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Corn and soybean meal markets are moving lower this month on the heels of new USDA data. But weather remains a watch factor, particularly as key growing regions remain under dry and drought conditions.

US farmers put more corn in the ground this year, according to a new Acreage report. Corn acres totaled 94.1 million for the 2023-24 crop year, well above pre-report expectations for 91.9 million acres and ahead of USDA’s March Prospective Plantings report of 92.0 million acres. Iowa is expected to plant the most, at 13.4 million acres, but acreage is expected to increase across the I-States and into the Northeast.

Meanwhile, quarterly corn stocks, released at the same time as acreage, came in below expectations at 4.106 billion bushels. That was down 45% from the quarter before and offered some explanation for stronger basis numbers across the country heading into the final quarter of the crop year.

The July WASDE report also estimated lower monthly ending stocks of 1.402 billion bushels, well below forecasts and down 50 million bushels month-to-month. And new-crop yield estimates declined to 177.5 bushels per acre, within expectations but down from 181.5 bpa in June.

Despite lower stocks and yield numbers, ample acreage, weak export demand and timely rains are weighing on corn futures. Questions around supply and demand will remain difficult to answer until harvest commences this fall. Until then, the market is at the mercy of weather forecasts for another 60 days. Employing option-based strategies to remain flexible, yet protected is a sound approach to managing price risk as feed values. While many look to compare the current corn crop to that of 2011-2012, this year is offering unique challenges. Improved genetics and just-in-time precipitation make it nearly impossible to accurately estimate yield this early in the season.

On the other hand, soybean acreage was reported at 83.5 million acres for the 2023-24 crop year, falling below expectations and the March estimate of 87.5 million acres. Planting states in the South and Midwest reported the biggest pullbacks in plantings. However, the July WASDE included a cut in old-crop exports, allowing for a small increase in soybean ending stocks for both the 22-23 and 23-24 balance sheets, on the high side of consensus calls.

Amid improving soybean stocks and recent rainfall, soybean meal futures have broken from their June highs, but have yet to dip all the way back May’s low. EPA’s new biofuel blending mandate calls for biofuel volumes to increase over the next three years, but not at the same pace as new crush capacity. Private investment could buoy biodiesel demand in the years ahead, adding some pressure to protein prices. But questionable soybean yields and lower demand for soy oil have limited the downside opportunity in meal futures for the short term.

A higher floor is likely now in place for protein prices, and support in the $380-390 range appears to be building for the December 2023 soybean meal contract. Buying physical product at the low end of this new range is an attractive place to start owning some new-crop tons, but only until we get a look at South American crops in the spring of 2024. After last year’s devastating drought in Argentina, a return to normal in the region could bring a softer tone to the protein space.

As grain prices have moved lower, so have milk prices. While futures are signaling a slowdown in milk production, there have been few signs that supply is starting to decline. In the Mideast, specifically, May milk production ran roughly 2% ahead of prior year levels, supported in part by an 11,000-head boost in cow numbers from a year ago.

Beef Prices Support Culling, but Supply Contraction is Slow

High beef prices should, in theory, encourage producers to start culling animals that are struggling to pull their own weight and recent slaughter data points to greater-than-average culling over the past few weeks. Plus, with lower heifer replacement inventories, there are fewer animals available to quickly fill barns. But if history is any indication, it always takes longer than we think to see meaningful supply contraction.

Dairy Margins Shrink as Grain & Milk Prices Move Lower

This monthly report is brought to you by Ever.Ag’s Feed Foundations Team. The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. By law we must state the information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results.

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