May 22, 2022

Optimistic outlook: CFAP, demand helping bottom line

WASHINGTON — Crop producers are likely to see income gains over last year due to government support programs and an uptick in corn and soybean prices.

This and other forecasts were featured in a recent Farmer Mac-hosted webinar.

The U.S. Department of Agriculture forecasts direct farm payments of $37.2 billion in 2020, an increase of $14.7 billion from the previous year. The expected increase is because of supplemental and ad hoc disaster assistance for COVID-19 relief.

Net farm income is forecast to increase by $19 billion, or 22.7%, to $102.7 billion in 2020.

“Through the course of the pandemic USDA believes farmers are going to make more money. Government support has been forecast to reach record highs in 2020,” said Greg Lyons, Farmer Mac economist.

“USDA penciled in about $16 billion for Coronavirus Food Assistance Program 1 and 2 programs. From what we’re seeing, it looks like the final tally between CFAP 1 and 2 is going to be between $19 billion and $21 billion by year’s end. So, a lot of support for farmers from that particular program and you will probably see an additional $5 billion over this already historic number when USDA releases their next estimates.”

Lyons said he also expects income projections to go even higher in USDA’s next estimates as USDA’s most recent estimates were released Sept. 2 when corn and soybean prices were low.

“Since then we’ve seen this massive run-up over the last two months. A lot of producers actually were not forward contracting and able to take advantage of those prices and that’s going to translate into much higher cash receipts, particularly on the cash grain side,” Lyons said.

“We’re not going to hit commodity super cycle prices this year, but this could be a good year for a lot of producers to replenish some of that working capital that many of them have been drawing down over the last couple of years of lower farm incomes.”

Unexpected Bulls

2020 has had its ups and downs at many different levels.

“At the beginning of the year we were thinking we were going to have this extreme drop in ethanol production. We’ve seen in prior downturns this softening of global demand and then everything broke, everything from the total acreage for corn was way below what initial estimates were, we’ve seen slight corn production declines, and we’ve seen other issues. The Chinese corn crop was terrible which is why they are suddenly committing to huge purchases of U.S. corn,” Lyons continued.

“We started the year with a good to excellent crop and slowly came down throughout the entire year just based off of a number of small weather hits. The other thing that’s helped us is after an initial surge in the dollar we’ve actually seen a rapid scaling down and now the U.S. dollar index is the lowest it’s been in about two years.

“There have been a lot of really good bullish surprises for these two commodities.”

Export Sales

Stocks-to-use ratio estimates are ranging from 3% to 5% and major soybean buyers such as China have turned to the United States sooner than is typical because Brazil stocks are low.

“It’s very critical over the next couple of months to make sure those commitments that China placed do become sales and to make sure the exports we send to Latin America and Southeast Asia come to fruition, as well,” Lyons said.

“If that happens, though, we could face an environment where these prices are both supported at pretty profitable levels over the next couple of years.”

Soybean and corn export sales have been robust and total outstanding commitments continue to increase.

“Not only has China stepped in about a month earlier than they usually do for their soybean purchase season, they are coming in much stronger than they usually do. In four out of the last five years, the total number of outstanding corn commitments from China at the start of the crop marketing year was zero. This year they just stepped in an incredibly big way,” Lyons noted.

“One of the key things in China is their hog repopulation is coming along faster than anticipated after African swine fever devastated their herd. Their repopulation, their ability to bring that back quickly, is something that’s going to put a lot of support for various feeds. There seems to be more support for these prices than we would have expected at the end of the year.

“I wouldn’t be shocked if we see some pretty eye-popping low stocks-to-use numbers for these commodities at the end of the year.”