The recent boom in commodity prices is likely to continue through 2021 and into 2022, with supplies historically low worldwide at the same time Chinese demand for animal feed is growing and a worsening drought grips Brazil and Argentina, according to a top ag economist.
Dan Basse, president of AgResource Co., told members of the American Seed Trade Association that he sees “dynamic, bullish and profitable grain markets” for the next 18 to 24 months.
Global soybean supplies are so tight that market prices need to be high enough to get U.S. farmers to increase plantings by 7 million acres, he says.
Those strong prices in turn should help make up much of the expected reduction in government payments as trade and coronavirus relief disappears, Basse said. USDA estimates government payments this year will total a record $47 billion, pushing net farm income up 43% to nearly $120 billion.
With “this window for 18 to 24 months of bullishness, we still will keep farm income at a relatively healthy level, maybe not $120 billion,” but as much as $105 billion to $110 billion, still well above average, according to Basse. The 20-year average for net farm income, adjusted for inflation, is $90.6 billion.
Dan Basse, AgResource Co.
Basse also is betting the new Biden administration will provide some additional ad hoc assistance early in 2021, but far less than farmers received this year through the Market Facilitation Program and two rounds of the Coronavirus Food Assistance Program.
Congressional negotiators are currently working on a new COVID-19 relief package that could include $26 billion in new spending for agriculture and nutrition.
Details of the $26 billion package haven’t been divulged, said Sen. John Boozman, R-Ark., who will become the chairman or ranking member of the Senate Agriculture Committee. “Right now we’re working hard to try to understand where that $26 billion is going,” he said Tuesday.
But several sectors of the industry are seeking help, including ethanol producers, textile mills, and contract poultry growers who were ineligible for CFAP payments, and hog producers who were forced to depopulate herds.
The Renewable Fuels Association has been developing a new estimate of the compensation needed for the drop in gasoline demand this year. The cotton industry says its textile industry customers have been similarly harmed by a drop in consumer demand during the pandemic, estimating the losses at $200 million to $300 million a month.
Sen. Chuck Grassley, R-Iowa, told reporters Tuesday that there actually has been some pushback against funding additional agriculture spending given what has already been provided. "A lot of people are looking at these maps that show various states like Iowa getting $1 billion from the second COVID support package as an example and wonder whether there is the need that there was at one time," Grassley said.
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Much of Basse’s bullishness this year is based on Chinese demand for soybeans and corn as it rebuilds its hog production, and the La Niña-induced drought that could harm Brazil’s harvest of second-crop corn as well as its soybeans. At the same time, there is developing dryness across the western half of the United States — large portions of the western Great Plains are experiencing severe to extreme drought — and there are also concerns about Russia’s winter wheat crop.
On top of those problems, the derecho that tore through Iowa in August cut into this year’s corn crop, reducing the harvest in the No. 1 corn state.
“All three of the hubs of agriculture have had weather issues and this is leading to an even sharper decline in overall supply availability,” Basse said.
Sen. Chuck Grassley, R-Iowa.
At the same time, Basse believes China will come close to meeting the commitment it made in the “phase one” trade agreement to buy $43.5 billion worth of U.S. farm commodities. He expects China to buy at least $40 billion in U.S. products as it continues to rebuild its swine operations in the western style of concentrated feeding operations that rely on grain and soymeal.
“We think the Biden administration will hold the Chinese to their commitments, at least in this phase, before they get to some kind of negotiation for a phase two or something after this,” he said.
AgResource expects farmers to plant 90.5 million acres of soybeans in 2021, up from 83.1 million this year as a result of tight supplies.
The ending stocks-to-use ratio for the 2020 soybean crop is expected to shrink to just 2.2%, down from 13.2% for the 2019 crop. The average price for this year’s crop is forecast to be $12.50 a bushel, up from $8.57 a bushel for 2019. USDA in November estimated the stocks-to-use ratio at just over 4%, which was the department's lowest November forecast on record, Basse said.
AgResource expects farmers to plant 92 million acres of corn in 2021, up from 91 million last year. The average price for 2021 corn is projected to be $4 a bushel, down from $4.40 this year but up from $3.56 for the 2019 crop.
The ending stocks-to-use ratio for corn is projected to slip to 11.1% for the 2020 crop, down from 14.4% for the 2019 harvest.
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