CBOT ag markets have turned inward, rightly focusing on rather profitable domestic processing margins. Soybean crush margins, in both futures and cash markets, remain abnormally high. Ethanol production margins in the cash market, too, are profitable, even assuming corn upward of $7.00 per bushel in the Western Midwest. This has and will continue to send support to prices. However, AgResource wishes to communicate to the US farmer that a structural shift in grain and oilseed dynamics is possible beginning spring 2023.
Corn and soybean markets today are fairly valued, but our principal concern is the lack of meaningful demand growth. Unlike the last two years, this lack of expanded consumption will allow balance sheets to be solved a bit easier in 2023 if Mother Nature is kind to the Central US April onward. Additionally, competition for world market share returns in bulk as a strong US dollar, and weakness in currencies elsewhere, favors ongoing production expansion in places like Brazil. The graphic above displays the evolution of corn and soybean prices in Chicago priced in both US dollars and Brazilian reais. When priced in reais, spot CBOT corn is up slightly from September 1st. And notice that weakness in the Brazilian real has buffered considerably against weakness in CBOT soybean futures. These currency relationships provide incentives to producers outside the US. It’s unfortunate for the US, but cannot be ignored.
US exporters have benefited from adverse weather in South America as well as favorable trade agreements. The US’s share of world trade in 2020 and 2021 bucked the longer-term trend of contraction, which began in the mid-2000s, amid sizable Chinese purchases. This was followed by sub-trend Brazilian corn and soybean yields the following year. Sustaining this newfound share of global ag trade becomes more labored if Brazil can avoid major weather issues in the next 60-75 days.
Market volatility provides opportunity into late winter. But we want producers to be prepared for a changing global agricultural landscape in 2023.
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