Speakers at AGP Event

Strong oilseed prices not enough to shift balance of ’23 U.S. corn-soy acres

February 2, 2023 | Aaron Putze, APR

Will drought hold in Argentina? Will China’s hog numbers rebound? Will U.S. farmers plant more acres to soybeans than corn this year?

No one knows for sure, but grain analysts keynoting Ag Processing, Inc.’s annual meeting in Omaha did their best to provide answers. How their predictions pan out will go a long way toward determining profitability for the more than 1,000 farmers and grain industry stakeholders attending the two-day event that concluded Jan. 21.

“The line of business you’re in as soybean farmers is very healthy,” said market analyst and farmer Elaine Kub.

With market prices in the low-$15s, crushers are experiencing margins of more than $3 per bushel. The profitability is fueled by meal and oil values of $11.43 and $6.94 per bushel, respectively.

“Those are attractive margins and they’re likely to continue into planting season,” said Kub, who raises livestock and produces row crops in her home state of South Dakota.

The soybean market’s strength perseveres despite a softening of oil prices. Last year, oil and meal roughly halved the per-bushel value of the legume. Today, oil represents 38% of the market value of soybeans.

Soybean meal continues to be the significant market driver of soybean prices, due to strong pork, poultry, and egg demand.

“While retail egg prices have spiked to more than $4 per dozen since last summer, there’s no sign of consumers rationing their demand,” said Kub, a frequent guest on Iowa Public Television’s Market to Market program sponsored in part by the Iowa Soybean Association.

That bodes well for soybean meal demand as producers repopulate flocks following last year’s outbreaks of high-path influenza.

Soybean prices are also supported by tight U.S. inventories. Following a U.S. harvest of 4.6 billion bushels, the U.S. Department of Agriculture pegs ending stocks (production less demand) of just 210 million bushels.

“That’s a 4.8% stocks-to-use ratio,” said Kub. “Anything less than 10% is bullish for market prices.”

While soybean meal demand continues to drive soybean prices, farmers would be wise to monitor the rise and fall of crude oil. A multi-decade tracking of the price of palm, canola and soybean oil values finds they correspond almost perfectly with their non-edible oil competitor.

“It’s expected that crude oil prices are going back up as China’s economy comes out of its doldrums and Russia exports remain impacted by sanctions,” Kub said. “Higher oil prices will be a mover for the vegetable oils and thus, overall bullish for soybean prices.”

Despite the positive market dynamics, soybean farmers shouldn’t delay in making sales as they prepare to head to the fields this spring.

“Don’t be complacent,” Kub advised. “Inflation, drought in Argentina and Russia’s war with Ukraine have combined to boost domestic commodity prices. But as these concerns wane, the price farmers receive for soybeans will, too.”

Zaner Ag Hedge Group’s Ted Seifried also provided a corn market analysis.

Key take-aways:

  • January USDA report showed big drop in 2022 harvested corn acres (1.6 million acres), largest January reduction on record (1.2M in 2002)
  • Net result was a 200-million-bushel reduction in U.S. production; this was offset by a 185-million-bushel reduction in demand.
  • Of concern is a 434-million-bushel decline in domestic feed demand.
  • Shrinking cattle herd and poultry flocks mean less corn needed to feed these animals. “Demand destruction is occurring,” he said.
  • Corn exports have flipped dramatically last four years. Current USDA projection for 2023-24 is lowest since 2015-16 and 30% below 2020/21.
  • Corn export sales running 47% below this time last year.
  • Chinese demand for corn running well below historical numbers.
  • Ukraine corn exports picking up (they typically export 80% of its crop); question is whether this trend will continue as Russia’s war with Ukraine continues to evolve.
  • U.S. continues to lose corn export market share with Brazil coming on strong.
  • Ethanol production had a dramatic drop in December due to harsh weather; both gasoline and ethanol demand has been mostly below last year.
  • Argentina dealing with worst drought in 60 years. USDA lowered Argentinian production 3 million metric tons (MMT) to 52 MMT; that amount of reduction so early in the year is nearly unprecedented. More cuts to come if weather pattern doesn’t change soon.
  • Longer term weather forecast getting better for Argentina, but it may come too late to help this year’s crop.
  • Argentina will likely have a sub-50MMT corn harvest but not the disaster of 40-42MMT that some have predicted.

Seifried said this year’s U.S. corn crop will likely be the most expensive ever planted.

“High growing costs are causing some to be concerned about 2023 acreage. Take advantage of the price situation now if you’re going to push corn acres.”

While it’s difficult to justify where corn prices currently are, it’s unlikely to cause any wild swings in U.S. acres planted to corn and soybeans.

“The market is asking for soybean acres,” Seifried said. “That said, don’t be surprised if the corn-soybean battle for acres is a draw, with farmers planting 88 million of both.”

Putze serves as Sr. Dir. of Information & Education for the Iowa Soybean Association. Agree or disagree with Kub and Seifried? Let Aaron know at aputze@iasoybeans.com.