Commodities markets will likely continue their upward rally in 2021, which is good news for producers in the United States who are ready to get off the rollercoaster ride of 2020. Farmers can expect to see higher prices for wheat in 2021, and corn is expected to exceed $4 per bushel for the first time in years.
The U.S. Department of Agriculture (USDA) predicts more grain production, more domestic use, strong exports, and an overall anticipated tighter supply this year that will lead to somewhat higher prices and potential profits for producers in 2021.
What should you do to take advantage of market trends to maximize your crop returns this year? Here’s our insight on what key commodities markets are likely to do, when to sell and when to hold, as well as what to expect for the months and years ahead.
When it comes to wheat, there is very little correlation between U.S. fundamentals and price, according to Arlan Suderman, Chief Commodities Economist at StoneX Financial Inc. -- FCM Division. In fact, he says there’s a much stronger correlation between European fundamentals and U.S. wheat prices.
“Whatever Russia charges, the rest of the world sets prices accordingly,” Suderman explains. “Once the Black Sea is done with wheat exports, buyers go to Europe, then the U.S., Australia, or South America.”
Suderman predicts a drawdown in wheat stocks of 653 to 807 million bushels by year’s end due to increased feeding in the fourth quarter and into the first quarter of 2022. “[807 million] is the lowest we’ve been in a while,” he notes. “The U.S. has become the world’s storage facility for wheat.”
The drop in wheat stocks is, of course, good news for U.S. producers who will see higher cash prices in the year ahead. This year, Suderman predicts that market average cash price to be close to $6 per bushel, higher than USDA's February estimate of a $5.50 average farm price for the 2021 crop.
Prepare to profit: Suderman says wheat growers need to watch the market carefully: “We’ll see prices a little bit higher than last year, so you’ll want to take advantage of rallies.” Given rising inflation this year, there should be fewer dips in commodity prices.
A key driver of decreased wheat stocks this year, of course, is higher prices for corn. “We’ve been forecasting a corn deficit in China for a while,” Suderman says, “and the Chinese government has finally confirmed that.” China is filling that corn deficit with feed wheat.
We hear unconfirmed rumors that China’s chief climatologist has been warning of a corn shortage later in 2021 due to anticipated crop shortages in Brazil and risk of drought in the U.S. Suderman says he has his doubts China will actually be able to send enough ships to import all the corn they’ve already purchased for 2021 in the current marketing year, especially when considering their soybean imports as well.
With a projected recovery in ethanol production in 2021 and increased feed usage, Suderman expects rising corn prices. But he’s still weighing in conservatively since he expects China will broaden the base from which it purchases corn, adding in Brazil and Ukraine.
Suderman says average farm price for corn could go as high as $4.38 per bushel, though the current outlook for ending stocks suggests a price of $4.05 per bushel. (USDA's February Outlook Conference predicted higher at $4.20). But if China is more aggressive with U.S. corn imports, prices could go as high as $4.75 per bushel.
Prepare to profit: In the weeks ahead, Suderman advises watching the pace of weekly corn export shipments. “Anything over 50 million bushels is supportive,” he notes. Also, watch the seasonal end of the rainy season for Brazil’s safrinha corn belt.
Suderman says an April end to the rainy season could mean crop shortages and larger U.S. exports in the next marketing year. “Any hint of widespread Midwest drought could spur sharply higher prices to ration demand,” he notes.
USDA predicts 120 million bushels ending stocks for soybeans for 2021. Suderman thinks it might go even lower: “That’s considered bare pipeline supply.”
“We are exporting [soybeans] at a far faster pace than we need to be,” he adds. “I think we’re going to overshoot exports, which means we’ll either have to increase imports or cut crush through the summer.” But given the high cost of freight, most of that increased demand in the U.S. will have to come from a reduction in crush.
Suderman’s predictions for the 2021 harvest are 90.5 million U.S. acres planted with 50.8 bushels per acre on average. He anticipates a market ending cash price of $13.02, though adverse weather could drive prices as high as $16 per bushel.
“The last time we had double-digit average farm prices for soybeans was 2014 at $10.10 per bushel.” In the 2012–2013 season, prices were $14.14, and that’s a record high.
Prepare to profit: Since high soybean prices this season have been driven by demand (as opposed to drought, as seen in 2012–2013), these higher prices should have some longevity that producers may be able to take advantage of going into next year, even if they’ve already sold this season’s crop.
Suderman warns that hog losses in China from African Swine Fever and potential Midwest drought could result in a rise or fall in the prospects for soybeans and might produce big price swings over the next six months.
While Suderman indicates there isn’t enough cash history to accurately forecast soybean oil cash prices for 2021, he does think producers will see much higher prices than in previous years.
USDA forecasts soybean oil ending stocks at 1.6 billion pounds, 6% lower than last year, and a price forecast of 40 cents per pound. Due to declining market demand for U.S. soybean oil, USDA predicts exports will actually be lower this year than last.
“If you look at what’s happening around the world, we’re seeing a push for cleaner fuel, which means more biodiesel,” Suderman explains. “Soybean oil makes up about half of the edible oil going into diesel.”
The vast majority of the world’s soybeans -- about 85% -- are processed into meal, mostly for animal feed. About 2% of that meal undergoes further processing for food use. Healthier soybean oil in today’s market can glean more premium pricing for producers.
More and more plants are being used to process edible oils and transfer them into fuel. But it will be awhile before supply can meet demand. Suderman believes soybean oil deficits will continue to grow through at least 2028.
There are finally opportunities to rake in profits in 2021. But before you act, Suderman advises knowing your break-even costs and what your projected growth in equity is: “Then when the market gives you opportunities, act and don’t look back.”
While there are significant price opportunities now and in the immediate future, Suderman reminds producers we’re currently in an era of unprecedented federal fiscal and monetary stimulus to the economy.
“Historically, this has led to inflation,” Suderman points out. That means increasing prices for commodities, but it also means increased input costs. Hence, you need to lock in your input costs wherever you can now and, “focus on margin management,” he adds.
And, of course, there is always the risk of a black swan like COVID-19. “In a money-rich environment [like the present],” Suderman warns, “money could flow out quickly if prices collapse.”
However, the key is planning ahead for potential downturns. “The outlook would appear to be positive,” says Suderman. “I’m upbeat about growth in agriculture in the next couple of years.”
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