire herd of hogs. As recently as this week, China has continued to report outbreaks of ASF across the nation.
Since the country’s domestic supply of pork – the most popular protein in the country – has yet to recover, the world’s most populous nation has largely relied on imports to fill the gigantic gap in meat supplies. On their most recent earnings call, Brazilian meatpacker JBS SA executives said they anticipate strong demand for meat this year from China, adding that it remains unclear when China would be able to fully recover its herd.
In February, USDA senior economist Fred Gale noted that China’s imports of beef, pork, and poultry are projected to grow 29% in the coming decade. “Our projections show that China will continue to grow those meat imports up to more than 10 million metric tons by the end of the projection period [2030]… This is something that’s caught us all off guard.”
Along with increased levels of meat imports, China is trying to cover their protein shortage by purchasing record amounts of soybeans from the United States and Brazil as well. The USDA’s Beijing counterpart increased projected Chinese soybean imports to 100 million tonnes for 2021-22, up from the 99 million estimated by USDA’s Beijing post for 2020-21.
Reuters also notes that China’s interest in US corn may be set to continue the gigantic breakout it experienced last year. The country purchased at least 23.2 million tonnes of US corn to be shipped in the 2020-21 season, dwarfing the prior export record of 5.15 million tonnes from 2011-12. |
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