What’s next for high U.S. grain demand?

June 1, 2021
Kent Beadle, commodity and financial markets analyst for CHS Hedging, discusses the global factors contributing to recent grain market fluctuations and what those ebbs and flows could mean for U.S. farmers.

The end of the 2021 planting season brings uncertainty about the true number of corn and soybean acres planted in the U.S. Combined with domestic weather woes and questions about the extent of Chinese demand, it’s easy to understand why there is significant market uncertainty around grain prices.

“The USDA Prospective Plantings report at the end of March had about 316 million acres dedicated to principal crops,” says Kent Beadle, commodity and financial markets analyst for CHS Hedging. “The USDA had previously suggested that number might be closer to 319 million. At a minimum, that means the marketplace believes there are probably 3 million additional acres that will be planted, likely in corn, given the prices we’ve had recently. As a result, that’s where you get some of the acreage estimates, such as a recent one from IHS Markit that said corn acres might be at 96.8 million.”

The marketplace has been quick to adopt the larger number, says Beadle, and that’s part of the reason for recent downward pressure on markets. “In our opinion, we’re not going to see a number quite that high and we anticipate we’re going to end up with about 93.5 million corn acres, which is still a decent jump. We also expect another 500,000 potential acres of soybeans, some of which might come at the expense of wheat in North Dakota.”

Weather woes impacting crop success

Farmland in the U.S. has seen recent recovery from drought conditions in some areas, including Iowa, as adequate moisture arrived from the Gulf of Mexico. However, areas of Minnesota and North Dakota remain very dry.

Market analysts are also watching South America – especially Brazil –  where farmers are growing their second crop of corn, known as the safrinha crop. Trade estimates for the size of that crop have recently dropped fairly dramatically. “According to USDA, they were at 109 million tons going into the May report, and they have lowered that projection to 102 million tons,” says Beadle.

“A number of trade estimates putting the safrinha corn crop in the low 90s and a few are even below 90 million,” he says. “We’ve seen a few forecasts that put some rain back into the central part of the country. Moto Grosso, in northern Brazil, is actually doing just fine. But further south, into Rio Grande do Sul and Parana, they just haven’t had much rain and it doesn’t look like they will. We’re watching for any change in that situation, but we think the smaller corn crop in Brazil is ultimately going to be very good for U.S. corn exports for much of next year.”

China purchasing corn

China has purchased a significant amount of U.S. corn, but dips in that volume have led some to question the steadiness of Chinese demand. Corn prices in China are still quite high — more than $10 per bushel — and indications are that the country still needs corn, says Beadle.

“We’ve seen our export shipments and inspections on a weekly basis topping out at 700,000 tons to more than 1 million tons per week,” he notes. “We anticipate that will continue and we’re not looking for much in the way of old crop cancellations. The purchases China had been making were from new crop, with old crop purchases pretty much done. However, because of the small South American safrinha crop and concerns about its own domestic prices and commodity inflation, China continues to buy.

“They ran their stocks down fairly low during the trade war,” he adds, “which is something that’s not necessarily reflected in USDA statistics, but their price belies the true situation in China. They’re very active in the new crop timeframe. We think the size of the program is going to be somewhere between 12 to 15 million tons at a minimum. We’ve currently announced about 9 million tons of that, but we think there’s more purchasing — both new crop corn and new crop soybeans — for China to do.”

China hasn’t been as active in the soybean market recently due to the size of the Brazilian soybean crop, which was a bit larger than anticipated, says Beadle. China is currently executing out of South America, but he says that will change in July or August when a fairly active pace of new crop soybean sales begins.