Strategic Farming: Let’s talk crops! launched with a grain marketing and climate outlook

By: Phyllis Bongard, Extension content development and communications specialist

After three dry years, can this winter’s snowfall mitigate the drought? How does the grain market look considering world events? Ed Usset, Extension grain marketing specialist, and Pete Boulay, Assistant State Climatologist for the Minnesota DNR, joined Extension Educator Dave Nicolai for a wide-ranging discussion in the 2023 Strategic Farming: Let’s talk crops! webinar series launch.

Grain market observations and outlook

The bullish argument

Several factors favor a bullish argument for rising crop prices in the next six months, according to Usset. Ending wheat stocks are projected to be the tightest in 15 years, excluding China’s stockpiling. The same is true with world corn ending stocks. In addition, basis is strong and in southwestern Minnesota, the best on record in over 30 years, with the exception of the drought years of 2012-13.

The bearish argument

Other factors favor a bearish argument. The dollar is strong and prices are high. Export and ethanol demands are lagging. Although Argentina is struggling with drought, Brazil is expecting record soybean harvests. The world is adapting to the high price environment, Usset explains.

A little analysis

What happened in similar years when ending wheat stocks to use (excluding China) was less than 20%? Of the years that fit this criterion between 1990 through 2022, Minneapolis May spring wheat futures rose from harvest until the following April in five of the six years.

For corn, the pattern is similar. In seven of the nine years where corn ending stocks to use was less than 10%, May corn futures rose from harvest until the following May.

Although May futures are currently down for both corn and wheat, the fundamentals are still favorable to the market. However, there are a few caveats: 1) So far it’s not happening; 2) ending stocks to use is a projection; 3) prices are already high; 4) three consecutive years of a post-harvest corn price rally is rare; and 5) the war in Ukraine complicates the picture.

Another golden age on the horizon?

American agriculture has experienced a couple of golden eras where average prices rose significantly. One of those periods was prior to and during World War I. A second was during the period from 2007 to 2014 when ethanol production was rapidly expanding. In these examples, war and rapid growth in demand were the catalysts for higher grain prices.

Could there be another golden age with soybean biodiesel production? Currently, there are 16 publicly announced new crushing facilities or expansions planned over the next one to four years. While these plans won’t affect the market this year, they may in the next few as crop acres are juggled to meet the crushing demand.

The bottom line

Usset urges growers to look for pricing opportunities for the 2023 crop. While it may be tempting to hold out for higher prices, he advises producers not to stand by and be overly bullish. Aim for a good average price and take advantage of those pricing opportunities, since they are still above production costs.

Climate observations and outlook

After a wet period from 2010 to 2019 where much of Minnesota had a surplus of moisture, 2020 began a series of dry years. The peak of the 2021 drought occurred in northwestern Minnesota in August (Figure 1). The drought continued and shifted south through 2022, peaking in November and it continues today. With all of the recent snow, have we gotten enough moisture to mitigate the drought in Minnesota?

Figure 1. Drought monitor maps for Minnesota from l to r: August 2021, November 2022, and Jan 3, 2023. https://droughtmonitor.unl.edu/CurrentMap.aspx

Soil moisture

Throughout much of 2022 in the hardest hit areas of the state, soil moisture levels kept dropping. Then in November, Minnesota started seeing some precipitation. Since then, most of the state has received above normal precipitation, roughly in the 0.75 to 1 inch range.

During early fall, approximately 38% of the precipitation will soak into the ground. That efficiency can increase to about 70% during late fall since there’s no annual crop and rains are generally less intense. If snowfall melts during the winter, the efficiency can range from 5 to 50%, depending on soil frost conditions.

Frost levels

So far this winter, the frost is not deep. While that deep, concrete-type frost could still happen, it hasn’t occurred yet, according to Boulay. Because there’s little frost, precipitation efficiency could be as high as 50% when snow melts. Between the recent above average precipitation and lack of a deep frost, there is hope for recharging soil moisture going into spring.

A look ahead

Temperatures (8-14 days) 

After below average temperatures in December, we’ve seen above average temperatures during January. Projections are that this trend will continue throughout the month. However, with the significant snow cover around the state, the odds of hitting temperatures way above normal are slim.

Precipitation (8-14 days)

The precipitation trend looks like it’s going to remain active not just for Minnesota, but for a good portion of the US this month.

Long range forecasts (February – April)

The Climate Prediction Center indicates that we are still in a La Niña pattern, where temperatures are below normal in the northwestern part of the country, above normal in the south, and equal chances for Minnesota to go either way. However, the La Niña pattern is starting to transition into a neutral phase, indicated by warming sea surface temperatures. Will the pattern shift to El Niño? We’ll have to watch and see.

The precipitation outlook is tilting toward being above normal, particularly in the northern half and southeastern corner of the state. Equal chances are predicted for the rest of the state. Below normal precipitation is predicted for our neighbors to the southwest (Nebraska, Kansas, Oklahoma, etc.), which is concerning since they are also in a drought.

It takes a while to get out of a drought scenario. The waning La Niña pattern and recent above normal moisture is an encouraging trend, but we will have to wait see what the spring brings.

Join the webinar series

University of Minnesota’s Strategic Farming: Let’s talk crops! webinar series, offered Wednesdays through March, features discussions with specialists to provide up-to-date, research-based information to help farmers and ag professionals optimize crop management strategies for 2023. For more information and to register, visit z.umn.edu/strategic-farming.

Thanks to the Soybean Research and Promotion Council and the Corn Research and Promotion Council for their generous support of this program.