Nearly all interest in the United States is now on the approaching harvest. We have started to see some fieldwork in southern states, but this has been slowed by rains. Some regions of the Delta are now concerned with crop quality from heavy rains, especially on soybeans. Delays are not significant enough to cause panic buying in the market though, but this may change if conditions persist.

These delays are still causing basis values to firm in the Gulf and back into the interior market as buyers and processors push for coverage. Processing margins remain elevated and are causing these stronger bids. The most incentive is being paid on soybeans, where crush margins are well over $2 per bushel, and in some cases, nearly $4 per bushel. Strong demand for U.S. soy meal and oil is leading to these elevated margins. Buyers are concerned that farmers may be unwilling sellers this fall and getting bushels out of storage will be very difficult.

While much of the interest in the United States is on harvest, in South America trade is focused on the next planting season. We are starting to see more estimates on the next crops in Brazil, and projections are quite optimistic. The Brazilian firm CONAB has released its 2022/23 production forecasts with large increases from this year. CONAB believes Brazilian farmers will raise a soybean crop of 150.36 million metric tons (mmt) this coming season, a sizable increase from this year’s 125 mmt crop. Corn production in Brazil is forecast at 125.5 mmt, also well above this year’s drought stressed crop. Total grain production in Brazil this year is projected at 308 mmt. The seeding of the next Brazilian crop cycles will begin this month.

One big factor on all of South America’s crops is weather, and several forecasters believe the current La Nina weather system will linger well into 2023. If correct, this will make it the third consecutive year South American farmers have struggled with La Nina conditions. This event is the primary reason for crop loss, especially in Southern Brazil and Argentina, but other production counties have also been impacted.

La Nina events can also impact U.S. production and are the primary reason for the drought we have seen in the southwestern United States. While rains have moved into this region, much more is needed to replenish dry soils. Right now, this is more of a factor on winter wheat production as rains have encouraged seeding to take place. The worry is that dry conditions will return, and crop loss will follow.

Not only is drought impacting crop production in the United States, but livestock as well. Pasture conditions in the United States are some of the worst rated in recent history. This has combined with elevated feed grain costs to pressure livestock margins and led to early marketing in some U.S. herds. While this is causing a build in the U.S. beef supply, the concern is what will happen in the future if placements fall off. This is keeping livestock futures elevated as packers try to encourage livestock production.

The United States is seeing mixed demand from the global market on corn and soybeans. Total U.S. corn export sales on old and new crop are currently down 49 percent from a year ago. This decline is the result of a much larger corn crop out of South America and a decrease in Chinese buying. At the same time, total U.S. soybean commitments are up 30 percent from last year. A smaller Brazilian crop and elevated global feed demand are behind the larger U.S. soybean sales.

Trade is starting to monitor Chinese corn demand and what should be expected over the next several months. China was expected to be a corn importer this year, but so far, purchases have been limited. China is now opting for feed wheat rather than corn as it is easier to secure and a better value in today’s market environment. There are now thoughts China will buy wheat to bridge the gap between this crop year and next in South America and may not buy much from the United States at all going forward.

Another region of the world being monitored on corn imports is the European Union. The EU has gradually been increasing corn imports to cover projected shortfalls in domestic production from drought. As drought losses become better known, we could easily see this corn import volume increase. We are starting to see more wheat feeding in areas of the world with poor corn crops, and the EU could easily join this list.

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