Farmers Business Network (FBN) has released it’s Winter Wheat Seedings Report and Global Grain Markets Outlook Report ahead of the USDA numbers on Thursday, January 12th, 2023. Below is a look at both reports and what their customer surveys showed:
U.S. Winter Wheat Seedings Report: January 2023
Executive Summary
- FBN® polled members in the second half of December into early January, asking how many acres of winter wheat were planted in the fall of 2022 and the fall of 2021.
- Responses totaled 325 across winter wheat producing states with results pointing to a boost in planted area, year over year.
- Planted area increases are estimated for SRW and HRW with all US winter wheat planted area seen up 900,000 acres at 34.2 million for 2023/24 versus plantings for 2022/23.
- USDA is set to release its January Winter Wheat and Canola Seedings report on January 12. Last year, USDA’s initial estimate for US winter wheat planted area came in at 34.4 million acres; revisions followed with the actual estimate dropping to 33.3 million acres per the Small Grains Annual Summary.
Survey Data Point to Highest Winter Wheat Area in Years
Our team surveyed FBN members starting in late December about winter wheat planted areas. We asked what was planted in 2022 for harvest in 2023 and what was planted the year before. A total of 325 responses were received. We also asked members what percentage of each class of winter wheat was planted. At the national level, these are FBN’s estimates of US winter wheat planted area for the 2023 harvest.
US Winter Wheat Plantings for 2023 Harvest (Million Acres)
| Wheat | FBN 2023 | USDA 2022 | Change |
| Winter Wheat | 34.2 | 33.3 | +0.9 |
| HRW | 23.5 | 23.1 | +0.4 |
| SRW | 7.05 | 6.6 | +0.5 |
| Winter White | 3.6 | 3.6 | 0 |
Source: FBN/USDA; totals may not add due to rounding.
Planted Area Estimate Falls Shy of Price-Model Indicators
Winter wheat futures have been volatile for the 2022 calendar year, with a lot of that tied to the situation in the Black Sea. The price signals to producers have been to increase planted area, which is what our survey results showed. Looking at Kansas City futures specifically, the projected price – used in insurance policies – averaged at its highest level in nearly a decade. And when looking at new-crop futures and their relationship with planted area, prices indicated that planted acres would be close to the 35.2 million acre mark, which aligns directionally with our bias, but points to more area than what producers indicated per our survey results.
Conditions Ahead of the Dormant SeasonCrop conditions heading into the dormant season left much to be desired. The prolonged drought in the US Southern Plains weighed on conditions in the fall. The latest reading was an improvement, but as the chart shows, conditions for the crop overall were low versus recent history. The good news is that despite these poor ratings heading in the dormant season, there is no clear conclusion that yields will be negatively impacted. For more details, please read this report published in November. Our research suggests that the condition ratings in the fall do not paint a picture of a crop failure in the spring. Spring weather will be key in determining yields.
Double Cropping Intentions
In the survey, we asked producers how many acres would be double cropped this year and how many were last year (soybeans following winter wheat). The survey pointed to no significant change to double cropped percentages in 2023 versus 2022. Double cropped acres have dropped significantly versus the highs hit with a lot of that tied to fewer acres of wheat being planted. In 2013, SRW planted area topped just over 10 million acres whereas in 2022, acres were 6.6 million. But with SRW wheat acres set to be up, double cropped acres could be up marginally as well too.
Recommendations
Ahead of this report, our recommendations to producers were to be collectively 30% sold on winter wheat. We issued recommendations on February 23, 2022, August 31, 2022, and September 29, 2022 for HRW and SRW. Each recommendation was to sell 10%. The average price we are sold at now is $9.08 for HRW (off Kansas City July 2023 futures) and $8.71 for SRW (off Chicago July 2023 futures).
Based on this acreage report, we are not in a rush to push more on coverage. However, we do encourage producers to get to our recommended level of percent sold. Given that price models indicated a higher plated area total, we could be underestimating planted area. Also, USDA’s initial acreage estimate in 2022 was notably larger than the final, and if that pattern were repeated again this year, new-crop futures could be impacted negatively.
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Global Grain Markets Poised for Strong 2023
Kevin McNew, FBN Chief Economist & VP of Research
Grain prices at the start of 2023 continue to be elevated at historic highs. Since the early days of the COVID pandemic, U.S. grain markets have soared, nearly doubling in the past two years.
While prices at the end of 2022 are below the highs set in the spring, conditions heading into 2023 should support, if not further elevate prices more.
Grain Demand Growth Outpaces Supply Trends
For most of the 20th century, the global ag supply system has managed to stay ahead of a growing world population. Technological revolutions in agriculture – what has been termed the “Green Revolution” – began in earnest in the 1950s through crop hybridization, synthetic fertilizers and controlled irrigation and helped keep global food supplies on a steep advance.
But in the past decade, there are signs that the agricultural productivity gains are decelerating with recent data showing demand growth outstripping supply growth across coarse grain, soybeans and wheat.
Indeed, the decade of 2013-2022 saw annual growth in demand of global coarse grains, soybeans and wheat outpace the annual supply for these commodities by a wide margin. These trends will be challenging to reverse in the near-term, and will act as a supporting factor or even stimulus to grain prices in the coming year, especially with carryover grain and oilseed stocks at multi-year lows.
A Renewable Fuel V2 Wave
The ethanol industry has been a key catalyst of agricultural demand growth since the early 2000s, especially for US corn. But in recent years, the industry has seemingly plateaued as government policies have pivoted away from ethanol and instead targeted the electric vehicle (EV) market for small duty vehicles.
While the widespread adoption of EV vehicles is a potential existential threat to ethanol and its linkage to motor fuel gasoline demand, the rate of adoption is still exceptionally low. Data from 2021 illustrate that even though EV and PHEV (plug-in hybrid EV) has doubled between 2018 and 2021, it is only 0.8% of all registered vehicles.
Indeed, the number of gas powered vehicles increased over 10 million in 3 years, while combined EV/PHEV adoption increased by only 2.5 million. The relatively slow adoption rate for EVs will likely keep ethanol as a viable industry for the years to come, but also create a slow but systematic drain on future ethanol demand.
U.S. Vehicle Registrations by Power Type
While ethanol may not provide a catalyst for growth in future grain demand, recent policy initiatives have placed more emphasis on renewable diesel as a sustainable and environmentally friendly fuel for the heavy duty transportation system.
Renewable diesel, which is derived from renewable feedstocks, such as vegetable oils and animal fats, is chemically similar to traditional fossil diesel, but it has a number of benefits that make it an attractive alternative:
- Reduce greenhouse gas emissions by producing significantly less carbon dioxide (CO2) emissions than fossil diesel.
- Seamlessly replace fossil fuel diesel without any modifications to existing diesel engines or the infrastructure that delivers fuel.
Soybean oil is likely to be a significant feedstock used to produce renewable diesel because of its large availability and scalability in the future. Significant investments are being made to date which will add new soybean processing capacity to meet this expected demand surge. Between 2023 and 2026, there is expected to be an extra 600 million bushels of new U.S. soybean processing capacity, representing a 27% increase over the sector’s output in 2021. This likely keeps soybean prices supported as the growing demand ramp up will require an extra 10 million acres from U.S. farmers in the coming years.
Farm Cost Inflation: Permanent or Transitory?
Nearly every farm input has seen drastic increases in the past two years, leading to higher costs for crop production. Fertilizer, energy, chemicals, labor, land and interest rates have all been on a steep incline. And while 2023 may bring modest pullbacks in some farm input costs, expect overall farm expenses to be on par with 2022.
- Energy: Oil, natural gas and diesel prices have been trending lower since the summer of 2022, but still remain twice as high as they were in late 2020. The continued war between Russia and Ukraine, as well as the lack of long-term investment in fossil fuel energy sources should keep energy markets elevated in 2023 with limited hope of significant price declines.
- Fertilizer: Nitrogen-based fertilizers are greatly influenced by natural gas prices, and as such 2022 prices were nearly double what farmers paid in 2021. As natural gas prices have turned lower, we likely see a bit of a pullback on nitrogen fertilizer costs in 2023, but not as low as 2021.
- Land/Rent: U.S. cropland values soared 20% over the past two years, and is adding to the cost of renting farm ground. Cash rent costs over that same two-year period are up 6.5% and likely continue to increase into 2023 to keep up with higher land values and rising interest rates.
- Interest Rates: High inflation over the past year has caused the U.S. Federal Reserve to aggressively raise interest rates to their highest mark in 15 years. Although there has been a modest pullback on the inflation front, current inflation readings are still too high for interest rates to return to lower values soon. We expect interest rates to remain at current lofty levels for all of 2023.
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The views and opinions are solely those of the author as of the date of publication, are subject to change at any time due to market or economic conditions, will not be updated or supplemented after the date hereof and may not necessarily come to pass. The views and opinions expressed herein do not reflect those of all personnel at FBN BR LLC (FBN) or the views of the Farmer’s Business Network Inc. as a whole. Neither Farmer’s Business Network, Inc. nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in the material and any liability therefore is expressly disclaimed.
