Analyzing Corn and Soybean Prices

When someone asks us what we know about corn and soybean prices, sometimes the easy answer is “not too much.” While that might be an uncomplicated response, lately it’s also true and it’s causing some weakness in the prices.

Since March 2022, corn and soybean prices have fallen 16% and 8.5% respectively on the Chicago Mercantile Exchange. Looking back can give us some perspective and help us with our risk management plans. Prices midway through 2022 were very firm because of a La Nina-induced drought that gripped the United States Western Corn Belt. At the same time, farmers and analysts were fearing they would have even higher input prices to grow 2023’s crop. Corn and soybean crop supplies were far from certain at the midpoint of 2022. As feared, the ending stocks of U.S. corn were less than projected before the start of the growing season. However, the U.S. ending stocks of soybeans were very close to unchanged. A similar story unfolded in South American countries with their supply of soybeans. A large soybean crop from Brazil offset multiple years of dry weather in Argentina. This year’s South American projections are significantly higher than last year’s crop, but the growth won’t be as large as originally expected.

From my perspective, it doesn’t look like the recent decline in corn and soybean prices was due to concerns of a large supply. In a relatively strong market, like in recent years, I find myself putting a lot of emphasis on analyzing the supply side of the corn and soybean markets. Like others, I may have missed some demand factors that have been impacting corn and soybean prices as of late.

Exports:

Currently, from a world buyer perspective, the U.S. has competitively priced corn and soybeans. Soybeans have shown some strength in exports, but the U.S. is the world’s leading exporter of corn. The latest World Agriculture Supply and Demand Estimates (WASDE) from March 2023 shows an estimated 75 million bushel decline in U.S. exports. Unsteady economies throughout the world have led to tough trade-offs on what products countries can afford to import.

Feed Usage: 

Dry weather on pastures and higher expenses have reduced cattle herds. A persistent bird flu outbreak on layers, broilers and turkeys has also reduced feed usage. We can expect weaknesses in feed usage until these conditions improve.

Biofuels:

The U.S. corn market would not be where it is today without ethanol, but the industry is maturing and growth is slowing, which is to be expected. In the future, traditional corn ethanol demand may not be enough to keep up with higher crop yields in the U.S. Soybean oil used in renewable diesel is showing tremendous growth in usage. The end product of soybean oil and other biomass oils is renewable diesel.

Those who are looking to reduce their carbon footprint are looking to renewable diesel a product hailed to be as good, if not better, than much of the traditional diesel sold at the pump. The Environmental Protection Agency (EPA) has been given authority to administer the Renewable Fuel Standard (RFS) Program for biofuels. Farmers, industry experts and concerned citizens hope the EPA will recognize the growth of biomass biofuels, like renewable diesel, and account for the growth in the RFS program. It will further support growth that is now in the pipeline. New uses of grains and oilseeds for biofuels under the RFS are critical to provide the future growth in demand for corn and soybeans.

Uncharted Macro Influences:

What does “uncharted macro influences” mean? This is difficult to unpack in a short article, but I’ll do my best. In summary, this means there are forces at work in the general economy that are affecting all commodities and financial markets. First, the Federal Reserve has raised interest rates at an aggressive pace. The Fed is also undertaking quantitative tightening, or the selling of its holdings of treasuries, bonds and mortgage backed securities. There has been an absolute reduction in the U.S. money supply, or M2, down more than 2%. These forces have made for a relatively higher U.S. dollar, making all the country’s exports more expensive.

Lower monetary supply, higher interest rates and a relatively higher U.S. dollar will mean users of commodities and traders will have higher holding costs. They may also have less money available for commodities. Competition for exports and the outlook for the economy could become uncertain. These uncertainties mean those that view commodities as a risky asset may want to decrease their exposure by reducing general price levels of commodities. Lastly, there is only a very limited experience that any world economy has had with quantitative tightening. That means the effect on our economy and commodity market isn’t that well known.

While rate hikes are not uncharted, the pace of the latest rate hikes are notable, and we haven’t seen a reduction in monetary supply like this in in a generation. In short, these uncharted macro influences have created a lot of uncertainty around all commodities.

What Does This Mean for the Producer?

We are looking at a number of unknowns factoring in to the price of corn and soybeans. My best advice would be to stay abreast of the latest information and confront your risk head-on. The more I analyze the factors affecting grain demand, the more I feel the need to dust off my risk management plan and adjust as needed. 

Check out various articles and resources regarding the corn and soybean market provided by Compeer.