A major hindrance for the commodity market right now is the increased forecasts for global production. The world’s four largest corn exporters are expected to see production expand by nearly 70 million metric tons (mmt) this year as expanded acreage and improved weather conditions favor production. Soybean production in the four largest world growers is expected to increase by 30 mmt. The only concern right now in the global market is on wheat output as a 17 mmt decline is forecast. These increased production forecasts have attracted buyers that traditionally sourced coverage from the U.S. and is the primary reason our markets have suffered, even with questionable production outlooks.

When it comes to global production, the most interest is on South America, primarily the country’s soybean crop estimate. Last year, Brazil produced a 156 mmt soybean crop and thoughts are with a return to more normal growing conditions and elevated plantings, this year’s soybean crop will be larger. The USDA is currently predicting a 163 mmt soybean crop in Brazil and exports of 97 mmt. Other analysts have production much higher, with the Safras group at 169 mmt and exports at 99 mmt. Last year, Brazil exported 78 mmt of soybeans by comparison. This increase in exportable soybeans out of Brazil will cover much of China’s added demand and more than compensate for any losses in the rest of the world.

The greatest increases to production in South America are forecast for Argentina. Drought from the La Nina weather event devastated Argentine production last year with crops of 34 mmt on corn and 25 mmt on soybeans. Weather is forecast to be much improved this year and crops are expected to increase as well. The USDA is currently projecting crops of 54 mmt on corn and 48 mmt of soybeans this year. Even if slightly less than these targets, no analysts are forecasting production as low as the crops that were just harvested.

While larger crops are forecast for Argentina this year, the smaller crops from last year are having some long-lasting impacts on the market. The obvious one is that it has tightened the available supplies of corn and soybeans in the current market. Another is that it has created revenue issues in Argentina as lost income from a lack of commodity sales is currently at 75 percent of the previous year’s intake. This is not just from lower commodity supplies, but also from a lack of farmer selling and lower commodity values. Revenue issues in Argentina from these factors is now impacting the country’s banks and reserves are dropping, which is affecting borrowing as well. There are concerns this will impact Argentina’s economy and may have an impact on the upcoming presidential election.

We are starting to see some doubts cast over U.S. soybean demand, this time from the crush industry. The USDA is currently projecting a marketing year crush demand of 2.3 billion bu (bbu). This would be an increase of 70 million bu (mbu) from the 2022/23 marketing year. The primary factor behind the elevated crush projection is elevated renewable fuel demand. While this has generated additional soy oil usage in the domestic market, we have not seen the same elevated demand from the global market. Palm oil reserves are much greater than last year at this time, and we are seeing more competition from this product in the world market. Even China has started to increase its imports and usage of palm oil over soy oil.

This elevated competition and lackluster demand has started to weigh on soybean crush margins. Early in the year margins were topping $3 per bushel. These have dropped considerably, and while still lucrative, crushers are currently collecting about one-third of that value, and some less. The crush return at the present time is the lowest in the past two months. Oil is only making up 43 percent of the crush margin which is the lowest percentage in three months.

This decline in crushing was verified in the October fats and oils report. This report showed that for the month of August, the United States crushed 169 mbu of soybeans. This compared to 185 mbu in July and 175 mbu of usage in August 2022. From this, 2.01 billion pounds of soy oil were produced. This was an 8 percent decline from July and 4 percent less than a year ago.

One benefit of these lower crush margins on soy oil has been its impact on food costs. Food inflation across the United States is currently 2.2 percent. Inflation is down from 2.8 percent from last month, mainly from the decrease in vegetable oil costs. A year ago, food inflation was running at 5.8 percent. Food inflation would have been even lower if not for higher red meat costs. Consumers are starting to push back on higher meat costs though, and this may further depress food inflation in upcoming months.

The October milling report gave us mixed numbers on corn usage for ethanol. For the month of August, U.S. ethanol plants consumed 443 mbu of corn, a 3 percent decline from July, but a 3 percent increase from August 2022. Dried distiller grain production totaled 1.78 million tons, a slight decline from July but 5 percent less than a year ago. Ethanol margins remain very favorable, which is keeping corn usage elevated.

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