December Corn fluctuated in a $1.36 range with November Soybeans fluctuating $2.34 in the month of June alone. With questions around North American weather, yield impacts, export demand and renewable fuel policy, the Grain and Oilseed markets have a lot to navigate. The CME Group ag complex has seen record activity across futures and options as market participants utilize risk management strategies to handle choppy price action.
Post June 30th Acreage report, the market has a better handle on the supply side with Corn showing an increase of planted acres of 2.24 million and a decrease of 4 million acres for Soybeans compared to the March USDA report. The balance sheet now reflects a tighter situation for Soybeans moving forward as the market navigates weather and export numbers.
We recently asked four top agricultural analysts their view on the current market situation and how participants should look at risk moving into harvest.
What does lower than expected soybean acreage ultimately mean for the global Soybean market?
Dave Whitcomb, Head of Research, Peak Trading Research
There is now zero margin for error in the Soybean balance sheet. That big acreage drop was a real surprise and means we will likely ration Soybeans, even with normal weather and a trendline 52 bushel-per-acre yield. Farmers say that "Soybeans are made in August", so there is still plenty of runway and weather ahead of us.
Arlan Suderman, Chief Commodities Economist, StoneX
USDA’s surprise cut in soybean acres means that there is zero margin for error for this year’s soybean crop. The market has two objectives at this point – ration demand and incentivize expansion of area planted in Brazil 90 days from now.
With Brazil basis pretty poor for new crop soybeans currently, that means the market has some work to do. The biggest part of the demand rationing needs to be on the export side, considering the expansion of new crush facilities that are opening that will be going strong. China has been aggressive in shipping Brazilian soybeans at a pace exceeding crush. Surplus soybeans going into storage May through August are expected to total near 12 million metric tons. That could then reduce buying needs this fall from the United States. So there is some room for U.S. exports to drop sufficiently as long as U.S. soybean yields stay close to trend, but that’s not a given.
Oliver Sloup, Vice President, Blue Line Futures
Assuming that aggregate demand remains unchanged, lower than expected soybean acreage would ultimately reduce global supplies. The reduction in aggregate supply could result in elevated prices through the balance of the crop year, as the same amount of buyers are bidding on fewer available supplies.
Jim McCormick, Partner, AgMarket.net
The lower soybean acres will tighten both the U.S. and world balance sheets. The weather over the 60 days will determine how tight the balance sheet will get. If the crop ends below the trend yield of 52 bushels per acre, the market may move higher as it attempts to ration demand and encourage imports to offset the lost production.
What is the biggest risk facing producers as we head toward harvest season?
The biggest risk facing producers as we head into harvest currently is typically weather, and that remains a factor for soybeans, but the greater risk is likely poor export demand for both corn and soybeans – especially corn. Rapid increases in production of corn and soybeans in Brazil are quickly grabbing market share, aided by a currency exchange advantage. We could see a boost in export demand if El Nino gifts China with a short crop due to adverse weather, but otherwise, Brazil is grabbing market share from the U.S., even with shipments slowing out of Ukraine.
There are two prevalent risks producers face as we approach harvest. First, the majority of the corn belt endured a very dry June. While this may have harmed yields, it may be too early to discern the drought's impact.
Secondly, lackluster global demand for American corn, in addition to higher-than-expected planted acreage may be a headwind to prices. Corn exports are more than 32% lower than they were last year at this time, and export inspections have been generally disappointing through most of 2023. If corn prices continue to decline as we approach harvest, it may pressure soybean prices as well. The historical bean:corn price ratio rarely pushes above 3, and it had floated between 2.2 and 2.4 for most of 2023. After the Planted Acreage report was released on June 30, that price ratio pushed all the way up to 2.75 before Friday's settlement.
Weather will be the biggest hurdle for producers near term as some areas of the country are still short soil moisture even after recent rainfall. Long-term demand is a real problem as we are not competitively priced with the rest of the world.
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