Dr. Ken Rietz
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In the northern hemisphere, harvests are wrapping up, and in the southern hemi- sphere, planting is beginning. So, this seems to be a good time to look at prospects for the coming year. We will take a glance backward but spend most of our time trying to put together a coherent picture of what is in store for these crops. We begin with corn. The most significant factor is always the weather, and in particular, the weather in South America. Brazil’s climate allows it to produce up to three corn crops per year, and the size of the second (and third) crop has a major effect on global corn prices. In 2024, the weather in Brazil and Argentina was transitioning from El Niño to La Niña, and was the driest since 1981. The delay in the rainy season in Brazil put its second corn crop at risk. But enough rain fell in Argentina’s corn region to rescue it. Argentina’s corn prices fell to the lowest in the world for a major producer, and China focused buying their corn there. The low prices for Argentinian corn put pressure on the US corn export price. Ex- ports to China were dwindling, but corn exports to Mexico surged at the same time because of the low price, bringing much-needed help to the US corn market. The WASDE has given its figures for the cost of a bushel of corn. In 2022/23, the reference price for corn was $6.54. The estimate for 2023/24 is $4.55, and the forecast for 2024/25 is $4.10. Clearly, this is going to be hard on farmers, despite a 0.2 bushel/acre forecast increase in yield for 2024/25. Here is a chart of the US corn production for the past several years. |
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Figure 1: Corn harvested in the US, in acres. Source: USDA Let’s shift now to soybeans. Many of the general comments about corn will apply to soybeans and vice versa. Here, we will discuss more of the financial side of the market. Most people expected that when the Fed reduced its benchmark interest rate that interest rates generally would fall, and that would have a calming effect on rising prices. That is not the way it happened. Instead, it was a classic case of buy the rumor and sell the news, a motto for the markets. But what did they sell? Bonds, which lowered their price, and interest rates went up because of interest rate risk. And interest rates going up made the cost of growing soybeans go up, cutting into profits for the farmers. Countering that is the fact that the US election was won rather decisively, which generally calms the markets (which hate uncertainty). Soybean (and corn) farmers have two goals for the government: pass the Farm Bill and get financial aid to agriculture flowing. The Farm Bill was moved out of committee on a bipartisan vote but has stalled because the focus of Congress has been to get the whole government funded. Financial aid for farmers is not moving any faster. The cost of inaction could end up being serious. The WASDE projections for soybeans are no change in price at $10.80/bushel with a total harvest of 4.6 billion bushels, down a bit from last year due to slightly smaller yields. They anticipate the amounts of soybean meal and soybean oil to remain unchanged as well. Here is a chart of the US soybean production for the past several years. |
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Figure 2: Soybeans harvested in the US, in acres. Source: USDA The futures markets for corn and soybeans are likely to follow the WASDE forecasts, since they usually do at first. Beyond that, much depends on the actions of Congress, and that is nearly impossible to predict. |