The U.S. farm economy remains quite strong. Data indicates the U.S. farm income for 2022 will total a record $160 billion, up 14 percent from 2021. Returns on grains and oilseeds were up 19 percent during the year while livestock revenue was up 31 percent. Farm expenses in 2022 were also up though, increasing 19 percent to come in at a projected $70 billion. There are concerns for 2023 farm income though with most economists expecting a setback in revenue. This is from prospects for inputs to remain high while commodity returns soften.

We are starting to see a change in market attitude that is impacting price discovery. For the past several months, trade has been in a rationing mode as a result of tightening domestic and global commodity supplies. The United States continues to see tight stocks to use on all three major grains, but trade is becoming more comfortable with these levels as even though they are tight, they are not receding. This is especially the case on soybeans, with a stocks to use of just 5 percent, but that is the level that has held for several months now.

While this is still an issue and rationing is needed, it is becoming more of a local issue than a global one. South America is forecast to produce a soybean crop that is 21 percent greater than last year which will add to the global supply. This will draw importers away for the U.S. and allow reserves to build. The ongoing supply of Ukraine and Russian grains into the global market is also benefiting the world supply. An end to the La Nina weather event will favor grain and soybean production in both North and South America this year, further increasing the world commodity supply. As a result of these changes the managed money is showing much less interest in owning commodities, pressuring futures.

Pressure is building in the global market for U.S. soybean sales. Cumulative exports are down 10 percent from last year and this deficiency may increase over the next several months. South American competition and a 9 percent decline in Chinese crush are leading causes of the slowing demand. Chinese customs data shows the country has imported 49.3 million metric tons (mmt) of Brazilian soybeans this year, down from the 52.75 mmt from last year, but still well above the 20.1 mmt it has imported from the United States. The Brazilian firm Safras has upped its soybean export forecast for 2023 to 93 mmt. This is well above the 77 mmt that Brazil is forecast to export this year. Exports from other vegetable oilseed producers are also rising from this past year.

The United States is also expected to see more competition in global corn trade during the upcoming year. Analysts in Brazil believe the country will export upward of 50 mmt of corn in the 2023 calendar year. This compares to exports of 20.6 mmt in 2021 and 38.3 mmt so far this year. A larger corn crop on a whole will elevate exports, but so will the addition of Chinese trade. China is forecast to import 5 mmt of Brazilian corn this year, and potentially more if quality is high enough.

One of the greatest hindrances for commodities at the present time is how the U.S. is uncompetitive in the global market on offers. This has long been an issue for wheat and corn but is now becoming more of an issue for soybeans. Brazilian soybeans are priced well below the United States for January shipment forward. As a result, buyers have started to show less interest in U.S. offers. In fact, this spread has reached a point where it is economical for the U.S. to make imports of some products, mainly wheat and vegetable oil. Not only are U.S. offers above the global market, but the ongoing strength in the U.S. dollar is widening the price spread even more.

While the Ukraine export corridor remains open there are sizable delays to shipments taking place. This is mainly from the lengthy inspection process that is taking place in Turkey. At the present time there are over 100 vessels waiting to be inspected. This is concerning as the recent inspection pace has averaged just 2 ½ vessels per day. As a result, shippers are showing more concern with entering the region. Those who are sending ships to Ukraine are raising their rates considerably, narrowing the spread with others global grain suppliers, including the United States.

The big story in recent trade was the release of the biofuel blend mandates for the next several years. The federal biofuel blend mandate for 2023 was put at 20.82 billion gallons. This is less than a 1 percent increase from 2022 and below what trade was hoping for. This was most negative for the soy complex as it indicates less demand for soy oil to produce biodiesel. Mandated levels are expected to increase to 21.87 billion gallons in 2024 and then to 22.68 billion gallons in 2025.

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