Supply Issues. Demand Issues. Volatility.

There’s no clear path of least resistance for the global grain markets in 2025. It’s true the implementation of U.S. tariffs on imported goods — and the near guarantee of retaliation from other countries — challenges trade and overall global food consumption growth. But there’s also been no evidence since 2016 that global crop yields are increasing adequately – and certainly yield expansion has bene rather disappointing compared to the decade preceding 2016. Volatility is the only given in the outlook for the coming marketing year. Being aware of the many issues that could influence market prices — weather patterns especially — is imperative to managing risk in a volatile year like what’s expected through 2025.

Global major crop yield growth has stagnated. In 2010, 2011 and 2012, then-record corn and soybean prices triggered widespread improvement in farming practices and investment in new technology worldwide. The trend had most momentum in developing countries like Argentina, Brazil and Ukraine. The world’s combined corn, wheat, barley, sorghum, soybean and canola yield between 2010 and 2016 increased 15%, on average by 1.8% per year. Then in 2021, corn and soybean prices hit new records amidst a seven-year period when crop yields only increased by 2.5%.

Weather remains a challenge to global crop output; drought in South America and potential moisture extremes in the U.S. based on changes in the El Niño/Southern Oscillation (ENSO) could exacerbate the issue of stagnant world crop output in the coming crop year. Any buildup of grain stocks in the 2024/2025 marketing year will be minimal, with many expecting global corn stocks to actually contract in the coming year. This leaves U.S. farmers little room for error in hitting yield goals this fall.

Entering the key rainy season for Mato Grosso and Goias, Brazilian crop weather will be a key market variable to watch heading into March and April. Though world soybean supplies are adequate today, South American growing conditions will be even more important to market direction given that U.S. farmers expect to plant fewer soybeans this spring.

USDA since November has been trimming the world’s exportable corn supplies due largely to reduced U.S. production. Exporter corn stocks/use is now pegged at 7.5%, which compares to 14.5% in 2016/17 — a time of clear oversupply — and which is the third lowest on record in what’s known as the “ethanol era.” World corn supplies are not abundant. Note also USDA’s forecast assumes weather in Argentina and Brazil will be normal over the next 90 days.

But unlike 2021 and 2022, and even unlike 2011 and 2012, it’s clear there’s no new demand driver. In fact, AgResource’s research agrees with USDA in projecting major crop global trade contraction in 2024/25 — and for the first time since time since 2017/18.

The core of the issue is a rapidly changing Chinese economy. China’s current economic malaise is probably general in nature, and it’s fundamentally based on a shrinking Chinese population. China’s population in 2022 and 2023 declined by a combined 2.9 million people. The international monetary fund projects China to lose another 4.8 million persons between 2025 and 2028. Fewer people will produce and consume things. Chinese imports of corn and soybeans are down sharply from last year. China’s domestic corn soybean meal markets remain stuck at multi-year lows, yet it still appears the Chinese economy needs more imported foodstuffs.

Currencies are also an issue. The U.S. Dollar in the last 90 days has rallied 4% to a new 27-month high. Strength in the U.S. Dollar Index by itself isn’t overly relevant except it serves as a proxy for currency weakness elsewhere. Weakness in the Egyptian pound, for example, has served to decimate Egypt’s purchasing power in the world market. CBOT wheat futures since January 2022 have fallen 27%. CBOT wheat valued in Egyptian pounds, meanwhile, has more than doubled. Egyptian wheat imports in crop year 2024/25 are projected to increase by just 150,000 metric tons to 12.5 million metric tons. This reflects growth of just 1%. Similar currency dynamics are weighing on Chinese corn, soybeans, wheat and dairy imports. And weakness in the Brazilian Real and Argentine Peso will work to aid producer revenue — thereby maintaining the incentive to production — in 2025 and very likely in 2026.  

Global weather patterns, as always, are most important. War in Ukraine, which is unlikely to end in the short run, and rapidly changing geopolitics add to volatility. Be prepared. Outright bullish trends will be hindered by a lack of demand growth. Outright bearish trends will be unsustainable until both Northern and Southern Hemisphere producers find ways to attain yields at or above trend. As a result, wide-swinging markets lie ahead.

Brazilian weather in March and April, and U.S. and Black Sea weather between May and August, will determine whether spot CBOT corn is fairly valued in a range of $4.50-5.20, or $3.80-4.50, and whether soybeans stay touch $11.00, or trade below $9.00. Only Mother Nature knows.

Source: World Grain