We are starting to see shift in global commodity trade following the May supply and demand report. This is especially the case on corn and soybeans where the global stocks to use are forecast to increase considerably in the 2023/24 marketing year. The world corn supply is forecast to increase 15.5 million metric tons (mmt) from this year to next. The global soybean supply is projected to increase by 20.5 mmt. These larger crops are reducing any urgency from importers to cover future needs, especially at today’s values. Buyers are also showing more restraint in booking wheat even though the global supply is forecast to shrink 2 mmt from this year to next.

The question now is when these buyers may step in and start covering their import needs. It is quite likely the U.S. will not see a jump in export demand until late summer when South American exports slow. It is possible we will not see demand until our next harvest takes place. This is especially the case on soybeans where the large Brazilian crop will generate longer lasting competition. One way the United States could see a quicker build in demand is from lower values, but the spread between the U.S. and others will be more of a factor than outright bushel values.

We are also seeing more interest on U.S. demand projections. The USDA is projecting a build in corn demand of 755 million bu (mbu) this coming year even though we have yet to see anything to substantiate this. The feel is the USDA is projecting demand to meet crop size rather than current usage trends. Soybean and wheat demand is more even with this year and easier to believe at this time.

Global economics are an underlying factor that continue to drive market activity. One that is gaining attention is what is taking place in Argentina where the government is out of revenue. This, along with lower yields, has prevented Argentine farmers from selling any commodities. Farmers believe their commodities will continue to appreciate in value as the peso declines and the U.S. dollar rallies.

Another country that is showing signs of economic stress is China where consumer spending and demand has not recovered as quick as hoped following the lifting of COVID restrictions. As a result, China’s commodity demand has been slow to rebound as well. This is most noted in the country’s pork industry where the government is now buying inventory for federal reserves to help support prices. This is leading to less demand for U.S. commodities into China, mainly soybeans and meats.

U.S. consumers are starting to adjust their spending habits to counter elevated inflation costs. One that is being most noted is in the U.S. food industry. Rising food costs have the U.S. consumer spending less in restaurants as some are seeing their out of pockets expenses increase by 50 percent. Restaurants are seeing this spending decline and lowering their revenue projections as well. U.S. consumers are eating more meals at home and while this still leads to commodity demand it tends to be less than in the food service industry. Consumers also tend to buy lower end cuts of meats when cooking at home than when eating out.

The United States continues to see expansion in its biofuel industry, and in turn, elevated crush demand as well. At the end of February, the United States had a biofuel production capacity of 5.32 billion gallons. This is an increase of 59 percent from the end of 2021. There are currently 12 biofuel production facilities under construction that will add another 2.4 billion gallons of capacity within the next two years. Along with this will come an increase in soybean crush that will help negate the losses to soybean exports from the large Brazilian crop. While the global soybean inventory will increase, the U.S. balance sheets will remain tight and likely in a rationing position.

Now is when more interest will start to fall on long-range weather models and for the most part these are benign. The only weather concern we are hearing at this time is the developing El Nino but so far this is not encouraging risk premium to be added to futures. Given the size of crops being estimated and less than stellar demand we may not see much premium added until later in the season, if at all.

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