As harvest approaches this year, global conflict headlines continue to take a back-seat to what has been a very friendly US growing season.
Back in the spring and summer, chances of a return to hot and dry conditions for much of the US were good unless we had a rapid onset of La Nina. This timing proved to be tough to pin down as expectations for La Nina’s onset continued to get pushed back. In the end, the US Midwest enjoyed one of its best growing seasons on record. Both USDA and ProFarmer have set the tone going into fall with expectations for record corn and soybean yields.
Looking at corn, the US has remained relatively competitive in the world market through most of the year and heads into the fall with the cheapest corn on the world stage. This sets up for a solid rebound in exports year over year and expectations for continued growth into the 24/25 season. Although US corn is competitively priced, there is still stiff competition from the likes of Ukraine, Argentina and Brazil which has helped to keep price rallies limited as both world and US supplies are more than ample.
Domestic demand is expected to remain on pace this year with good margins for ethanol helping drive the way. There remains plenty of debate regarding future uses for ethanol, including possible applications in sustainable aviation. However, at the time of writing, this looks to still be a long way from becoming a reality for corn ethanol and continues to revolve around shifts in government policy.
On the soybean side of things, there was much debate at the start of the season on whether the US would be over-supplied or under-supplied. Unfortunately, lackluster demand paired with very good weather sent beans prices down to lows not seen since 2020. Projections are for a record world carry-out and the 2nd highest US carry-out in history. The trend of falling US bean exports has continued since 2020 as large Brazilian crops continue to erode US market share. Domestically, the crush industry remains a bright spot as use is once again expected to increase around 5% year over year. As always, one must be a bit careful with demand expectations in this space as the intricacies of the renewable fuel space and tax credit pricing of different products leaves a lot of room for political influence affecting future demand prospects. Heading into the new crop season, we have seen an uptick in US export sales as US prices are now competitive on the world stage which is a positive development for this market. Going forward, once the US harvest gets wrapped up, all eyes will shift back to the South American growing season, and the potential for a return of LA Nina and a Brazilian drought that can come with it.
Wheat followed a similar trend to beans as prices continued to slide lower since late spring. Large stored crops out of Russia has helped to keep the world market well supplied with wheat in this falling price environment. Conflict between Ukraine and Russia has ramped up as of late with Ukraine pushing into Russian territory. However, the market remains non-phased by war news unless it begins to translate into actual disruptions to the world wheat trade. The US pulled off good winter and spring wheat crops this year while other parts of the world struggled to produce. Specifically, the EU has seen its crop estimates fall sharply along with quality concerns due to persistent cold and wet weather.
Russia has faced similar issues with its spring wheat production, and this could make things more interesting come the fall has high protein and high-quality wheat could be in tight supply. On top of this, world major exporters head into another year with their stocks-to-use projected at record tight levels. This on its own is not a bullish factor, but it could add fuel to the fire if a bullish catalyst arises this fall or into the new year.