THE GRAIN MARKET HAS ONE HUNGRY BULL
By Matt Roberts , Terrain Senior Grain & Oilseed Analyst
The prolonged lack of price-supportive news means feed prices are set to continue their declines . After settling into a weaker pattern in recent months , prices may need a significant boost from demand to prevent a slide . Without this , pressures such as continued growth in yields will likely win over the market .
There ’ s an old saying that bull markets need fed . For prices to stay elevated , there needs to be a steady stream of news into the markets justifying those higher prices . Otherwise , they will slide back toward some definition of normal .
The grain market bull has gone very hungry , indeed . Although summer dryness led to lower yields and higher prices , harvest brought the realization that large plantings offset the low yields , and prices have spent the last six months alternating between sideways and down .
In 2024 , I expect to see sideways or down continue at least through the first quarter . Once planting begins in earnest , weather will matter more , but ample 2023 production will keep a lid on any feed rallies . Sources of Demand
Since the fall , corn futures prices have continued to weaken on large supplies and modest demand . Old crop corn prices in 2024 will be driven by demand changes as winter progresses .
We are still not seeing increases in cattle or hog numbers , so feed demand won ’ t be a factor .
Although ethanol production has been solid , and should continue to be through 2024 , strong growth is not expected and any boosts from sustainable aviation fuel demand won ’ t happen for a few more years .
That leaves exports as the remaining source of any additional corn demand . To date , exports have been in line with the USDA forecast of 2.2 billion bushels . This level of exports is higher than last year but has already been priced into the market . South American Harvest Outlook
South American corn production will matter increasingly more as we move through 2024 . Argentina ’ s production is set to rebound from last year ’ s abysmal crop , with availability starting in April . It is still too early to say much about Brazil ’ s second crop , whose harvest starts in June , but there is widespread belief plantings will decline on lower prices compared with last year .
Between now and April , I expect corn prices to languish and basis to struggle also . Feed users should stay hand-to-mouth on purchases through planting . If second-crop Brazilian harvest starts to struggle or U . S . planting is delayed , be proactive in pricing summer needs .
Soy meal prices have remained high in the past two years , primarily because of restricted supplies from Argentina . World exports in the 2022 / 2023 marketing year were down 3.3 %, the largest decline since 2007 ( see Chart ). U . S . exports were significantly higher last year and this year to fill the gap left by lower Argentine exports .
I expect South American soybean production to return to a much more normal level this year after last year ’ s severe drought in Argentina . After South American harvest , this should cause a weakening in domestic meal prices and feed unless there are problems with U . S . planting or growing weather .
In the coming years , meal users should benefit from the sharp increase in crushing capacity in the U . S . I remain doubtful that more than two-thirds of what has been announced will actually be built in the next two to three years , but even that amount will create a useful oversupply in the protein meal market . Because of widespread construction of new crushing plants , most gains will be in futures , not basis , though some areas will also see much weaker meal basis develop if multiple plants are built . A Return to Pre-2020 Feed Prices ?
The 2024 harvest should continue the pattern of weaker feed prices . If yields continue to grow without any strong increase in demand , there is a real chance we will be on a course back toward the grain markets of 2014 through 2020 , which were marked by oversupply and corn prices in the low- $ 4 range . Though weather may delay such a scenario , without a large increase in demand , the feed prices of those years are coming . Terrain is a team of economists who provide expert analysis to the customers of American AgCredit , Farm Credit Services of America and Frontier Farm Credit . Learn more at terrainag . com .
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