Market outlook: Webinar highlights issues dominating ag outlook
In a Farm Country webinar, “Issues Dominating Ag Commodity Price Outlook,” several industry experts discussed how supply chain issues will influence 2022 crop supplies, impacts of inflation on buyers’ purchasing decisions and how commodity markets will respond to a changing market structure and volatile weather.
During the webinar, AgResource Company Founder Dan Basse, University of Missouri-Columbia Sr. Research Associate Ben Brown, ADM Investor Services Inc. Vice President Steve Freed and Pro Farmer Editor Brian Grete discussed several agricultural outlooks.
Agriculture outlook
“We are about as bullish as we can be of agriculturalists,” shared Basse. “It’s very rare the industry has two demand drivers in the same crop year, and that’s China buying a lot of corn, then of course, South America weather combined with renewable diesel.”
“On the price side as far as outputs, there is room for producers to be optimistic,” added Brown. “Certainly, weather continues to play a part both domestically and abroad. Geopolitical tensions, the Chinese market and current supply chain issues are certainly impacting producers, there is pessimism with some products on the input side, but there is also optimism on the output side.”
“There has been talk of war in Ukraine. The markets are vulnerable for some wild swings, and I think, so far, farmers have been rewarding these rallies with cash sales,” shared Freed.
He notes during the months of April and May, the market will be high compared to where the industry currently is.
“There are a heap of things coming up in the markets leading to these historic opportunities for the U.S. farmer,” said Grete. “There are some challenges – input prices are going to be much higher than they were last year, inflation is impacting all of us in every form of our lives, in addition to war with Russia and Ukraine.”
Dominating factor
In 2014, when Russia annexed the Crimean Peninsula from Ukraine, the industry saw an explosive price movement in the foreign wheat market, shared Grete.
“From frontline Chicago Soft Red Winter (SRW) wheat standards, wheat futures rallied almost 14 percent and frontline corn futures rallied about 10.5 percent,” he continued. “We can say, if we add this type of price strength onto the current industry price, now we are looking at significantly higher prices; because today, we are starting from higher price points.”
According to Freed, “The U.S. Department of Agriculture (USDA) wheat market exports are projected 12 million tons too high. The industry won’t receive exports out of the Black Sea or Europe due to pending war and dry weather patterns. Countries need to buy wheat, and they are expecting to buy it from the Black Sea.”
“If for some reason wheat and corn doesn’t get shipped, the only place will be the U.S., and we already have a tight supply, even though it may seem adequate,” shared Freed.
From March through June, the ag industry will see a record amount of demand for U.S. corn, he noted.
“All of this may not be reported today, tomorrow, next week or next month by the USDA, but it’s in the cash markets,” Freed continued. “Beans are especially showing a tighter supply demand for 2022 to 2023.”
Foreign impacts
“Generally speaking, Ukrainians are very concerned and anxious about what is happening in their country,” said Basse. “The Russian population is shocked after President Vladimir Putin’s speech on Feb. 21. The Bruegel has dropped sharply and so we are all holding our breath in terms of next moves, as it will rearrange trading patterns.”
“To be truthful, I’m not sure any of us know exactly what the planned outcome, or what the hope is for the Black Sea region, but this has the potential to rearrange trade; and certainly has the impact for commodities such as corn, wheat and oil in the U.S.,” added Brown.
Basse shared, “If Russian products are unable to reach the rest of the world and the world’s number one exporter is taken out, this is a really big deal.”
“All of these things today are unknown, but when you think of the consequences in terms of global trade it’s really big, and this is what we are trying to focus on and understand,” he continued. “I think the market is trying to get ahead of it, but even then, we don’t fully comprehend what the market will look like.”
Corn and soybean exports
“The corn market in the coming months is based on lower South America crops and high demand in exports and domestic demand. When people start traveling again, the ethanol demand will go up,” explained Freed. “The demand is there in all of the sectors.”
Roughly 50 percent of the world’s sunflower oil is exported out of Ukraine, noted Freed. The vegetable oil market is seeing three things – demand is strong, the U.S. is committed to biofuel and if soybean oil is used as a jet fuel, there may not be enough supply.
“Even though our prices are 77 cents per pound, the U.S. is the cheapest oil in the world,” added Freed.
“Vegetable oils are coming out of Ukraine, but when you add in Russia, roughly 80 percent of the global trade of export comes from out of these two countries. It is a big deal, and the market is paying attention to it,” shared Grete. “The strongest market is when products such as corn, soybean and wheat take a turn leading.”
“We have to figure out from an Argentina standpoint, as they are the number one soybean meal exporter in the world, we have to ask the questions, ‘Do they have the beans to crush and meet the demand?’ or ‘Is the U.S. going to pick up some of the demand in that area?’” said Freed.
The one thing the soybean meal market is having trouble with is China is changing their feed rations, and they may not import as much soybeans from the U.S. in the old crop as the USDA is suggesting, explained Freed.
“When we talk about all-time highs in soybean oil, it is within sight,” he said.
Vegetable oil market
The global vegetable oil market is one of the most dynamic markets. A part of this is driven by high expectations around the increase in renewable diesel, said Brown.
He continued, “The industry has seen a lot of expansion plans in place, led mostly by oil refiners building those processing facilities. The concern comes from, “how do we meet this 50 to 52 billion pounds of soybean crush oil demand?”
Brown doesn’t expect all of the capacity to be built, saying, “We sometimes tend to overshoot these things and I think that is a little bit of where the industry is at.”
“The second thing is it could potentially cannibalize our biodiesel industry – which not many want to talk about, especially farmer investors. But right now, renewable diesel facilities are outcompeting biodiesel facilities hands down, and we expect renewable diesel facilities to be very competitive in the soybean oil market,” mentioned Brown. “As a soybean producer, it’s all positive, but if you’re in the biodiesel facility or infrastructure, it becomes a challenge.”
“As we think about biodiesel, production is heading downward and the losses for biodiesel producers are at the largest in history – for some plants as much as 40 percent of their working capital,” said Basse.
The European Union has the potential to be a vegetable oil source to the world, noted Brown. He continued by saying, “I think soybean crush will continue to increase as well as international exports back to the U.S.”
Bottom line
Higher prices create more risk but in the same sense they create more opportunity – producers will have to be better at risk managment and lock in profitable opportunities when available, explained Grete.
“The opportunity is to lock prices in, don’t get caught watching, lock in those prices when profitable opportunities are present,” concluded Grete. “Take the opportunities available when it’s presented by the marketplace, and take advantage of the historic opportunities producers are being given right now.”
“As you think about these markets, it doesn’t take much to push the industry into record highs for the corn and soybean market,” added Basse. “Geopolitics produce a lot of volatility as we think about the future, but farmers are smiling – they are going to have a very good year.”
Brittany Gunn is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.
