Demand a key driver for near-term grain markets

January 31, 2023
Joe Lardy, market intelligence and insights specialist with CHS Hedging, provides a market update for the new crop year.

Farmers are watching commodity prices closely as weather reports from South America put pressure on U.S. grain markets. Joe Lardy, market intelligence and insights specialist with CHS Hedging, says more global supply and less demand from key importing countries could continue to create uncertainty for U.S. markets.

Weather supports a strong grain supply

Recent rain events in Argentina and Brazil are boosting South American crop yield estimates. Lardy says Brazil will likely have a record crop of more than 150 million tons, and Argentina could add production compared to recent years. “There has been some pressure on commodity prices lately because of these reports coming out of South America. We expect they will have a strong production season, driving up supply,” says Lardy.

There’s also been a weather pattern change in the U.S., with significant snow and rainstorms delivering much-needed moisture to drought-stricken Plains states. “We’ve had the poorest winter wheat crop conditions we’ve seen in a long time. However, recent moisture will help recharge the soil in some critical production areas. We see a bit of pressure on prices as a result,” says Lardy.  

Demand remains questionable

With the supply side of the price equation firming up, Lardy says demand will be a key driver for near-term markets. “The USDA reduced projected Chinese soybean imports by 2 million tons in the latest WASDE report. This may not sound significant, but it signals a trend for our export market,” says Lardy.

Even though China’s COVID-19 restrictions are loosening and its businesses are rebuilding, expectations for Chinese soybean demand are uncertain. “We can’t seem to get China over that 100 million-ton mark, which is where we’d like to be from a demand perspective,” says Lardy. “There’s not as much demand and more competition in the market than I’d like to see right now.” He says the declining Chinese import trend is troubling, especially considering the record crop expected from Brazil.

Spring market planning

With balance sheets demanding more acres for most of the major crops, Lardy says it will be an interesting spring for marketing. A recent CHS Hedging analysis of January high prices was revealing: “As far back as 1994, we’ve eclipsed the January high at some point in the year nearly every year. It’s pretty safe to say that once we know what that January high is, we’ll use the month of February to set the insurance price. That gives farmers two critical data points to compare a marketing plan for the rest of the year,” says Lardy.