Dr. Ken Rietz
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It does seem odd that the prices of corn and soybeans are well below 2023 levels, but wheat is roughly comparably priced. The most significant factor governing the price of agricultural products is the weather, and in this case, the weather has been reasonably positive over all the belts of all three grains. All those crops have done very well this year. So, in this commentary, we will see the real factors responsible for the movements of each of these three commodities, one at a time. The 2023 storage amounts account for all the differences. The amount of corn in storage on Dec 1, 2023, was up 13.5% from the previous year; soybeans in storage on Dec 1, 2023 was up 60.8%; the amount of wheat in storage on Dec 1, 2023 was up 16.9%. (Source: USDA) The difference between corn and wheat is minimal. But the tremendous difference in soybeans in storage is a hint of why the prices went opposite directions. What would cause such a spike in soybean storage? In this case, China. China imports a lot of soybeans, and when they cut back, the resulting surplus of US soybeans can be stunning. The following graph shows the total exports of soybeans from the US to China, a drop of 39.3% from 2020 to 2024. An entire commentary could be written on the reasons for this drop. |
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Figure 1: Soybean exports from US to China. Source: USDA That, at least, explains the drooping price of soybeans. But what about corn? Corn is a more complicated commodity, in that it has two basic and completely separate uses. It is used for human food and animal feed grain and silage. It is also the starting point for transformation into ethanol that is used in gasoline. The demand would seem to be steady, and it generally is. But farmers can read global trends and could see that planting more soybeans would not be very profitable. The traditional alternative to soybeans is corn. This past year, the acres of corn planted increased by more than 6 million acres, or 6.8%. But that doesn’t seem to be enough to cause prices to slump as much as they did. Excellent growing conditions produced bumper crops. In fact, the yield this year has set a record of 183.6 bushels per acre. The expectation of larger harvests drove prices down. That leaves wheat. Why would the price of wheat be comparable to last year’s prices? |
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Figure 2: Front month CBOT futures for wheat Wheat has had a similar set of circumstances as corn and soybeans, in terms of high yield and excellent growing conditions. Yet it has not seen the drop in price. For that, we again turn to the global market, but not China this time. The disruptions in grain shipments due to the Russian invasion of Ukraine, the consequent sanctions on Russia and Russian grain, and the blockades of Ukrainian grain exports (only partially successfully bypassed) all have had consequences, such as in Africa. The lack of the usual global supply has supported the price of US wheat. What are the trading consequences of all this? Since China is not likely to increase its soybean imports from the US plus the abundance of US storage, it is likely that the futures price of soybeans will continue to drift lower. And since the yield of corn is expected to increase, the futures price of corn should do the same. And unless the Russian war against Ukraine ends (which, unfortunately, doesn’t seem likely), the price of wheat is likely to track mostly sideways or a bit upward. |