Volatility is here to stay in the grain markets — but so could higher prices.
“Today, farmers could lock in $5 corn for the next four years,” says Dan Basse, president and CEO of AgResource Company.
For perspective, December corn prices topped $5 last year, but hadn’t been above that level since 2014.
Listen in as Basse shares his insights with Paul Neiffer on the Farm CPA Podcast:
How long can these prices last? Basse says it could be three or four years. What is causing this bullish market? Basse points to three big factors:
1. Ukraine-Russia Conflict
Russia’s invasion of Ukraine is bringing massive uncertainty to the global markets. Ukraine is a key player in global agriculture, and how these conflicts play out will have international impacts. Ukraine has more than 41.5 million hectares (or 102.5 million acres) of agricultural land that cover 70% of the country.
Globally, Ukraine ranks:
- 1st in global sunflower production (For 2021/22 Ukraine sunflower seed production is estimated at a record 17.5 MMT)
- 6th in global corn production. (For 2021/22 Ukraine corn production is estimated at a record 42 MMT)
- 6th in global barley production
- 7th in global rapeseed production
- 9th in global soybean production
- 9th in global wheat production
What if spring crops aren’t planted this year?
“If we assume that Ukraine is likely to be out for a year, we almost have to think about corn being above $8,” Basse says. “Soybeans would hang between $15 and $18.”
Based on conversations with Ukrainian contacts, Basse says most of the country’s farmers have most of their seed, fertilizer and other key inputs. Their biggest challenge is labor.
“Finding employees to sit on tractors for 10,000-hectare farms is going to be the real key as we get into April and May,” he says.
2. “Green” Fuels
The dramatic development of the U.S. renewable diesel and Sustainable Aviation Fuel (SAF) industries could be a massive demand driver going forward for soybeans, Basse says. Soybean oil will be used for renewable diesel, while SAF uses ethanol.
“This is going to be very important as more and more of the U. S. auto supply becomes electrified,” Basse says. “By 2030, we think 28% to 40% of the U.S. auto fleet will be electrified and that means you’re going to have less gas consumption. You’re going to have less ethanol blending.”
As a result, he says, ethanol needs another demand source. That’s where SAF comes in.
“Nobody wants to get on a plane that’s powered by batteries,” Basse says. “I was worried about ethanol in terms of being a mature industry. But I think this aviation fuel, if we were to fill just 20% of that, it would take care of all of the ethanol demand that would be lost through electrification.”
In terms of soybeans, Basse says renewable diesel will help big up acres. As crush facilities come online, demand could push soybean acres to 95 million and add an extra $1.50 to $2 to every bushel.
“We are calling for 90.5 million soybean acres in 2022 versus this year’s 87 million, and that just gets us started in meeting renewable diesel demand,” says Dan Basse, president of AgResource Company. “Then we’d need to increase soybean acres by 5 million to 7 million each year. We have to top 120 million acres of soybeans to meet the growing demand for renewable diesel.”
Announcements for new crush plants are rolling out every week. If the locations on the map below, which are being constructed or are in progress, all make it to production, they’ll add about 400 million bushels of domestic soybean demand by the start of 2025.
“It’s going take three years to fully build out this industry,” Basse says. “How we buy all of the acres – corn, soybeans to run these green fuels – is a good question for the years ahead. But I think it keeps the American farmer smiling at least for now.”
3. Peak Farmland
U.S. farmland acreage is at the lowest since 1909, says Basse. He refers to this issue as “peak farmland,” as in there are no more acres in the U.S. to bring into production.
“The U. S. has kind of maxed out, unless we dip into CRP, which isn’t likely,” he says. “So, the acreage we’ll need to meet world demands will have to come from either the Black Sea or from Latin America. That’s where the importance comes of losing the Black Sea to the market here today.”
In terms of Latin America, Basse says his latest calculations for Brazil show there’s about 28 million hectares that can still be brought into production (this does not include any land that’s part of the Amazon Rainforest). Read more:
Brazilian Agriculture: Room to Grow
In the Black Sea region, around 22 million acres could be converted to farmland.
“So, there is some additionally in acres,” he says. “We don’t reach peak world farmland until about 2060 or 2065. That’s when the fun really begins, because then it is all about yield. The world will have to figure out different ways of enhancing yield because it just will run out of variable land that is feasible to farm.”
Read More
Jerry Gulke: A Paradigm Shift in Soybeans
3 Global Factors Driving A New Commodity Super Cycle
South American Drought Impacts 50% of World’s Soybean Supply
