February 01, 2023

Various factors impacting corn, soybean markets

DEKALB, Ill. — Historically high corn and soybean prices don’t tend to last for a long period of time.

“For 2022, we ended the year higher than we started, which was a bit of surprise, but it was a pretty bumpy road along the way,” said Joe Janzen, University of Illinois assistant professor of agriculture and consumer economics.

“The market maintained an inverse where old crop is higher than the new crop through the year for both corn and beans,” said Janzen during a presentation in DeKalb at the 2023 Illinois Farm Economics Summit, hosted by University of Illinois Extension and the farmdoc team from the U of I Department of Agricultural and Consumer Economics.

“That signals to us that the world supply and demand will ease somewhat going into the future, and by the fall of 2023, the market expects lower prices,” he said.

Janzen highlighted some of the factors that impacted corn and soybean prices during 2022.

“South America harvested a much smaller crop in early 2022 than normal, which lit a fire under the bean market, moving it to just sub-$15,” he said.

Then there is a war in Ukraine.

“That is more of a corn and wheat story, which got us to high prices levels,” Janzen said. “In the summer, the Ukraine/Russia grain deal made it possible to move some of the grain tied up in Ukraine, which eased the overall expectations about supply and demand.”

Strength came back into the markets when the U.S. corn and soybean crops were not as big as anticipated.

“The corn prices moved back to $7 coming into harvest,” Janzen said. “That’s relatively rare for the market to rally at harvest. That’s not a typical story.”

There has been a little strength in the soybean market on the basis of South American weather.

“That is something the market will trade for the next month or so as harvest ramps up in that part of the world,” Janzen said.

Although there has been a lot of volatility in the corn and soybean markets, Janzen said, there was a lot more volatility in the wheat market.

“Starting with the war between Russia and Ukraine, the rally almost doubled the wheat future prices and then the market gave all that back mainly in the summer with the Russian grain deal,” he said.

“Russia has a huge wheat crop and other parts of the world harvested substantial amounts of wheat,” he added. “The world doesn’t need U.S. wheat in the same way it needs corn and soybeans because the world has a lot of places it can go for wheat.”

Corn exports have been really soft during the last year.

“There was a little strength in November when Mexico made significant purchases of U.S. corn,” Janzen said. “That was one of the biggest single purchases of U.S. corn in history, but it was not enough to get us close to the pace we need to be on to meet expectations.”

If corn export demand continues to be soft, that helps to rebuild stocks.

“When the stocks-to-use ratio is below 10%, we’re in volatile prices like we’ve seen during the last two years,” Janzen said. “Above 10%, corn prices need to move lower to ration supply and demand.”

The export pace for soybeans has been pretty strong, above the trend-line level, Janzen said, even with a large South American corn and soybean crop coming to the market.

“Export sales tend to slow this time of the year because supplies are coming to the global market from South America,” he said. “But we should be able to get to the projected level based on sales that we’ve made already this year.”

As farmers focus on the 2023 planting season, Janzen said, the number of acres planted each year has been quite steady.

“The number of acres planted to all crops is about 320 million acres over the last decade,” he said. “There is maybe a little room to expand acres in 2023, but we’re not going to see a surge in planted acres.”

Soybean prices are typically two to three times more than corn prices.

“When the price is closer to two, the market is favoring corn and when it is closer to three, the market is favoring beans,” Janzen said. “The breakeven level is around 2.3 and the signal is pretty neutral right now.”

For corn acres, Janzen expects U.S. farmers to plant a little more than 92 million acres.

“That will help us rebuild corn supplies,” Janzen said.

“For the feed and residual use, I’m not as optimistic as the USDA because I think there’s a lot of uncertainty in the cattle business and there’s a growing realization that Brazil will be a strong competitor in the global market especially for corn moving into China,” he said. “Chinese export demand has been a source of strength for our exports.”

“I think $6-plus corn persisting for a third consecutive year is unlikely,” he added. “We could get a production surprise, but that is not something we want to bet on.”

Janzen expects more strength in the soybean market in 2023 than the corn market.

“We have really strong domestic demand including the crush plants being built to meet the demand for renewable diesel,” he said. “That is not something that will move the market 50 cents in a day, but it is something providing strength to the soybean market.”

The market signals are neutral for farmers to plant corn versus soybeans in 2023, Janzen said.

“We went heavy on soybean acres in 2022, so that suggests higher corn acres in 2023,” he said.

Martha Blum

Martha Blum

Field Editor