by: Chris Zoller, Extension Educator, ANR, Tuscarawas County
The Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri recently released its latest U.S. Agricultural Markets Outlook. The full report is available here: https://www.fapri.missouri.edu/wp-content/uploads/2022/03/2022-U.S.-Agricultural-Market-Outlook.pdf. This article will provide a summary highlighting the soybean outlook section of the report.
Introduction
The latest FAPRI report establishes projections for agricultural commodities out to the marketing year 2031/2032. The data used to make these projections was based on information available in January 2022. FAPRI recognizes much has changed since information was gathered, especially the war in Ukraine. The authors of the report acknowledge that several factors may potentially impact the predictions. These factors include exports, commodity prices, input expenses, net farm income, government farm programs, and consumer food prices.
The projections in this report assume no new ad-hoc government payments (like those related to the COVID-19 pandemic) will be provided and provisions of the 2018 Farm Bill will continue. On a macroeconomic level, the authors recognize the uncertainty of oil markets, the likelihood interest rates will rise, and observe that weather will impact the soybean yield in South America.
Soybean Outlook
Soybean shipments to China reached record levels in 2020 & 2021 when China’s port industry recovered from African Swine Fever and the U.S. and China reached a Phase 1 trade deal. A decline in the profitability of China’s pork industry and lowered demand for soybean meal is projecting an export decline in the first half of the marketing year. The FAPRI report does project flat to slight increases in U.S. soybean exports to China.
Soybean production in 2021 reached a record high, exceeding the record set in 2018 & 2019 by seven million bushels. Large export numbers have resulted in lower ending stocks of U.S. soybeans, hitting a five-year low. Some improvement in ending stocks should result this marketing year because of an expected increase in production.
Increased exports are favorable for prices. Soybean prices paid to farmers averaged under $11 per bushel for seven years. The 2021/2022 price exceeds $12 per bushel, and we have seen futures prices go even higher. Increased demand for soybean oil will help raise prices for the 2022/2023 marketing year. Some models analyzed by FAPRI indicate that higher prices could increase the soybean reference price.
FAPRI predicts ARC and PLC payments to be modest in this projection. The crop insurance projected net indemnities are expected to be greater than in previous years.
Biodiesel accounted for approximately 90% of the increase in soybean oil use between the 2012/2013 and 2020/2021 marketing years. FAPRI expects continued growth in renewable diesel production and only modest growth from food and other domestic uses. Soybean oil exports from the U.S. also remain modest due to increased exports of soybean oil from Argentina and greater exports of Asian palm oil for the global vegetable oil market.
Planning
The projections made in the FAPRI report are based on current information, but the authors recognize that this is all subject to change. Weather, political tensions, interest rates, and many other factors will influence the final production, costs, and returns.
While you don’t have much control over these factors there are some things you can do to prepare. I encourage you to manage what you can control and consider the following recommendations:
- Know your cost of production. The FAPRI report indicates soybeans will average between $10 and $12 per bushel over the projection period. Can you be profitable at this price point? If not, what changes need to occur?
- Consider enrolling in the OSU Extension Farm Business Analysis and Benchmarking Program (https://farmprofitability.osu.edu/).
- Use budgets and scenarios to plan. OSU Extension Enterprise Budgets are updated and available here: https://farmoffice.osu.edu/farm-management/enterprise-budgets.
- Meet with your Extension Educator to review budgets and plans.
- Talk with your input providers. What are they able to tell you about input price projections?
- Keep your lender informed of your finances and plans.
- Talk to family members about the future of your business.
- Stay tuned to what is happening around the globe and the potential impacts to agriculture and your business.