October 17, 2023
Chris Ludwig, who leads corn trading and risk management at CHS, discusses grain and oilseed supply and demand and what it could mean for U.S. farmers.
Harvest is underway across the U.S., providing a clearer look at how this year’s crop is shaping up. Although drought has impacted yields in many regions, Chris Ludwig, who leads corn trading and risk management at CHS, says the outlook is positive.
“We’re seeing mixed results on this early harvest, but overall, there has been optimism and some better-than-expected yields,” says Ludwig. “There are areas that were very dry that are seeing lower yields, but everything right now is being reported as expected.”
Grain Stocks Report Findings
According to Ludwig, the biggest surprise revealed in the latest USDA Grain Stocks Report was wheat stocks, which came in higher than expected.
“Wheat stocks were higher than the market expectations in nearly every class of the crop. Hard wheat in particular was up around 50 million bushels, which is about 10% of what the market thought carryout would be,” explained Ludwig.
Corn stocks, on the other hand, ended up being lower than expected at about 80 billion bushels. As a result, corn carryout from last year is expected to be a bit smaller coming into this marketing year.
“I would expect that carryout in corn is still going to be somewhere between 1.9 to 2.1 billion bushels, which is a comfortable area,” Ludwig says.
Corn Demand Predictions
Globally, the supply of corn and soybeans has been very strong, particularly from Brazil. This is contributing to higher global stocks and carryouts for commodities. Simultaneously, a strong dollar is making U.S. commodities more expensive to world buyers.
“We’re starting to enter a period where the market is leaning toward a supply push, meaning the rise in prices is emerging from the supply side,” Ludwig says. “For an export standpoint in the U.S., we should still get the numbers we expect to see. However, we have a lot to compete with on the global stage when you factor in the corn coming from Brazil and even Romania, so our numbers may feel a bit softer than expected.”
One bright spot Ludwig pointed to is continued strong demand for corn to produce ethanol.
“Ethanol margins are about twice what we would expect,” he says. “We’d expect ethanol plants should be doing everything they can to run full-out and gain those margins. And these margins are profitable – they can be booked out through the first quarter of next year.”
Impact on Marketing Plans
Ludwig recommends farmers evaluate their marketing strategies relative to interest rates.
“Interest rates are high right now and that’s been one of the biggest changes this year,” explains Ludwig. “Farmers need to think about what kind of interest they’re foregoing by hanging on to commodities. Right now on soybeans, it could be 8 cents per bushel a month. On corn, it could be 5 cents per bushel a month. So, as you’re making decisions on whether to sell or hold, interest has got to be a part of that equation.”
Marketing tools are available for farmers to guard against dips in the market and take advantage of upswings, Ludwig says.
“Look for a local contract with a floor mechanism in it,” he says. “The service fee should be reasonably priced and the floor price can protect you on any downside that might happen while allowing you to take advantage of market upsides.”
Any information or opinions presented is for general informational purposes only and does not constitute trading, legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. CHS makes no warranties, representations or undertakings, whether express or implied, about any information or opinions and shall not be liable for the use of any information or opinions, or any inaccuracies or errors therein or omissions therefrom.