URBANA, Ill. – U.S. corn and soybean markets have been on a tear since bottoming in mid-August, with both markets increasing over 30 percent in just three months, according to two University of Illinois agricultural economists.

“This is certainly a welcome change to the economic prospects of corn and soybean producers,” said Scott Irwin, professor of agricultural economics, and Joe Janzen, assistant professor of agricultural economics, in the webinar, “2021 Market Outlook for Corn and Soybeans,” at the virtual 2020 Illinois Farm Economics Summit held last month. 

“An obvious question is how long the rally will last,” they said in a joint presentation summary. “To answer that question, we have to dig into the reasons for the price rally in the first place.”

Irwin and Janzen said there are several factors driving the rally in corn and soybeans, “but the number one reason is clearly export sales.” 

“As of early November (2020), total corn export commitments (i.e., export shipments and outstanding sales) are running 900 million bushels ahead of the pace a year ago,” they said. “Soybean export commitments are up almost a billion bushels versus a year ago. 

“The wind behind these export sales was China, which accounted for half of the increase in corn, and three-quarters of the increase in soybeans,” they added.

Another contributing factor to the price rally was a poor ending to the 2020 U.S. growing season, they said. “August ended up being extremely dry in the heart of the Corn Belt, and this was amplified by the derecho event that flattened millions of acres of corn and soybeans in Iowa, and parts of Illinois on Aug. 10.”   

“The net result was that the USDA estimate of the U.S. corn crop declined by almost 800 million bushels between August and November,” they said. “The USDA soybean crop estimate declined by over 250 million bushels over the same time period.”

Looking ahead to the 2020/21 marketing year, Irwin and Janzen said the outlook for corn and soybean prices is “certainly brighter than we would have expected just a few months ago.” 

“The large export sales to China are a major reason for lower projected ending stocks, and higher prices for corn and soybeans in the 2020/21 marketing year,” they said.  “A major question to consider is whether this phenomenon will continue into 2021/22 and beyond, especially for corn where U.S. export sales to China were negligible prior to the current marketing year.” 

Unlike soybeans, China was until 2015 largely self-sufficient in corn production, Irwin and Janzen said. 

“From 2015 and 2019, China met most of its corn import needs with imports from Ukraine,” they said. “Poor yields for the 2020 Ukraine corn crop account for much, but not all, of the increase in Chinese demand for U.S. corn. With this background, we can consider the outlook for acreage and supply for corn and soybeans in 2021. 

“All signs point towards a significant increase in total principal crop acres in 2021, which had been depressed by low prices, and prevented planting in 2019 and 2020,” they added. “Total principal crop acre looks to rebound to near 320 million acres in 2021, which will leave ample room for increasing total corn and soybean acreage towards 184 million acres.”

Moreover, market incentives as of early November clearly favor planting soybeans over corn, Irwin and Janzen said.  

“For example, the soybean/corn price ratio for new crop 2021 futures has been above 2.5 for some time, compared to a breakeven ratio around 2.3,” they said. “With this incentive in place, we expect planted soybean acreage to increase 7.7 million acres to 90.8 million acres.  

“We expect planted corn acreage in 2021 will fall 1.1 million acres to 90.9 million acres,” they added. “At trend-line yields, this will result in a soybean crop of about 4.5 billion bushels, and a corn crop of almost 15 billion bushels. This sets up a very volatile scenario for 2020/21.”  

Even with production at the projected levels, Irwin and Janzen said the current size of the demand base for corn and soybeans implies it will be difficult for ending stocks to increase substantially in 2020/21. 

“For stocks to be replenished to more normal levels, either prices will have to rise further to reduce the size of the demand base, or good weather will be needed first in South America this winter, and then the U.S. in the summer of 2021,” they said.  

Gary Schnitkey, University of Illinois professor of agricultural economics, and Dale Lattz, community president of First Mid-Illinois Bank & Trust in Mattoon, Ill., presented the webinar, “Grain Farm Incomes in 2020 and 2021.” 

“There is a great deal of uncertainty concerning 2021 incomes as is always the case in the winter before production,” they said in a joint presentation summary. “Currently, 2021 fall bids are above $4 per bushel for corn, and $10 per bushel for soybeans.”   

Except for 2019, Schnitkey and Lattz said Illinois state yields have been above trend since the 2012 drought year.  

“A continuation of above-trend yields, combined with current fall bid prices, would lead to net incomes above the 2013-2019 average,” they said. “Of course, above-trend yields could lead to higher supply, and downward pressures on cash grain prices.

“Also cloudy is whether ad hoc federal aid will continue,” they added. “The Market Facilitation Program (MFP) instituted in 2018 to offset lower prices caused by trade difficulties contributed significantly to incomes in 2018 and 2019,” they added. “The Coronavirus Food Assistance Program (CFAP) payments were important cash flows in 2020.”  

Schnitkey and Lattz said congressional actions are needed to continue programs like MFP and CFAP into 2021.  

“At the beginning of 2020, expectations were for low 2020 net incomes,” they said. “The institution of COVID-19 measures further lowered income expectations. In the end, however, above-trend yields, higher prices were higher and continued federal aids have led to exceptions of higher 2020 incomes.  

“The outlook for 2021 is relatively bright at this point,” they added. “However, events of 2020 illustrate how quickly income outlook can change. In the end, events could cause prices to change dramatically from current levels.”