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December 5, 2023
There’s no nice way to say it – 2022/23 was a dismal year for U.S. corn exports. In fact, it was the smallest annual U.S. corn export volume recorded since the devastating 2012/13 drought year.
But with the U.S. on track to harvest a much larger crop this year, that story could change. With the extra supplies harvested this fall, USDA expects that 2023/24 corn exports will rise nearly 22% higher from last year to 2.205 billion bushels.
And there are already positive signs pointing to upcoming corn export prospects. Physical shipments through the first seven weeks of the 2023/24 marketing year are already 46% higher than the same time a year ago. Shipments to China are much lower than a year ago, but other traditional top buyers of U.S. corn are already lining up for freshly harvested supplies.
So far, the U.S. has already shipped Mexico over 84 million bushels – a 75% increase from last year. Mexico also has 59% more corn export orders sent to U.S. sources than a year ago, suggesting higher shipping volumes will follow, pending no GMO restrictions are enforced. Orders to Japan, Canada, and Colombia are up this year as well.
The U.S. is increasingly a secondary global corn supplier, filling in as a seller of last resort when Brazilian corn stocks are delayed in shipping channels as the cheaper Brazilian crop has taken over as the world’s largest corn export volume since 2022/23. With lower prices and volumes well below 2020/21 records, it seems likely 2023/24 corn export volumes are not going to be able to stage another record-setting run even though export volumes will be higher this year.
The story of the 2023 U.S. soybean crop has been one that has shrunk smaller at every turn in the growing season. Fewer acres planted in the June 2023 Acreage Report and ever-shrinking yield forecasts after a hot and dry pod fill season this summer means that U.S. soybean supplies have tightened to their smallest level since the 2015/16 marketing year.
If USDA continues to find lower yields in the upcoming January 2024 World Agricultural Supply and Demand Estimates (WASDE) report, then supplies will inevitably tighten further. Already USDA has had to make big cuts to 2023/24 end usage, shaving 220 million bushels (11%) off of this year’s export forecast.
As a result, 2023/24 export volumes are expected to drop to 1.755 billion bushels – the smallest annual export volume since the peak of the trade war during the 2019/20 marketing year. Global buyers simply aren’t interested in high-priced and scarce U.S. supplies and are likely waiting on a cheaper – and larger – Brazilian crop to be harvested early in 2024.
Top buyer China is already showing signs of hesitation. Through the first eight weeks of the marketing year, the U.S. has only shipped China 61 million bushels of soybeans, compared to 79 million the same time a year ago. During that time, China’s advance export orders through the rest of the year are down 62% from the same time last year.
The tight soybean supply should keep a strong floor under soybean prices headed into the new year, especially if Brazilian planting delays turn into larger yield losses in the coming weeks. Expanding crush plants will likely keep local soybean prices competitive, so be prepared to sell if an export-fueled rally takes hold in the futures markets.
Northern African countries typically comprise the top volumes for global wheat importers. But because China’s crop endured untimely rains at harvest, China will likely take the throne as the world’s largest wheat importer this year.
China booked a couple sales of U.S. soft red winter wheat earlier this fall, totaling 14.7 million bushels. But as wheat prices drifted lower amid vast Black Sea supplies, China opted to book wheat purchases from France and Australia. If there are pricing opportunities to be had in the coming months, it will likely be either due to fresh Chinese purchases or weather issues in Argentina and/or Australia.
The U.S. will ship its smallest wheat volume into international markets this year since the 1971/72 marketing year – just ahead of the Great Grain Robbery in 1972. Before 2013/14, U.S. wheat exports were the largest supplier in the world. But expanding Russian production during the 2010s propelled it to the top spot in the world exporter list.
Russia has become the world’s largest wheat exporter in recent years, combining its vast area with shipping channels in the Black Sea. As a result, 24% of the world’s exportable wheat will be sourced from Russia in 2023/24, a 3% increase from last year following yet another turbulent growing season for the Northern Hemisphere.
The large Russian wheat crop dominating international shipping channels as of press time will continue to keep a lid on any hopes for price gains in the wheat complex. The U.S. won’t likely ship large export volumes this year and winter wheat conditions are off to their best start in the past four years, so focus will turn to domestic end users for pricing opportunities in the upcoming calendar year.
The Federal Reserve left interest rates unchanged following its early November Federal Open Market Committee (FOMC) meeting. Rates continue to hover between 5.25% and 5.5% - a 22-year high.
Higher interest rates have forced yields on long-term Treasury notes to 16-year highs this past fall, though markets retreated from those peaks following the Fed’s announcement to leave interest rates alone.
This means that investors are more likely to invest their money in Treasury securities – safe-haven assets – instead of private equity. Further translation: the combination of borrowing costs and waning returns from the stock market is slowing down economic expansion and perhaps finally cooling off inflationary pressures.
That’s not to say we are going to see interest rates cool off anytime soon. While the recent activity in the bond market reduced the likelihood that the Fed will increase interest rates once more in December, the chances that the Fed keeps current interest rates in place remains high.
The economy may be cooling down, but a recession in the U.S. seems unlikely given the robust reports of current economic indicators and increasing wealth prospects for upper middle-class families. Unemployment grew a fraction in October 2023, but was still relatively low at 3.9%.
But there is no doubt that average consumers are increasingly bearing the burden of the financial challenges that continue to quietly loom over the post-pandemic economy. September’s Personal Consumer Expenditure (PCE) index, which is the Federal Reserve’s chief measurement for inflation, was reported at 3.4% for the third consecutive month.
For farmers, interest rates staying high means that capital costs are likely to remain high through at least the 2024 operating year. More working capital (cash) may be utilized for financing instead of higher-priced credit for machinery purchases and building construction projects.
And though interest rates may be high on real estate loans, there is still a good argument to be made that it is a good hedge against higher land costs down the road. Land values aren’t really showing any signs of cooling, so as soon as interest rates go down, those values could continue to go up. Paying a little extra in interest now might save you on principal costs down the road if land ownership is a constraining factor for your operation.
Grain market analyst, Farm Futures
Holland grew up on a dairy farm in northern Illinois. She obtained a B.S. in Finance and Agribusiness from Illinois State University where she was the president of the ISU chapter of the National Agri-Marketing Association. Holland earned an M.S. in Agricultural Economics from Purdue University where her research focused on large farm decision-making and precision crop technology. Before joining Farm Progress, Holland worked in the food manufacturing industry as a financial and operational analyst at Pilgrim's and Leprino Foods. She brings strong knowledge of large agribusiness management to weekly, monthly and daily market reports. In her free time, Holland enjoys competing in triathlons as well as hiking and cooking with her husband, Chris. She resides in the Fort Collins, CO area.
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