Commodity prices have seen tremendous shifts over the past year and a half. The COVID-19 pandemic obliterated supply chains for cotton, meat, and other agricultural goods. The reopening of the economy saw faster-than-expected recoveries, fueled by increased exports to China. In all, several commodity markets are in good shape for producers as they surpass the mid-point of 2021. These include corn and soybeans, which have seen their highest prices since the last commodity boom almost a decade ago. The cotton market looks to be in a good position for producers as well. Other markets have at least returned to pre-pandemic levels.
There are several factors that will shape how commodity prices look at the end of this year and into 2022, including late-season weather. The subsequent sections will provide an outlook for cotton and peanuts, grains, and cattle markets.
Cotton and Peanuts
Cotton markets were heavily slowed down by supply-chain disruptions because of the pandemic for much of the past year. Global factory closures and negative macroeconomic conditions decreased demand for cotton in 2020. In 2021, domestic cotton millings and exports have picked up again, increasing prospects for this year’s crop.
Planted acreage for cotton was estimated at 11.72 million acres in the United States in 2021, down 3% from 2020. The remaining determinants of US cotton production in 2021 will be the harvested acreage and yield. In 2020, only 68% of planted acreage was harvested, the lowest rate since 2011 (table 1). The high abandonment rate led to the lowest cotton production in five years, despite yields being slightly above the 10-year average. An average yield (844 lb/acre) and percentage of acres harvested (80%) would put production at 16.5 million bales. However, driven by recent rain in Texas, the USDA projects lower abandonment than average and lower yields (814 lb/acre) for a total production of 17.8 million bales in 2021.
Table 1. Cotton Acreage and Yield
|Year||Planted Acres (millions)||Harvested Acres (millions)||Yield (lb./acre)||Planted Acres Harvested (%)|
Carryover from the 2021/2022 marketing year (beginning August 1, 2021) is projected at 3.3 million bales, which would roughly equal the ending stocks from 2020/2021 (figure 1). This relatively low carryover is likely to encourage strong prices, and the 2021/2022 marketing year average price is projected at $0.75/lb, which would be the highest since 2013/2014.
Peanut acreage was down slightly in the US in 2021. Alabama saw a 5,ooo-acre decline in peanuts from 2020, while the southeast region in all maintained its acreage from the previous year. Georgia, the largest producing state, increased peanut acreage by twenty thousand acres. The nationwide decline in peanut acreage was driven primarily by the lower acreage planted in South Carolina and Texas.
While peanut demand is projected to remain high during the 2021/2022 marketing year (which begins August 1, 2021), production is expected to cover demand. This will make it difficult to reduce the 1 million tons of stocks that have existed the past several years, which would likely be needed to see a large increase in peanut prices.
Table 2. Peanut Acreage (thousand acres) by State and Year
Corn and soybean planted acres were 2.1% and 5.4%, respectively, higher this year than in 2020. The increased acreage was driven by high prices of the two crops at the time of planting. However, sustained drought throughout much of the growing season in the upper Midwest and Northern Great Plains raises questions about how strong production for the two crops will be this year.
Ethanol production has recovered to pre-pandemic levels, following the major dip in 2020, when people traveled less, and fuel demand was down. Another positive sign for US corn demand is the increased export expectations. This has partly been driven by decreased production in Brazil, which is suffering from a historic drought. Exports to China, which accelerated during fall 2020, remain strong. Altogether, the stock-to-use ratio for corn and soybeans are projected to reach low levels for both crops. The stock-to-use ratio is a measure of how supply compares to demand, with lower values suggesting strong demand relative to supply and generally indicative of higher prices. Unsurprisingly, prices are projected to reach recent highs – corn stock-to-use reached a 25-year low in the 2020/2021 marketing year (which began September 1, 2020) at 7.4%. The 2021/2022 marketing-year average prices are projected at $5.60/bu for corn and $13.70/bu for soybeans, which would be the highest for both crops since 2012/2013.
Wheat production expectations have declined because of drought in the Northern Great Plains and Inland Northwest. Wheat yield is projected at 45.8 bu/ac nationwide as of July, which would be an 8% decline from last year. The projected yield decreased from the 50.7 bu/ac June forecast, because of worsening conditions. This has led to a 152-million bushel decrease in projected wheat production for 2021, and this expected decrease in supply led to a 10-cent increase in the projected average price for the 2021/2022 marketing year (which began June 1, 2021) to $6.60/bu. The spring wheat situation looks especially dire with 63% of land rated as being in poor or very poor condition by the crop progress report.
Feeding may present a challenge. The high grain prices, while good for grain producers, represent a barrier to cattle producer profitability. Pasture conditions are also in bad shape throughout much of the country. Forty percent of pasture and rangeland is in poor or very poor condition as of late July, due to drought in the western half of the US.
Inventory of cattle on feed in the US have remained above the 2020 totals each month over the start of 2021. Of course, 2020 saw a sizable dip from March to May as demand for slaughtered cattle slowed as the pandemic rocked the supply chain with processing plant closures. Demand for fed cattle remains above 2020 levels, with fed cattle marketed during June being 3% higher than 2020 and above the 2015-2019 five-year average.
Cattle on feed remains just above its level from July 2021. Mid-year cattle inventory decreased for the third consecutive year, down 1% from July of 2020, as reported in the Cattle Report that is published twice per year. In the coming months, professional will watch out for whether cattle inventories are reduced in western states, as producers face lower potential returns to grazing due to the drought.
The USDA publications Cattle on Feed, Crop Production, Crop Progress, and World Agricultural Supply and Demand Estimates are great resources. Producers can find these publications by visiting usda.library.cornell.edu. The USDA Drought Monitor is also a useful tool for producers. Find this tool at droughtmonitor.unl.edu.