The International Monetary fund (IMF) released its global economic outlook, lowering its forecast from recent estimates. The IMF believes the global economy will expand by 2.7 percent in 2023 compared to 3.2 percent this year and the 6 percent growth we had in 2021. The primary reasons behind the slower growth are an ongoing recovery from COVID 19 and the war in the Black Sea. Poor indicators in the world’s leading importer China also impacted projected growth. The IMF does expect a reduction in world inflation though, with the rate going from an estimated 8.8 percent this year to 4.2 percent by the year 2024.

What is becoming more of a concern in the global market is rising food costs, with several countries attempting to curb these costs. Mexico is the latest country to show these concerns. Food costs in Mexico have risen substantially in recent month as total inflation in the country hits 8.7 percent. The Mexican government hopes to cap rising food costs by suspending import taxes on several food products. Mexico is also going to suspend exports of some food products such as white corn and several varieties of beans. Hopes are that by taking such measures it will lower Mexico’s food costs by 8 percent.

According to the United Nations’ Food and Agriculture Organization, world food costs declined in the month of September, making it the sixth consecutive month of lower consumer costs. Food costs declined 1.1 percent in the month led by a weaker vegetable oil complex, which was down 6.6 percent. Wheat costs were slightly higher for the month which limited the overall correction. Even with this decrease food costs are still 5.5 percent higher than in 2021. The FAO is closely monitoring wheat values moving forward as lower feed demand may make more wheat available for food usage, although global grain consumption on a whole is expected to decrease due to tighter stocks and high costs.

Brazil continues to improve its infrastructure, which is making them more of a factor in the global market. For several years Brazil struggled with its poor infrastructure that made the country an unreliable source for timely shipping, especially at harvest. In recent years Brazil has made several upgrades though, mainly the paving of BR-163, the main highway that connects northern production areas to southern ports.

Brazil has also built ports in northern regions to reduce grain flow to just one area. As a result, Brazil is now more reliable as a trade partner, especially with recent improvements lowering the transit costs the country. Brazil has now announced plans to build 435 miles of rail lines in the country which will make them even more competitive in global trade.

Even with corn and soybeans sitting at historically high values the question is being asked as to what would make another leg up in futures. The easiest would be a sizable build in export demand. This would have to not just up to projected levels but well above them. Any further reduction to U.S. yields would also be likely to bring more buyers to commodities. A rebound in the world economy and signs of elevated usage on the global scale would also be beneficial for commodity values.

The easiest source of support would be a return of the managed money crowd and their buying that pushed futures to their previous highs. While this would be favorable, the question is what would encourage such activity. World production and demand may accomplish this, as could a shift in the value of the U.S. dollar. What would be more likely would be a shift in global weather patterns that would again indicate crop loss in South America. While these is still a La Nina in place that is bringing drought to Argentina, Brazil is experiencing near perfect conditions that are supporting forecasts for record production in that country. Any indication of another year of drought in the U.S. Plains may also bring the managed money crowd back to the commodity market.

The October cattle on feed report came in nearly exactly as expected by trade. As of Oct. 1, the United States had 11.4 million head of cattle on feed, 1 percent less than Oct. 1, 2021. Of these, steers were down 2 percent on the year while heifers were up 1 percent. Cattle placements in September were down 4 percent on the year with 2.08 million head. Marketings were 104 percent of a year ago at 1.86 million head.

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