Dr. Ken Rietz
Twice a month, we’ll be sharing a new curated newsletter featuring concise summaries of key articles in the agriculture and energy commodities markets—along with direct links to the full pieces— as well as related charts from the Fundamental Analytics platform. Our goal is to give you a quick, insightful overview of the latest developments and hopefully spark your interest to dive deeper into the full articles.
This week, we take a look at the latest developments in the major agricultural markets.
USDA Provides Shock and Disappointment in November Reports
The first article has to be on the market reaction to the resumption of the USDA’s World Agricultural Supply and Demand Estimates (WASDE), which startled many traders. Here is the graph of the number of acres of soybeans harvested, as an illustration.
Figure 1: Acres of US soybeans harvested
The WASDE is the standard source of reliable, up-to-date information for agriculture across the world. The government shutdown prohibited the October issue, so people were gliding along with the last projections. When the November issue came out, it held more and larger changes than were expected. For example, the yield per acre for corn dropped 0.7 bushels, but not evenly. Iowa went down 3 bushels, and Minnesota went down 6, but Illinois went up by 2, and South Dakota went up 6. But the prediction for the overall drop was a big shock.
It wasn’t just corn, either. Soybean yields dropped 0.5 bushels per acre, but that wasn’t too far from prior estimates. Earlier beans did very well, but later plantings did not. The only minor surprise was that exports of soybeans dropped 50 million bushels, mainly because of China. And for wheat, US carryout went up, and global stocks rose.
Soybeans
Figure 2: Countries of Sub-Saharan Africa. Source: Wikipedia
This next article brings up a scenario that most people have not considered, and argues persuasively that it should. It also lists some of the potential problems to consider as well. And, given the reluctance that China shows toward US soybeans, this is an alternative to look at carefully.
The Soybean Innovation Lab at the University of Illinois has focused on Sub-Saharan Africa (SSA) and has found that SSA is one of the fastest-growing new soy markets, as well as a potentially vast one. It is the first of three articles; the other two haven’t been released yet.
Soy imports have been growing 32% faster than food production from 2010 to the present, showing a significantly growing opportunity. Soybean oil has not caught on well, due to palm oil being very popular. This will be an obstacle to overcome. But soybean oil’s growth exceeds that of sunflower and even palm oil, and any other crop oil.
The demographic shift from rural to urban provides another point of hope. As urban customers are more time-constrained, they are more likely to move toward modern “fast foods” and protein rather than starch. Both of these support the growing use of soybean oil.
Wheat
Figure 3: Front-month futures for CBOT wheat
WASDE out of hibernation and bearish for wheat
The big crop for Ukraine is wheat; the yellow bottom half of their flag is symbolic of their wheat fields (The upper half is blue, for clear skies.) This article is Ukrainian, discussing the global wheat market. The focus is on the WASDE.
The basic outlook for wheat is for an increase due to “larger supplies, consumption, trade, and ending stocks,” quoting WASDE. This holds for many individual countries as well: Australia, Argentina, Canada, the EU, Kazakhstan, Russia, and the US. These increases are mainly due to greater production estimates.
Global wheat consumption has risen, mainly due to rising feed and residual use in Russia, Kazakhstan, and the EU. Global trade is also expected to increase because of exports from Argentina, Australia, and Kazakhstan. And projected global ending stocks of wheat for the 2025–26 year have also increased, the first year-to-year increase since 2019–20.
Weather
Figure 4: Frequency of derechos. Source: National Weather Service
Derechos Have Variable Influence on Crop Yields and Ratings
Severe weather can devastate crops (and just about anything else). Tornadoes are the typical severe weather, but there is another, even more destructive, storm: derechos. The wind velocities of a tornado are much higher, but the size of a tornado is much smaller. A derecho is typically a weather front that is 100 miles long and more than 60 miles thick, with winds of 100 to 140 mph. This article considers the damage a derecho does.
Researchers from the University of Illinois and an employee from a reinsurance company took USDA crop data from 2015 to 2023, and isolated the data with derecho footprints. They also used satellite images to assess the broader impact, such as crop damage and changes in yields. The data from the National Agricultural Statistics Service (BASS) gave them county-level assessments of the crops before and after derechos. They also got information about where derechos occur.
About 90% of the national corn and soybean acreage experienced at least one derecho during the nine-year study. The damage to crops was significant most of the time, but some places (Louisiana, Michigan, and Pennsylvania) saw overall benefits from the derecho, mainly because there was a smaller crop density in those states, and so the derecho risk is smaller. Plus, if the derecho brought heavy rain, especially to crops with prolonged drought stress early in the growing season, the crop conditions improved.
Trading Implications
For soybeans, the big deal was China’s promise to buy 12 million metric tons (MMT) of U.S. soybeans by the end of this year. So far, they have purchased less than 0.4 MMT from the U.S., while still buying Brazilian soybeans aggressively, probably because the U.S. is still charging a 10% tariff on soybeans. Few people expect China to fulfill their agreement. This will leave a large excess of soybeans, so you can expect the futures price to continue to drop. Similarly, the wheat prices should also decline due to an abundance of wheat harvested this year. The caution is that most of this has already been factored into the futures prices.