Soyanara! Farmers Make America Grain Again
In 2023, US farmers planted the highest grain acreage in seven years, replenishing bare grain stockpiles and offering tremendous relief to consumers. US oilseed acreage, in turn, hit a four-year low, likely forcing a third consecutive year of stockpile cuts and a higher price outlook for oilseeds, meal, and oil.
Dramatic Increase in US Grain Plantings Raises Stocks and Consumer Hopes
Just over a year ago, US grain acres were at their lowest level since 1925, stockpiles were approaching nine-year lows, prices were near record highs, and demand was being rationed. Globally, a grain supply decline that started during the outbreaks of African swine fever and Covid, accelerated under La Niña, and touched its nadir amid Russia’s invasion of Ukraine was expected to take years to restore. That expectation has been quashed following the USDA’s dramatic disclosure that US farmers planted 159.1m acres of grain in 2023, a 7.2% YOY rise and the highest acreage in seven years. US farmers are making grain again, to the enormous relief of long-struggling consumers. US 2023/24 wheat ending stockpiles are set to increase marginally after six consecutive declines, while corn stockpiles will rise by about 30%.
After a long and difficult journey, especially for corn markets, grain buyers are feeling increasingly secure in anticipation of replenishment in the world’s historic reserve, the US. Three consecutive years of dry weather in the US and La Niña in South America meant yields consistently disappointed early predictions. In 2023, yields will once again be modest, but the third-highest US corn acreage ever will still ensure a massive crop.
Rising supplies have led CBOT Corn and Wheat prices to fall by about one-fifth year-on-year, and both are within 10% of the 10-year average. We expect strong price support around these levels from long-repressed consumers but also from reluctant farmers unhappy with falling prices, farm input inflation, and below-average stockpiles. Moreover, the curtailment – through war and weather – of low-cost grain suppliers Ukraine and Argentina lifts the price floor for those products.
US Farmers Say “So Long” to Soy, Not “Goodbye”
US growth in grain supplies comes at the expense of soybeans, which lost 4m acres (down 5% to 83.5m acres) in 2023 and will likely see a third consecutive year of stockpile drawdown to a bare 230m bushels, even with demand cuts. A combination of market conditions – an early planting window, lower fertilizer prices, low soy/corn and soy/wheat price ratios, and bumper Brazilian harvest – made oilseeds less appealing than grains, leading farmers to skew their plantings toward grain.
Farmers may have forsaken soy, but not for long. The CBOT 2024 Nov Soy/Dec Corn ratio was recently trading at 2.45, firmly favoring soybeans over corn in next year’s rotation. The cost of the grain/oilseed supply imbalance will be paid back next year by grain buyers, who must strive to remain competitive with soy.
Low US 2023/24 soy plantings have broad implications for the growth in biofuel-based diesel production and the livestock industry, which is showing signs of life following disease, weather, and inflation-induced demand destruction. Our CBOT Soy forecast over the coming year is bullish; Argentina’s soy is absent, and Brazilian farmers have already sold over 80% of supplies. The US will carry the mantle of primary soybean exporter between Q4 2023 and Q1 2024. US soy supplies are likely to shrink further as adverse heat pressures crop conditions to four-year lows and pierces the USDA’s expectations for record yields.
Meanwhile, signs of Chinese and US soybean demand growth are threatening to drive up prices and affect everyone in the supply chain, from manufacturers to consumers. In recent weeks, Chinese and US board crush margins have risen (see Figure 3), in turn driving greater demand expectations for soybeans. Meanwhile, in China, rising sow prices should stabilize falling pig herd numbers and, if the ascent continues, will see them expand in 2024. Over the past few weeks, Chinese soybean demand has swung from Brazil to the US, with around 2.5m mt purchased. That trend will likely intensify in the coming months as China’s crush margins improve and compete against a US crush industry hungry from growing demand in the renewable diesel and feed sectors (some of which is being exported to replace Argentina’s shortfall). We do not see much room for US supplies to satisfy increased demand. Indeed, the USDA’s projected decline in 2023/24 US soy usage (down 1% YOY) indicates risks of rationing and bare stockpiles. Growth in Chinese and US feed demand would require Brazil and Argentina to produce large harvests to restore balance to the market before a high-potential 2024/25 US soy crop returns stockpiles, and prices, closer to historic levels.
CBOT Soy’s ongoing bullishness will deliver a rubber-band effect in plantings, which in turn will underpin support further out along the curve for CBOT Corn as 2024 corn production in the US, Ukraine, and Brazil is scaled back. We are not very bullish on grains, even after their recent decline. Soybeans should demand a premium to incentivize a sizable US crop next year, but grains’ present surplus and larger share of US acreage preclude a like-for-like substitution in acreage.
Stocks Unlikely To Reach Historic Levels Before 2025
US growth in grain supplies comes at the expense of soybeans, which lost 4m acres (down 5% to 83.5m acres) in 2023 and will likely see a third consecutive year of stockpile drawdown to a bare 230m bushels, even with demand cuts. A combination of market conditions – an early planting window, lower fertilizer prices, low soy/corn and soy/wheat price ratios, and bumper Brazilian harvest – made oilseeds less appealing than grains, leading farmers to skew their plantings toward grain.
