William E. Maples

As soybean prices for U.S. producers deteriorate, they face fierce competition from greater Brazilian production in the export market. USDA-WASDE projects the 2024/25 average farm price to be down $3.40 from two years ago, at $10.80 per bushel. U.S. soybeans rely heavily on the export market; on average, 47% of U.S. soybeans were exported in the previous five years. For over a decade, Brazil has maintained its position as the world’s largest soybean exporter, and in recent years, it has further expanded its global market share (Figure 1). USDA-WASDE projections for the 2024/25 marketing year estimate Brazil will account for 58% of global soybean exports, with the United States trailing at 28%. The remaining 14% will come from other exporting nations. While Brazil’s share has dipped slightly from last year’s peak of 59%, it continues to dominate the global soybean export market. 

The U.S. soybean market is facing challenges with Brazil strengthening its position as China’s primary supplier. China has been working to become less dependent on U.S. soybean purchases, and increased production has allowed Brazil to become the preferred trading partner. According to the Foreign Agricultural Service’s Beijing post, in the first nine months of the 23/24 marketing year, the U.S. accounted for 26 percent of China’s soybean imports, compared to 69 percent from Brazil. Reports also indicate that China is dealing with an oversupply of soybeans, as recent high purchases come during subdued feed demand. This fact has hampered sales to China as we enter the peak marketing season for U.S. soybeans. While U.S. sales to China have risen recently, they are still trailing behind last year’s sales and the five-year average. As of the week ending 9/19/24, the total soybean commitments to China totaled 6.8 million metric tons, compared to 7.4 million for the same time last year and the five-year average of 10.6 million.  

                  The export outlook for U.S. soybeans is further complicated by the prospect of low river levels on the Mississippi River, a concern highlighted in last week’s article “Low River Levels on the Mississippi River: Not the Three-peat We Want” (southernagtoday.org). Recent rainfall from Hurricane Helene has improved the river situation, as the Mississippi River at Memphis is expected to rise above the low river threshold. Without a positive shift in the current export scenario, U.S. producers face lower prices as they harvest a record soybean crop. With Brazil now dominating the export market, the potential for price increases this year depends heavily on the progress of Brazil’s soybean planting season. Although Brazil has just entered its planting window, dry conditions in the central region could lead to delays. If drought conditions develop, it could create an opportunity for higher prices for U.S. producers. Current forecasts call for rain over the next couple of weeks, but rainfall remains below normal.  

Figure 1. Share of Global Soybean Exports by Country, 2010-2025

References 

United States Department of Agriculture, Foreign Agricultural Service. Oilseeds and Products Update: Beijing, China – People’s Republic of China. CH2024-0116, 2024, https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Oilseeds%20and%20Products%20Update_Beijing_China%20-%20People%27s%20Republic%20of_CH2024-0116.

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Maples, William E. “Brazil Expected to Continue Dominance of Global Soybean Exports.” Southern Ag Today 4(40.3). October 2, 2024. Permalink

The USDA Quarterly Stocks Report, representative of stocks held on June 1, indicated that both corn and soybean stocks (Figures 1 and 2) are higher than in recent years. High stocks are a bearish factor for the market as they increase the supply side of the balance sheet going into the new marketing year and have been one of many contributing factors to the price decline experienced this summer in corn and soybean markets. A significant insight from the report is how much stock is still stored on-farm versus off-farm.  On-farm corn stocks are at the highest level since 1988 and up 37 percent from last year. On-farm soybean stocks are up 44 percent from a year ago. Given the high level of stocks still being held by producers, it is appropriate to discuss the importance of having an exit strategy that allows producers to exit old crop positions in preparation for new crops. While the exit strategy ideally should be decided before grain goes into storage, some pieces of the discussion below could still be implemented this late in the marketing year. 

An exit strategy marks the official end of marketing activities for a particular crop year. No matter what type of marketing tool is used, a basic exit strategy utilizes price-driven or time-driven methods. Specific price targets guide a price-driven exit strategy. An example would be selling stored grain at X cents over the harvest price. In this case, the harvest price would be what the grain could have been sold for at harvest. Ideally, a price-driven exit strategy would divide sales up across a range of prices; an example for corn would be selling 10,000 bushels at $4.25 per bushel, 10,000 bushels at $4.40 per bushel, and the last 10,000 bushels at $4.50 per bushel. As each price level is attained, grain is sold. This strategy diversifies price targets to ensure you are not stuck with mostly unpriced grains when transitioning into the lower price environments we are currently experiencing. Another example would be selling stored grain at X cents under the harvest price. At some point, exit strategies need to be used to cut losses. Price targets serve as bookends that guarantee the producer will not be left holding grain indefinitely, speculating on a marketing situation that never occurs.

Another exit strategy is to set predetermined sale dates. This could be as simple as “I will sell all stored grain by July 31” or “I will sell 10,000 bushels the first of each month, with my final sale occurring July 31.” Setting a predetermined date forces the producer to take a marketing action. An exit strategy can have both price-driven and time-driven components, for example, selling all stored grain at $4.25 per bushel or higher before July 31^st. Being late in the marketing year, a producer can still sell their grain and maintain a position in the market by buying a call option. If it is decided to hold on to the physical grain, producers will likely need to plan to store until after harvest, as harvest pressure will decrease the likelihood of a better pricing environment.     

While the exit strategies discussed above may seem straightforward, they do a good job of curbing emotional hesitancy in marketing decisions. One of the most challenging emotions for producers to control is regret. A producer might feel regret if they sell right before a rally begins or decide not to sell before a market downturn. Dwelling on regret about past sales can make producers hesitant to book future sales.  A well-developed exit strategy can assist producers in coping with emotional bias in marketing decisions. A successful grain sale is based on sound reasoning, with each component of the exit strategy being grounded in price targets derived from production costs and time targets based on local market seasonality. This exit-strategy approach ensures that each marketing decision is reasonable and not regretted in hindsight. An exit strategy gives producers a way out of the old crop and allows them to focus on new crop positions. 

Figure 1. On-Farm and Off-Farm June 1 Corn Stocks 

Figure 2. On-Farm and Off-Farm June 1 Soybean Stocks 

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Maples, William E. “Having a Way Out.” Southern Ag Today 4(30.1). July 22, 2024. Permalink

As planting begins, it is an excellent time to review the various cash grain contracts available for producers to incorporate into their crop marketing plan. When considering contracts, the producer must understand the special features of each contract and the type of risk it is managing. Producers must also consider the effects of market movement on the contract outcome. This article outlines some common types of grain contracts and how the market can affect the contract results. Producers should speak with their local grain purchaser about the availability of the following contracts and associated fees. 

Cash Market Sales – A cash market sale is simply selling grain at the prevailing market price. A producer may choose to sell in the cash market if they deem it appropriate to sell at the market price or if they need to move old crop grain from storage to create space for the new crop. Cash market sales are risky as a marketing strategy because the market price might not be acceptable when the producer is forced to sell, especially if no other strategy is in place.

Forward Contract – A grain farmer may enter into a forward contract with a grain buyer, requiring the producer to deliver a specific quantity and quality of grain at a certain time, place, and price. This type of agreement can be made before planting or anytime during the growing season.

Minimum Price Contract – A minimum price contract is an agreement between the producer and elevator in which a producer is guaranteed either a minimum agreed upon price or the current cash price. Under this contract, a producer must pay a premium, which is relatively high in volatile markets, and any transaction charges. A minimum price establishes a price floor and allows for upside price potential without the direct use of futures and options. Additionally, the contract can provide some leverage in obtaining credit.   

Basis Contract – Basis is defined as the local cash price minus the futures price. A basis contract is an agreement in which a producer and elevator establish a basis but not the futures price. The producer can select the day on which the futures price is set. A basis contract is useful when the basis is stronger than normal or when one thinks the basis will weaken before a sale is made. Since a basis contract does not set a price, this contract does not provide price upside potential and exposes a seller to downside price risk since futures prices may move lower. A delivery obligation is established, so a producer is exposed to the production risk of fulfilling the contract.

Hedge-to-Arrive Contract  – A hedge-to-arrive contract is the opposite of a basis contract and is an agreement that allows the producer to set the futures price but leaves the basis to be set at a later date and prior to delivery. Once the basis is established, the producer will receive the futures price less the basis. 

Price Later (Delayed Pricing) Contract – A price later contract allows the producer to deliver grain and establish the sale price at a later date. Upon delivery, the title of the grain passes to the buyer. The price a producer receives will be the elevator cash price on the day the producer decides to establish the price minus any service charges. This contract allows the producer to move grain despite a relatively low price environment, but the producer is still open to downward price risk if the market moves against them since the grain is unpriced. 

Which tool should a producer use?

            Figure 1 provides a guide on when to consider using the different types of contracts. The top right quadrant of Figure 1 represents ideal market conditions. In this quadrant, futures prices are expected to rise, and basis is expected to strengthen. Contracts that provide upside price potential are attractive in this scenario. These include minimum price contracts or price later contracts. The bottom left quadrant of Figure 1 represents the worst-case scenario for market conditions. Futures prices are expected to decrease, and the basis is expected to weaken. This scenario suggests that current market conditions are better than expected. Producers will want to consider selling at current price levels with either cash sales or a forward contract. 

            The top left and bottom right quadrants represent market conditions that are somewhere in between the best- and worst-case scenarios. The top left quadrant represents expected higher futures prices but with the risk of the basis weakening. A basis contract would allow producers to limit basis risk in this scenario by locking in a basis and providing upside potential for the price. The bottom right quadrant represents the expectation of increasing basis but a lower futures price. A hedge-to-arrive contract would allow producers to lock in a futures price and limit price risk but still be able to take advantage of a strengthening basis.  

Figure 1. Best Fit Alternatives for Grain Contracts by Market Conditions*

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Maples, William E. “Cash Grain Contracts and When to Use Them.” Southern Ag Today 4(18.1). April 29, 2024. Permalink

On February 15-16, 2024, the USDA held its 100^th Annual Agricultural Outlook Forum. During the forum, USDA revealed its outlook for the domestic agricultural economy and trade for 2024. The outlook included 2024/25 crop year supply and demand projections for grains, oilseed, and cotton. USDA is forecasting lower prices for most major crops this year and growing export competition. Complete outlook reports by commodity can be found at AOF Commodity Outlooks | USDA. An important projection provided at the Outlook Forum is planted acres for major row crops as it serves as an early data point for markets to consider. This article examines planted acreage projections and what they might mean as we look ahead to the March USDA-NASS Prospective Plantings report, which is a comprehensive survey of producer planting intentions and provides a more accurate pre-planting picture of the upcoming year.

 During the USDA Outlook Forum, 2024/25 corn planted acreage was projected at 91.0 million, and soybean planted acreage at 87.5 million. If realized, this would mean 3.6 million fewer acres of corn and 3.9 million more acres of soybeans than last year. Corn acreage is expected to be reduced due to declining prices and elevated production costs. While production costs are lower than the previous year, lower corn prices will result in tighter margins. Domestic crush demand in the United States largely drives the increase in soybean acreage, even though exports are expected to face continued pressure from South American competition. Planted cotton acreage is projected to be 11.0 million acres, compared to 10.3 million acres last year. The relative prices of cotton versus corn and soybeans indicate that cotton is more competitive this year than last. 

 The Outlook Forum projections rely on model estimates and do not include a survey of producers. The USDA’s first survey of producer planting intentions will be conducted in early March and released on March 28^th in the Prospective Plantings report. Figures 1-3 compare the Outlook Forum predictions and the historic Prospective Plantings reports for corn, soybeans, and cotton. Based on an average of the past ten years, the USDA Outlook Forum has done a decent job predicting acreage compared to the Prospective Plantings report. On average, corn planted acres were under-predicted by 290,000 acres, soybeans by 200,000, and cotton by 115,000. In some individual years, corn and soybeans have experienced significant differences. For example, in 2022, the Outlook Forum over-predicted corn acres by 2.5 million acres and under-predicted soybeans by 3 million. Interestingly, the 2024/25 projections match the Outlook Forum projections for corn and soybeans in 2023. Even though the Outlook Forum projection was the same as the Prospective Plantings report for soybeans in 2023, the final panted acres still ended up being 3.9 million less. These projections are preliminary, and market and environmental conditions going forward can change producer planting intentions. Producers should closely monitor these conditions when making marketing decisions over the next month. 

Maples, William E., and Spencer J. Sanderson. “USDA Outlook Forum and Planted Acres.” Southern Ag Today 4(9.1). February 26, 2024. Permalink

Marketing plans are typically made up of two parts: pre-harvest marketing, in which producers market the crop prior to harvest, and post-harvest marketing, in which producers sell bushels during harvest or unmarketed bushels in storage after harvest.  In this article, we discuss how historical pre-harvest price movements can be used as a guide for producers when creating their pre-harvest marketing plans. Figures 1 and 2 contain boxplots that show the distribution of historical percent changes in the harvest-time futures prices for soybeans (November contract) and corn (December contract) from December to each subsequent month using data which spans from 2009-2023. Boxplots are helpful as they allow us to analyze the seasonality of prices and the associated price volatility across the year. In the boxplots, the X represents the average November soybean contract price percent change from December to the corresponding month. The bottom whisker represents the lowest 25% of price changes, the box represents the next 50% of price changes, and the top whisker represents the highest 25% of price changes. The line separating the box represents the median; 50% of observations lie below, and 50% lie above. The black dots represent outliers, values at the extreme end of the data. 

Figure 1 indicates that the highest average soybean price occurs in July, where the price is approximately 5% higher than in December; however, the median is approximately 0%, indicating that the price is only higher 50% of the time. On the contrary, the month of June has a slightly lower average price increase at 4%, but less downside risk. An interesting result for soybeans is the outliers in February and March, corresponding to the Brazilian soybean harvest window. We hypothesize that Brazilian crop or harvest issues can provide U.S. soybean producers with opportunities to market grain crops at abnormally high prices with respect to the December price. 

 Figure 2 indicates the summer months again provide the highest average corn price change, with June being the highest on average. We again find that with higher price potential comes more price variability. The May and June median price changes are near 0%, indicating equal upside and downside price risk. After June, the median becomes more negative, indicating that prices are likely to drop with expected new crop production. In May, the upside price potential ranges from 0% to 35%, while the downside ranges from 0% to -15%. 

Figures 1 and 2 put price risk in perspective as it pertains to pre-harvest marketing plans. On average, prices are higher in the summer than in December; however, these higher prices carry a significant amount of downside risk. For example, if a producer is trying to decide if they should market corn in May. The boxplots would indicate that if the price is 15% greater than the December price, price movements have been greater than at least 75% of price movements historically. Creating a solid signal to lock in the higher price. These charts may also indicate the usefulness of option contracts, such as establishing a futures market price floor through purchasing a put option or building an option spread strategy. The summer months have wide trading ranges, by using an option producers can lock in a price floor but leave themselves open to upside potential. 

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Maples, William E., and Grant Gardener. “Using Historical Price Movements to Inform Marketing Decisions.” Southern Ag Today 3(51.1). December 18, 2023. Permalink