Inside the Market

After the record corn harvest of 2023, it became clear the era of 2-billion-bushel (bb) corn surpluses was back, and prices would have to find a new, lower trading range. For soybeans, there was also a bearish adjustment, but it was more gradual. A modest U.S. soybean harvest in 2023 was followed by a big soybean harvest in Brazil in early 2024, which cut into demand for U.S. soybeans and pushed U.S. ending soybean stocks up, from 264 million bushels (mb) in 2022-23 to 345 mb in 2023-24.

The start of the 2024-25 season had potential to tilt supplies in either direction and got off to a rough start, as numerous bouts of severe weather hit major producing states from late April through June. High winds, tornadoes, hail and flooding damaged crops in high-yielding areas more often than usual. Pockets of damaged acres are still lurking across the country, outnumbered by healthy corn and soybean crops that benefited from the best soil-moisture conditions the Midwest has experienced in at least four years.

USDA's "World Agricultural Supply and Demand Estimates" (WASDE) report on Aug. 12 predicted a record corn yield of 183.1 bushels per acre in 2024 and a record 4.589-bb soybean crop. The estimates were supported by approximately 14,200 producer surveys, weather data and acreage records from the Farm Service and Risk Management Agencies. The corn and soybean estimates, however, won't include field-based yield data until Sept. 12, so there is still plenty of room for error.

For producers, the tragic side of this year's big crops is that corn and soybean prices have collapsed to levels not often seen, especially since 2007, when the rise of the ethanol market increased farm profitability. As I write this in mid-August, the price of December corn is $3.90 a bushel, 19% below USDA's estimated cost of production. The last time December corn prices were this unprofitable was in the summer of 2020, when markets were frightened by the global pandemic and talk of a possible 3-bb carry. In terms of supply prospects, today's corn market is not that bad. Demand is moving cheap corn at a near-record pace.

For November soybeans, the current price of $9.60 a bushel is 18% below USDA's cost of production estimate. That level of unprofitability has not been seen since 2018 and 2019, two years of tariff disputes with China, when annual U.S. soybean demand dropped below 4.0 bb. Again, today's soybean demand is much better than those two earlier years, but I must admit the threat of Brazilian expansion may hang over prices again in 2025.

My argument is that prices are too cheap from a fundamental view, and I can show several times in the past when a surprise came along and shook markets out of their bearish doldrums. Unfortunately, high interest rates are currently encouraging specs to be heavily short in corn and soybeans, and it is difficult to say how long this bear will last. We've been in this spot before, but it never seems to get any easier.

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