Posted on July, 19, 2024 at 10:15 am
In the latest round of April export data published by the U.S. Census Bureau — USDA’s preferred export metric — corn volumes and revenues popped back up from 2022-23 lows, which echoed slumps during the trade war era. And both metrics were the 17th-largest monthly totals on record — not too shabby, though still below peaks from 2021-22 and 2020-21.
Peak corn export season tapers off in late June. Last year, monthly export volumes slipped precipitously after May, so the fact that weekly volumes were still strong in early June indicates that month’s shipping volumes may not be as weak as a year ago, particularly since more exportable U.S. supplies are on hand this year.
The revived corn exports should set farmers up for success through the remainder of the summer. Historically, ethanol production trends higher through the summer as consumers take to the road for vacation.
After a dismal spring for ethanol output but strong corn export paces, ethanol producers are more likely to offer farmers competitive cash bids in the weeks leading up to pollination. If we see hot and dry weather that limits pollination across the Corn Belt in late July, ethanol processors could be forced to up those bids.
When flooding hit southern Brazil in early May, nearby soybean futures rallied to a four-month high. Over the past few years, soybean prices have typically been falling during that period. So that should be good news for farmers, right? Not exactly.
At this time of year, soybean consumption often depends on domestic-crush end users, with export volumes from Brazil enticing international customers away from U.S. export terminals. So, when the Biden administration announced that Chinese imports of used cooking oil would be exempt from tariff increases designed to protect domestic producers — specifically the electric vehicle industry — it sent soy oil prices tumbling.
Used cooking oil has a low carbon intensity score, making it a more lucrative feedstock to be used in renewable diesel production than soy oil. Crushers were suddenly faced with pressure on both sides of the profit statement — higher inputs from soybeans and lower revenues from sales of soy oil.
The tightened crush margins resulted in drastically fewer soybeans crushed in April, a trend that is likely to continue without any consumption help for both soybeans and soy oil through the remainder of the summer. But that scenario, even if realized, will be temporary.
With five new crush plants and two plant expansions expected online by year-end, farmers with extra bushels in the bin may have to wait until harvesttime when those plants start running or until peak export season in fall for profitable opportunities to move product.
In July, winter wheat harvest is in full swing across the Northern Hemisphere. Over the past several years, high wheat prices have given U.S. producers peace of mind at harvest, even though yields may have been lacking. But will that be the case this summer?
The answer to that will depend on how harvest activity shakes out across the Northern Hemisphere. In early June, USDA’s production estimate for 2024-25 Russian wheat production stood at 3.23 billion bushels.
Market analysts expected that figure could drop below the 3 billion benchmark, especially as drought persisted in Ukraine and western Russia, while spring wheat crops in Siberia were bogged down by rain. Trimming too much more from Russia’s harvest could constrain the global balance sheet, especially if persistent dryness lingers over Canada, the third-largest global exporter.
Through early spring, farmers hadn’t changed their 2024 marketing plans much from a year ago. A Farm Futures study in March found they only priced about 46% of new crops as of March 1, the same as the year before. That suggests farmers weren’t eager to take any extra price risks with their crops before the weather issues in the Northern Hemisphere eroded.
But don’t turn down harvest prices that are profitable this summer. It’s a La Niña year, which means Australia will likely harvest a competitive crop late in 2024 and early 2025. U.S. producers might see some residual demand from short-changed Black Sea buyers soon, but a bird in hand is always better than two in the bush.
Summer for ag input markets means a renewed focus on fuel and fertilizer. Luckily, this year, there is no shortage of conversation about both of these items as farmers begin to plan for harvest this fall while also preparing for next year’s crop.
Even with ongoing turbulence in the Middle East, two factors — strong reserves and plans by OPEC+ to boost production later this year — are helping to keep diesel futures prices trading near one-year lows as of early June. Cash prices in the Midwest were trending at a discount to futures at that time, offering farmers lucrative deals on summer and even fall fuel prices.
But a hot end to spring across the Northern Hemisphere depleted surplus reserves for another fuel derivative: natural gas. Natural gas is a critical input for fertilizer synthesis, both in terms of raw ingredients and energy for manufacturing. Natural gas accounts for 70% of raw materials and energy inputs required for anhydrous ammonia production.
After several years of pandemic and supply chain madness, fertilizer producers have finally ironed out the kinks in their production processes. But the hot start to summer means that natural gas prices nearly doubled between late March and mid-June.
Nearby natural gas contracts broached six-month highs in mid-June, leaving fertilizer producers saddled with a sudden spike in input costs during peak summer production to restock supplies.
That means that even though spring demand from farmers was robust this year, the higher input costs could limit fertilizer producers’ will to ramp up production volumes, particularly if prices are to remain below pandemic-era highs.
For farmers, that could mean that there aren’t going to be many breaks on fertilizer pricing, particularly as summer approaches. If you can find a good deal on fall or spring fertilizer supplies, or if you have the cash and storage capacity to eliminate some of that price risk for your operation, I suggest you take it.
I realize, however, that isn’t possible for all of our readership. Many producers need to plan for higher yields or other cost-saving measures to help offset the higher fertilizer costs that are expected down the road.
Source: Farm Progress