2024 Grain and Oilseed Outlook

Contributed by, Dr. Robert Maltsbarger, Senior Research Economist, University of Missouri 

Surprising results in the face of drought

In summer 2023, a swift transition from La Niña to El Niño brought forth a period of transition in weather patterns. This climatic phenomenon likely contributed to another year of drought across key agricultural regions in the U.S. Although, soil moisture conditions saw some improvement in northern Texas and parts of Oklahoma, drought conditions persisted in Kansas, Nebraska and portions of South Dakota, and expanded across the Midwest. Despite these challenging conditions, USDA’s final crop estimates for 2023, reported in the January WASDE, revised soybean and corn yields and production higher, with corn achieving a new national record.

Seemingly, a poor growing season

Spring planting and summer growing conditions in 2023 were increasingly pessimistic as farmers reported a lack of rainfall and its potential impact on yields. The U.S. Drought Monitor consistently indicated expanding and worsening drought conditions, ranging from abnormally dry to exceptional drought across parts of the Corn Belt. The dry weather prompted market support for corn and soybean futures prices through most of June. However, USDA’s June acreage report brought a surprise, with corn planting area revised up 2.1 million acres and soybeans down 4 million acres compared to the March planting intentions report. This acreage shift countered previous bullish weather-related support in the corn market, and eventually, rumors of timely rains in the eastern Corn Belt kept corn prices on a bearish slide through harvest.

On the soybean side, the reduction in planting area added bullish support in July. Despite some volatility and seasonal bearish pressure at harvest, nearby soybean futures prices remained above $12.50 per bushel until January 2024. A key factor supporting soybean prices post-harvest was the evolution of weather in Brazil. The shift to El Niño can have interesting effects on Brazilian weather, typically resulting in wet weather in southern states and dry weather in central and northern regions; in some years, the ending of Brazil’s dry season and timely early rains allow for a portion of soybean plantings to begin in mid-September, with planting accelerating late November to wrap up in December. Weather-related challenges due to El Niño kept central and northern Brazil dry, causing late planting and some replanting, along with trimmed estimates for Brazil’s 2023/24 soybean crop, which kept nearby soybean futures price from following corn lower at least until the rains returned.

Toward the end of December 2023, precipitation increased and provided needed soil moisture to the dry regions of central and northern Brazil. With more normal rains returning, market sentiment eventually accepted the likelihood of a historically large crop. It is important to note that Argentina has experienced more average weather conditions during this period. Combined current production estimates from USDA’s Foreign Agricultural Service for a strong production recovery in Argentina and a still robust Brazil, South America’s soybean and corn production for 2023/24 could still reach a new record.

With strong supplies of U.S. corn and soybeans and the potential for new record production in South America, futures market prices have predominantly experienced a bearish trend to start 2024. As March unfolds, early soybean harvest and second crop corn planting are well underway in Brazil. Barring any significant weather disruptions, supplies of 2023/24 corn and soybeans are somewhat known. Despite private estimates for Brazilian soybeans and corn being lower than government estimates, much of these differences have already been factored into futures market prices. The looming question now is how current market conditions will influence U.S. planting decisions.

Looking ahead

As the spring 2024 planting season approaches in the U.S., farmers are likely to plant fewer corn acres and more soybeans compared to 2023. One closely monitored indicator is the soybean-to-corn price (STC) ratio. Based on historical data, an STC ratio of 2.38 or greater typically has led to increased soybeans acres relative to corn; when the STC ratio was less than 2.38, soybeans would lose acres to corn. The STC ratio in USDA’s February WASDE report for 2023/24 was 2.63.

Another method to assess the STC ratio is by examining futures prices for the benchmark contract months of November for soybeans and December for corn. The approach offers a forward-looking perspective on the market’s indication of the relative value of new crop supplies. As of the March 12th close from the CME Group, the STC ratio was 2.51. In both scenarios, this indicator implies that U.S. farmers are presently incentivized to consider planting more soybeans and reducing corn acreage this year.

At the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI), projections for 2024 anticipate a decline in corn planting by 4.5 million acres, down to 90.1 million acres, while soybeans are expected to increase to 88.2 million acres.

Corn outlook

Despite fewer corn acres, this does not guarantee higher prices. Following record production in 2023/24, the U.S. has a relatively burdensome supply, coupled with strong competition from record harvests in South America. This pressure on corn prices is exacerbated by increasing domestic use and exports, which fail to offset the rise in production and lead to higher ending stocks. Normally, when the U.S. corn ending stock reaches roughly 14-15% of total use, it has a bearish influence on corn prices.

Another bearish factor is the incorporation of trend yields before each growing season, which involves fitting a linear trend across historical data to capture improvements over time due to factors like seed quality, machinery efficiency, agricultural practices and more. Following USDA’s report of a record corn yield in 2023/24, projecting forward using a trend yield suggests another record year for U.S. corn in 2024/25. This projection offsets any reduction in corn acreage and results in another record production year. However, it is important to mention that trend yields assume average or normal weather, which rarely occurs. Consequently, actual yields in any given season can surpass or fall short of the trend. The concern arises from the historical precedent—the last period of consecutive years with above-trend yields, from 2014 to 2018, coincided with some of the lowest prices since before 2007.

Furthermore, with large beginning stocks projected for 2024/25 combined with record production, corn ending stocks are projected to exceed 2.2 billion bushels. This would result in a stocks-to-use ratio of 15% for 2024/25, and if historical patterns hold true, corn prices will likely decline further. Given this supply-demand imbalance, the projected marketing year average (MYA) corn farm price is anticipated to fall to $4.39 per bushel for the 2024/25 crop year.

Soybean outlook

As previously mentioned, projections indicate an increase in U.S. soybean acres this spring, with planted area expected to reach 88.2 million acres. Coupled with a trend yield of 52.1 bushels per acre, U.S. soybean production could reach 4.5 billion bushels, marking a new record. However, like corn, soybeans face stiff competition in the global market from South American supplies. Since the 2012/13 crop year, Brazil has surpassed the U.S. as the world’s leading exporter of soybeans. Additionally, with the ongoing evolution of the domestic renewable diesel industry, U.S. domestic consumption of soybeans has made up an increasing share of demand, particularly over the last three years. Nonetheless, the challenge lies in the fact that the projected increase in U.S. exports and domestic use is not projected to outpace the rise in production. This would result in an accumulation of soybean stocks, projected to reach 442 million bushels, translating to a stocks-to-use ratio of 10%, the highest in 5 years. With increasing ending stocks, the projected soybean MYA farm price is anticipated to decline to $10.73 per bushel, marking the lowest farm price in five years. 

Apart from weather, two uncertainties could significantly change these soybean projections. Firstly, on the domestic side, the acceleration of biofuel production could be quicker than currently projected. FAPRI anticipates that 14.18 billion pounds of soybean oil will head to biofuels in 2024/25, while private sector estimates suggest a faster expansion, potentially increasing demand for soybean crush and tightening the ending stock balance. Secondly, regarding exports, soybean exports for the 2023/24 crop year have been the second slowest in the last decade, barely pacing levels seen in 2019/20 amidst U.S.-China trade tensions. Should China pivot back to the U.S. for a larger share of their import demand, similar to 2020/21 or 2021/22, it could swiftly boost exports. If either or both scenarios transpire, it could provide stronger support to MYA farm price for soybeans than the projected $10.73 per bushel.

Wheat outlook

Wheat presents a slightly different scenario. Approximately 70% of U.S. wheat is planted as winter wheat, and an estimate of winter wheat planted acres exists via USDA’s National Agricultural Statistics Service, showing a year-on-year decline of 2.27 million acres. FAPRI projections for total wheat area sit at 47.6 million acres for 2024/25, a decline of 2 million acres. To achieve this number, combined spring wheat acres would need to increase by 299,000 acres year-on-year. Considering fewer total wheat acres and trend yield, production is projected to reach 1.97 billion bushels, the largest U.S. wheat crop in eight years. Like corn and soybeans, a lower MYA all wheat price is anticipated in 2024/25, at $6.13 per bushel.

Aside from weather, the biggest uncertainty facing the wheat market is the ability of the U.S. to stay competitive in the export market. Despite the ongoing Russia-Ukraine conflict, Ukraine has found ways to continue exporting its grain. Additionally, Russian wheat exports have remained aggressive with record wheat production in 2022/23 and nearly the same production in 2023/24, resulting in new export records both years. The increase in Russian exports has been more than enough to offset the war impacted declines from Ukraine. Although the U.S. has had some success with soft red wheat exports this marketing year, soft red wheat constitutes a small portion of U.S. production, and it has not been able to compensate for the sluggish hard red winter wheat exports. Given Russia’s aggressive export volumes, it is unlikely that the U.S. will experience a significant uptick in total wheat exports in 2024/25 without some disruption, whether from weather or other factors. FAPRI projects a year-on-year increase in U.S. wheat exports by only 94 million bushels. Despite the projected export demand recovery, it is outweighed by the rise in production and drives additional ending stocks and keeps prices weaker for another year. 

Summary

In 2023, despite widespread drought in the U.S, production remained unexpectedly strong. However, the abundance in supplies was not matched by an equally strong increases in domestic demand. Additionally, favorable growing conditions in other countries increased competition for U.S. export markets. Given, the combination of higher US production and sluggish exports, this is leading to higher projected ending stocks for 2023/24 and downward pressure on prices. 

With strong crop supplies globally, prices may continue to weaken, prompting either increased demand or reduced spring planting in the Northern Hemisphere. In its baseline projections for 2024, FAPRI projects more soybeans acres and fewer corn and wheat acres this spring, but with trend yields, another year of strong production is likely. Without corresponding increases in domestic consumption and exports, higher ending stocks are expected, resulting in a further retreat in prices.

Given that the U.S. farmer is facing the lowest farm prices in recent years, it becomes increasingly important for farmers to strategically price and market their 2024 bushels this spring and summer, as the market may encounter normal seasonal weather-related fluctuations intermittently throughout the planting and growing season.

Editor: Chris Laughton
Contributors: Dr. Robert Maltsbarger and Chris Laughton

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2024 Grain and Oilseed Industry Outlook Webinar 

On April 9 Farm Credit East and guest, Dr. Robert Maltsbarger of the Food and Policy Research Institute at the University of Missouri, presented our 2024 Grain and Oilseed Industry Outlook webinar.

View the webinar recording