A tight supply scenario can make markets numb to high corn and soybean prices. When that happens, participants tend to become less responsive to market signals, draining volume and volatility out of futures markets.
That’s when markets enter a holding pattern as they await a shift in market fundamentals to initiate the next trending move. Sometimes USDA’s first unofficial look at the new-crop marketing year provides that fundamental shift. However, USDA’s February outlook for the 2023/24 marketing year did not cause such a shift. Here is an overview:
Corn: 91 million planted acres, national average yield of 181.5 bu. per acre and a crop of 15.09 billion bushels. Combined with expected beginning stocks, total supplies for 2023/24 would hit 16.4 billion bushels. On the demand-side of the balance sheet, total use of 14.49 billion bushels features growth in feed and residual use and a recovery in corn exports, but food, seed and industrial use (including ethanol) is projected flat with 2022/23.
The result would be ending stocks of nearly 1.9 billion bushels, up 620 million bushels (nearly 50%) from 2022/23. USDA says a 13% stocks-to-use ratio for 2023/24 would support a national average cash corn price of $5.60 (down from $6.70 for 2022/23).
Soybeans: 87.5 million planted acres, national average yield of 52 bu. per acre and a total crop of just over 4.5 billion bushels. Total supplies would be 4.75 billion bushels.
Use of 4.46 billion bushels features a slight year-to-year uptick in exports and an 80-million-bushel expansion in domestic crush to a record 2.31 billion bushels. Ending stocks would be 290 million bushels with a stocks-to-use ratio of 6.5% and a national average cash bean price of $12.90 (down from $14.30 for 2022/23).
WHAT CAN CHANGE
These scenarios are the baseline for 2023 crop futures, and the outlook will change many times. Weather is the greatest variable. At the end of February, most market-watchers anticipated an end of La Niña and the drought in the western Corn Belt by the time seed is going in the ground.
With USDA’s carryover estimates trending higher and price outlook trending lower from last year, many expect the sideways trends in new-crop futures to continue until the next shift in the fundamental outlook.
To manage the risk, strategies to establish a price floor while maintaining upside price potential are favored.
