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The 2023-24 corn crop seems to have largely shrugged off worries around drought and unfavorable weather. In the latest World Agricultural Supply and Demand Estimates report, USDA pegged new-crop yield estimates at 173.8 bushels per acre, just above average consensus calls for 173.5. Ending stocks were also forecasted above expectations at 2.221 billion bushels. 

Still, yields and crop conditions could vary widely across the country. While parts of the Midwest received timely and beneficial rains, other key growing areas remain dry. A lack of moisture is also cutting into acreage, with USDA reporting 1.432 million acres as prevent plant in September, up from 1.421 million in August. Failed acres rose to 54,055, up from 40,186 the month prior.

Basis values are expected to vary across the Midwest as local supply will be a direct reflection of summer weather. At present, ethanol producers are pushing a premium into their local markets. River logistics are driving a discount in that draw territory, but a rebound in values is likely once harvest wraps up and cash-flush farmers hold tight to their product heading into the 2024 calendar year.

Soybean Prices Drop on WASDE Report, but Supply & Export Factors Support Long-Term Outlook

Meanwhile, soybean yield came in at 50.1 bushels per acre, in line with forecasts, while ending stocks were estimated at 220 million bushels, above expectations for 207 million. Prevent plant acres rose to 470,888, while failed acreage climbed to 15,252.

Though soybean prices dipped on the heels of the WASDE report, supply concerns linger. Yields below 50 bpa would put US balance sheets in a tight spot, leaving limited inventory. At the same time, soybean exports are faring better than corn, as cheaper prices and seasonal needs lead China to pick up more US product. This not only supports soybean futures longer term, but will keep protein pricing elevated as well.  

Heading into harvest, concerns are turning to the Mississippi River, where a lack of rainfall is once again weighing on water levels. Barge rates are rising in response, climbing 42% year-over-year during the last week of August. Little relief is likely ahead, as forecasts call for underwhelming precipitation totals in the upcoming weeks.

Milk markets also remain under pressure, weighing on producer profitability. Margins under the Dairy Margin Coverage program dropped to $3.52 per hundredweight, the lowest level since 2012. Milk prices are expected to improve in the months ahead, though improving milk production and so-so dairy demand are likely to keep upside somewhat limited.

There’s a lot of chatter about the future of transportation in the US. There’s the loud, and affluent, push towards electric vehicles, assisted by tax incentives and state plans to ban traditional commercial vehicles, as seen in California. 

But there is another emerging industry, though not as loud, that agricultural producers are cheering on. The California Low Carbon Fuel Standard, created in 2011, pushed to convert to biomass-based diesel, known as renewable diesel, based in soybean oil and other feedstock oils. It uses the same process to refine crude oil that creates diesel, functions just the same, but meets the same low-carbon, sustainability initiatives as EVs. The excitement for grains is the implied increased demand expectations. For the first time since the LCFS was created, renewable diesel use surpassed conventional diesel consumption in California.

This is complimented by another industry that loves the idea of expanding renewable fuels, as opposed to transitioning fully to electric: commercial airlines. Sustainable Aviation Fuel rose as a top priority throughout 2022 as airlines recognized their emissions contributions but couldn’t see a future where electric engines replaced jet engines. The opportunity for grains is the expansion of what qualifies for blending in SAF, such as the inclusion of all feedstock byproducts like soybean oil and corn ethanol.

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.

We appreciate and thank our sponsor partner in this report – CHR HANSEN