Author: Aaron Smith

With the US harvest concluding, markets will focus on South American weather forecasts and crop progress. For the 2023/24 marketing year, Brazil and Argentina are projected to account for 53% of global soybean production and 15% of global corn production. By comparison, the US produces 32% of the world’s corn and 28% of the world’s soybeans. Combined, these three countries dominate corn and soybean exports. The three countries account for 89% of soybean exports and 75% of corn exports. As such, production in these three countries has major implications for global prices. This article examines trendline corn and soybean yields for Argentina, Brazil, and the US.

Figure 1. Average Corn Yield by Country, 1977/78 to 2023/24

There are major differences between Argentina, Brazil, and US corn yields. Differences in corn yield can be partially explained by production practices, such as Brazil corn production occurring largely as a second crop after soybeans. For 2023/2024, US corn yield is projected at 173 bu/acre – 83% higher than the global average; Brazil at 90 bu/acre – 5% below the global average; and Argentina at 123 bu/acre – 31% above the global average (Figure 1). Trendline yields also reveal significant differences. Over the past 33 years, Argentina has added 1.92 bu/acre/year, the US has added 1.85 bu/acre/year, and Brazil has added 1.61 bu/acre/year. Since 2014/15, yields for all three countries have flattened substantially, with average increases of less than 0.25 bu/acre/year. Yield variation is also an important feature. Since 2000, Argentina corn yields have been substantially more volatile than Brazil or the US. Argentinian volatility may be partially attributed to a greater impact from extreme weather and economic instability in Argentina, creating greater challenges with input availability, cost, and utilization.

Figure 2. Average Soybean Yield by Country, 1977/78 to 2023/24

Soybean yields across the three countries are more uniform. Projected yields for 2023/2024 are 44 bu/acre, 53 bu/acre, and 50 bu/acre for Argentina, Brazil, and the US, respectively (Figure 2). Brazil has led the way with annual yield improvements, increasing trend line yield by an average of 0.69 bu/acre/year, followed by the US at 0.50 bu/acre/year, and Argentina at 0.29 bu/acre/year. Similar to corn, Argentina and US trend line yields have flattened in the past ten years; however, Brazil’s average yield gain has increased to 0.78 bushels per acre per year over the last decade. The variation in Argentina’s annual yields is significantly greater than that of Brazil or the US.

Yields (along with harvested acres) will be important in determining production in each country and potentially their share of the export market, particularly for soybeans, as a larger share of global production is concentrated in three countries. If yields are forecast below trendline it would be supportive of higher prices and vice versa. Changes in projected yield and production from USDA, CONAB (Companhia Nacional de Abastecimento, National Supply Company, Brazil), and private companies have the potential to influence market direction.

References and Resources

USDA Foreign Agricultural Service – Production, Supply and Distribution. https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

CONAB – https://www.conab.gov.br/

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The size of global soybean stocks is an important factor in determining global soybean prices, but the quantity held by different countries and annual use are also relevant to the market. In the 2018/19 marketing year (during the U.S.-China trade war), the U.S held 22% of global stocks compared to China (16%), Brazil (29%), Argentina (25%), and the rest of the world (8%). Since then, China has more than doubled its share of global stocks, while the U.S. ending stock has dropped to the lowest level in eight years. At the end of the 2023/24 marketing year, the U.S. is projected to hold 5% of global soybean stocks compared to China (33%), Brazil (32%), Argentina (21%), and the rest of the world (9%).  Even though U.S. ending stocks are projected to be tight for the current marketing year, global stocks are projected to be an all-time record (Figure 1). 

Figure 1. Projected Global Soybean Ending Stocks, by Country, at the End of the United States Marketing Year, 2012/2013 to 2023/2024

This analysis can be taken one step further by incorporating usage.  Days-on-hand can be used to estimate a country’s stocks relative to annual use (domestic consumption + exports). China is projected to have 120 days of soybeans on hand for the past and current marketing year (Table 1).  World days-on-hand are projected at 114 days, the second highest in the past 12 years. Argentina’s soybean days-on-hand are projected to increase from a 10-year low of 159 days to a high of 197 days, by the end of the current marketing year. Due to the abundance of global stocks and the projected days-on-hand, it may be challenging for U.S. soybean exports to achieve the current USDA projection of 48.7 million metric tons (MT). This would result in increased U.S. ending stock. Additional factors such as exchange rates, discussed in a prior Southern Ag Today article, will also play an important role in U.S. exports and ending stocks.

Based on current USDA projections, further weakness in soybean futures prices seems likely, unless a weather disruption in South America leads to reductions in projected production. A bounce back in Argentina’s drought reduced production (projected production was halved by last year’s drought) seems likely and Brazil is forecast to produce another record crop. January 2024 soybean futures have already decreased $1.49/bu since the July 24, 2023, high of $14.41/bu. A key level of support for the January contract is $12.60/bu-$12.80/bu. If prices fall below $12.60/bu, it is possible that prices test the contract low of $11.41/bu from May 31, 2023. For producers concerned with a decline in futures prices for unpriced soybeans that will be held in storage, an $11.70 put option could be purchased for 6 cents. This is cheap protection based on the large amount of uncertainty in the current South American soybean production year. 

Table 1. Soybean Days-on-Hand by Country, 2012/2013 to 2023/2024

References and Resources

Barchart.com. https://www.barchart.com/futures/grains?viewName=main

USDA September WASDE. https://www.usda.gov/oce/commodity/wasde/wasde0923.pdf

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Smith, Aaron. “Who’s Holding Global Soybean Stocks?” Southern Ag Today 3(41.1). October 9, 2023. Permalink

This article examines the daily closing price frequency for the November soybean and December corn futures contracts from November 1^st to contract expiration for soybeans and December 1^st to contract expiration for corn for the 2010 to 2023 (to September 22, 2023) crop years. Figures 1 and 2 show the frequency of closing prices by price range (bars) and cumulative price frequency (line). The total number of daily closing prices are 3,600 for soybeans (Figure 1) and 3,629 for corn (Figure 2). Figure 1 shows that 14.0% of the daily closing futures prices for the November soybean contract were between $9.50/bu and $10.00/bu. Figure 2 shows 21.1 % of the daily December corn futures price closings were between $3.75 and $4.00. The November soybean futures daily closing price was below $14.00/bu 92.1% of the time and the December corn futures daily closing price was below $6.00/bu 85.1% of the time over the period considered.

As of September 22, 2023, the December 2024 corn futures price was $5.07/bu and November 2024 soybean futures price was $12.56/bu. This is down substantially from recent highs, but at the mid to higher price in terms of historical price frequency. Weak US soybean export demand from China paired with record Brazilian soybean production has resulted in relatively lower futures contract prices for 2024. Corn has also had downward price pressure given a 15.13-billion-bushel 2023 U.S. crop, estimated US ending stocks of 2.22 billion bushels, and no indicators for significantly stronger corn demand in 2024.

So how can these data guide a risk management decision? Consider a simple options fence strategy.  On September 22, an $11.40/bu November 2024 put option could be purchased for 31 ½ cents, and a $14.00/bu November 2024 call option could be sold for 35 ½ cents (net premium gain of 4 cents). This strategy sets a futures market price floor of $11.40/bu by setting a lower fence removing approximately 55% of the historical downside futures price risk at the cost of forgoing 7.9% (i.e., 100% – 92.1%) of the historical upside in futures prices by setting the upper fence (Figure 1).  Similarly, for corn, buying a $4.50/bu December 2024 put option for 16 ½ cents and selling a $6.00/bu December 2024 call option for 15 ½ cents (net premium expense of 1 cent) would set the lower fence at $4.50/bu – removing 55% of the historical downside futures price risk at the cost of forgoing 14.9% (100% – 85.1%) of the historical upside in futures prices due to the upper fence. Producers may want to examine risk management strategies that protect against downside futures market price risk at the cost of some upside potential. 

Figure 1. November soybean closing futures price frequency, 11/1/09 to 9/15/23.

Figure 2. December corn closing futures price frequency, 12/01/09 to 9/15/23. 

References and Resources

Barchart.com. https://www.barchart.com/futures/grains?viewName=main

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Smith, Aaron. “Corn and Soybean Harvest Futures Contract Price Frequency.” Southern Ag Today 3(40.1). October 2, 2023. Permalink

The Kentucky Derby is always fun to watch – lots of anticipation, a big build up, and you are never sure what is going to happen. A similar pleasure for many commodity market analysts is to watch the futures markets react on USDA report release dates. What commodities will break out? Which commodities will be the day’s winners and losers? Fortunes can change in seconds. August 11^th was an interesting day for USDA report watchers. The USDA released Crop Production and WASDE reports at 11 am CST and FSA Crop Acreage Data at 12 pm CST.   The 11 am release precipitated soybean markets increasing 10.75 cents (Figure 1); cotton markets increasing 1.92 cents (Figure 2); and corn markets increasing 0.25 cents, before moving up 0.75, down 2.5, up 2.75, down 2.25, and down 1.25 cents in the next five minutes (1-minute intervals) (Figure 3).

Figure 1. November soybean futures chart on August 11, 2023, in 1-minute intervals (CST)

Figure 2. December cotton futures chart on August 11, 2023, in 1-minute intervals (CST)

Figure 3. December corn futures chart on August 11, 2023, in 1-minute intervals (CST)

The movement in December cotton futures price is the easiest to explain. A projected average national upland cotton yield of 773 lbs/acre and harvested acres of 8.51 million, resulted in a projected decline in US production of 2.51 million bales and lowered ending stocks 700,000 bales compared to last month. Additionally, foreign stocks decreased 2.22 million bales. The result was December cotton, opened at 9:00 am at 85.1 cents and closed the day at 87.8 cents.  

November soybean futures also received a report bump in prices but were unable to hold the majority of the initial price gains. Soybean prices reacted positively to the 1.1 bu/acre reduction in national average yield and the 55-million-bushel decline in US ending stocks. However, conspicuously absent from USDA estimates were modifications to Brazil and Argentina production, exports, and domestic use. A lack of modifications to South America likely assisted in the reduction of prices throughout the rest of the trading day.

As mentioned above, December corn futures had a more muddled reaction. US national average yield was within pre-report expectations at 175.1 bu/acre. Compared to last month, US ending stocks were down 60 million bushels and foreign ending stocks were down 62 million bushels. US feed and residual use, exports, and food, seed & industrial use decreased a combined 95 million bushels. The national average yield created some consternation in markets. This was USDA’s first survey-based yield estimate for 2023.  There remains a great deal of uncertainty due to the uneven distribution of drought geographically and over time during the growing season. As of August 8^th, 49% of corn production was in drought, however extreme or exceptional drought was limited to 6% of the production area. The national average corn yield remains an enigma, and that is reflected in Friday’s market movements.

References and Resources

Barchart.com. https://www.barchart.com/futures/grains?viewName=main

USDA Agriculture in Drought. https://www.usda.gov/sites/default/files/documents/AgInDrought.pdf

USDA FSA Crop Acreage Data. https://www.fsa.usda.gov/news-room/efoia/electronic-reading-room/frequently-requested-information/crop-acreage-data/index

USDA Crop Production Report: https://downloads.usda.library.cornell.edu/usda-esmis/files/tm70mv177/2227p6419/w3764r31w/crop0823.pdf

USDA WASDE Report: https://www.usda.gov/oce/commodity/wasde/wasde0823.pdf

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Smith, Aaron. “The Fast Two Minutes in Crop Markets.” Southern Ag Today 3(33.1). August 14, 2023. Permalink

Many factors influence commodity prices. Recently, movements in commodity prices have been driven by U.S. acreage estimates and weather concerns across a large portion of the Corn Belt, and this is likely to remain the principal focus of markets into August. As of July 11, 2023, the percentage of soybeans in Moderate Drought (D1), Severe Drought (D2), Extreme Drought (D3), and Exceptional Drought (D4) was 1%, 6%, 20%, and 30%, respectively (USDA-Ag in Drought). However, there are always numerous factors impacting price direction simultaneously. An interesting trend that has potential repercussions for soybean exports has been the movement in currency exchange rates in 2023. 

Soybean exports are largely a three-country game. For the 2023/2024 marketing year, the majority of global soybean exports are expected to come from Brazil (56%) and the U.S. (31%), while China is projected to account for 59% of global soybean imports (USDA-PSD). As such, the prevailing currency exchange rates between the three countries are important. Figure 1 shows the number of Chinese Yuan Renminbi (CNY) and Brazilian Reais (BRL) required to purchase one United States Dollar (USD). Since the start of 2023, the BRL has increased by 11.6% compared to the USD, and the USD has appreciated by 3.3% compared to the CNY (Figure 1). For example, on January 3, a bushel of soybeans worth 14.50 USD would be 78.67 BRL. On July 14, that same bushel of soybeans at 14.50 USD would be 69.58 BRL. From a Chinese buyer’s perspective, due to changes in the value of currencies, a bushel of U.S. soybeans increased 3.3% from January 3 to July 14 and a bushel of soybeans from Brazil increased 15.4% over the same time. Over this time, the change in currency values would support Chinese purchases of U.S. soybeans over Brazilian soybeans, all else being equal. However, supplies of soybeans in Brazil and the U.S. largely minimize this potential effect. Brazil has record supplies, and based on current prices, could have record plantings this fall. The U.S. has lower acreage (83.5 million acres planted) than initially anticipated, lower potential yields due to drought, and limited endings stocks (230 million bushels) for the 2022/2023 marketing year. Moving forward, trends in exchange rates could influence the quantity of soybeans purchased, by China, from the U.S. and Brazil. If the USD appreciates in value, relative to BRL, it makes U.S. exports relatively more expensive for foreign buyers. If the USD depreciates in value, it makes U.S. exports less expensive for foreign buyers.

Figure 1. Brazilian Reais and Chinese Yuan Renminbi to 1 United States Dollar, January 3, 2023, to July 14, 2023

References

St Louis Federal Reserve. CNY and BRL to USD Exchange Rates. (https://fred.stlouisfed.org/series/DEXCHUS and https://fred.stlouisfed.org/series/DEXBZUS).  

U.S. Department of Agriculture -Ag In Drought. https://www.usda.gov/sites/default/files/documents/AgInDrought.pdf.

U.S. Department of Agriculture Foreign Agricultural Service. Production, Supply and Demand Estimates. https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery.