In 2021, the big round of January USDA reports encouraged grain prices to accelerate higher. No two years are alike, but this year’s report gave pause to pre-2022 rationale.
We knew 2021 South American crops had problems, but when the dust settled, a record soybean crop was harvested. This year, that looks in question.
Between December 2021 and January, USDA cut Brazilian soybean production by 5 MMT and Argentina soybean production by 3 MMT. For corn production, Brazil and Argentina were cut a collective 3.5 MMT.
Private estimates suggest further cuts are possible. The potential cut of around 500 million to 600 million bushels is on the table — stay tuned.
A record South American crop or anything close to 2021 production seems slim. Here are some implications:
- Brazil won’t likely be exporting in September, October or November like in recent years. The U.S. should have its normal exporting time back again.
- South American corn acres will likely be affected by dry weather. Ukraine could respond with increased corn acres, but they only produce about one-third of Brazil’s levels.
- The export window for U.S. corn normally begins in the first quarter of a given year, so business should increase.
- China has built strategic reserves of ag and non-ag commodities for reasons yet to be determined. Two years of COVID-19 should incentivize other countries to front-end-load this year.
- The soybean complex might see a change in attitude. Soybean oil used in the new “veggie diesel” is valid but at what cost to food inflation? Burning corn for fuel was a hammering point in the past. Veggie diesel affecting cooking oil in the poorer nations promises to be a thorn in the side of “green” politicians.
Did the January reports create a new paradigm shift for agriculture prices? Last year, prices rallied from January to May, and a repeat certainly is in the cards.
Jerry Gulke farms in Illinois. He is president of Gulke Group, a market advisory firm. Disclaimer: There is substantial risk of loss in trading futures or options, and each investor and trader must consider whether this is a suitable investment. There is no guarantee the advice we give will result in profitable trades. Past performance is not indicative of future results.
