Not only is trade monitoring export sales for the current marketing year but those for our next marketing year as well. At the present time, the United States has export sales on the books for the 2023/24 marketing year of 38.1 million bu (mbu) on corn, 1.5 mbu of soybeans, and 1.1 mbu of wheat. It is not uncommon to see a slow start to sales this far in advance, but trade is more focused on them this year given the projections for record crops out of Brazil. These bushels are being offered at a discount to the U.S. which may make it hard to gain on bookings.

One of the changes in balance sheets outlooks that is gaining attention is to soy oil demand. U.S. soy oil imports have been lowered to just 300 million pounds, a reduction of 200 million pounds. This reduction is equal to the drop in projected demand for biodiesel production following the lower than hoped for blending mandates from the EPA. Soy oil exports have also been reduced by 50 million pounds. This shift in projected demand will likely start to be seen in crush margins and interior basis values.

Another demand uncertainty in the global market is what the USDA is projecting for Chinese imports of corn and soybeans. The USDA is holding to Chinese imports of 98 million metric tons (mmt) on soybeans and 18 mmt of corn this marketing year, even though the country has backed off on imports due to COVID-19 disruptions. The real question is where China might source these needs from. Given a recent shift in China’s corn demand to Brazil and prospects for record crops in that country, even if Chinese demand is greater than the USDA is predicting, the U.S. may see its share of the market decline.

The cash market is becoming more of a market focal point. Many buyers across the interior U.S. market have been paying premiums to encourage movement for processing. At the end of last year, we did see movement increase which is not surprising. The uncertainty is if this will continue in 2023. Given the large amount of deferred pay contracts across the market we may not see movement increase and incentives will increase. This will open windows of marketing opportunity for those who have not made sales on recent rallies. These may be very narrow though as trade knows there is still a large volume of farm stored inventory to move.

On the global side, all interest right now is on the start of the Brazilian harvest. Light soybean harvest activity is already underway in Brazil, but this will now start to increase in volume. As a result, more soybeans will be available for importers at a sharp discount to the United States. When added to the soybeans that were sold out of Argentina on their incentive program and it likely closes the window for the bulk of U.S. exports. We will continue to see sales, but the volume will likely slow.

The question now is how many soybeans Brazil will harvest and export this year. The Brazilian soybean crop is estimated from 154 to 156 mmt this year, well above the 126 mmt that were harvested this past season. The real question is what we may see for Brazilian soybean exports. In 2022, Brazil is on track to export 77 mmt of soybeans. In 2023, this volume is expected to increase to 93 million tons. This will add pressure to an already struggling U.S. export program.

A concern in the domestic market is declining profit margins. This is especially the case in ethanol where several plants are reporting negative returns at this time. This has caused these plants to slow their manufacturing rate and some to consider halting operations altogether. Soy crush margins have also been under pressure but remain quite favorable. The average margins on soy crushing are still from $2.50 to $3 per bushel.

Trade continues to monitor the planting pace in Argentina to see if acres shift from soybeans to corn. Dry conditions have caused delays to soybean seeding in Argentina this year even with recent rainfall. We are now hearing of dry conditions impacting southern Brazil and Paraguay as well. Central and northern Brazil are seeing near perfect growing conditions this year though, and crop estimates are large enough that total South American soybean production is still likely to be larger than last year.

Long range weather models for the United States do not show much in the way of drought relief for the Plains states. This is starting to be more of a factor for the wheat complex and generating fresh buying interest. Wheat has dropped to oversold territory on the charts, which is too low given U.S. wheat balance sheets. An ending of the La Nina weather event should benefit this situation, but the longer it takes rains to develop, the more we will see a need for risk premium in the wheat complex, and before long, other markets as well.

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