Agriculture commodity markets in 2023 and beyond

 By Colin McNaughton and Moe Agostino

Agri-retailers and farmers must be dizzy with all year’s political, weather and economic Volatility.

The world of agriculture commodity markets in 2023 has proven to be tumultuous. A series of unexpected challenges are dramatically reshaping the landscape for critical crops such as wheat, canola, corn, soybeans, and more.

This year began with La Niña’s dry conditions taking a toll on Argentina’s wheat, corn, and soybean production; however, a record Brazilian soybean and corn crop offset that—and it was precisely what China ordered as its relationship with the U.S. maintained its usual state of tenseness and fragility.

In fact, due to China’s significant differences on such matters as Taiwan or human rights failures, the second-largest economy in the world has been attempting to diversify its buying of commodities such as corn and soybeans away from the U.S.

Because of the diversification, Brazil has taken market share from the U.S. and is now the largest corn exporter to China.

Brazil has doubled its production and tripled its exports in just ten years.

This has resulted in softer U.S. demand and export outlooks, leading to more hedge fund selling (by big speculators), driving lower prices.

With Volatility came Plenty of Weather Scares

The year it started with many weather forecasters projecting a transition from La Niña (hot/dry) to El Niño (wet/excellent) conditions by March of this year. Still, it kept getting delayed—first into July, then August, and now by this fall or winter.

The warming and rise of Pacific Ocean temperatures can cause this weather pattern to shift. However, according to forecasters, it also requires data readings of negative-7 OSI (Oscillation Southern Index), which has only just become present.

The lasting effects of La Niña provided excellent conditions for planting. However, they turned very dry early in the year, resulting i“ a “f”ash” drought in May and June for the growing regions of the US, Western Canada, and Ontario.

It was soon followed by rains at the end of June and into July in the US and U.S.Ontario—precipitation was very spotty in Western Canada.

But in a complete 180-degree flip, the weather got hot and dry again in a second “flash“ drou”ht by the end of August and September in the USA. Western Canada provides a poor grain fill finish for both soybeans and corn.

Ontario had plenty of rain to end the growing season, so it had a much better crop yield for corn and soybeans.

Crops in the US corn belt were dying—running out of gas—and not drying down, while crops in the eastern corn belt (east of Illinois) were dealing with a lack of maturity and were behind by one to three weeks in some spots.

Big US CrU.S.s Even with a Drought

The 2023 drought has been worse than last year.

The dual charts above have the 2023 image on the left and the 2022 image on the right.

The 2023 chart data shows it to be worse, 69.17 percent of the US Midwestrcent in a D0-D4 drought (abnormally dry) ve32.56 percent in 2022rcent, according to NOAA (National Oceanic and Atmospheric Administration) as of September 12, 2023.

The NOAA is a Washington, DC-based scientific and regulatory agency within the United States Department of Commerce.

An old definition from the NOAA of what states make up the US Corn Belt includes Michigan, Ohio, Wisconsin, Illinois, Iowa, Minnesota, South Dakota, and Nebraska, but not North Dakota, Kansas, Missouri, or Texas.

It’s important to note that we are using It’sold definition that doesn’t include North Dakota, Kansas, Misdoesn’tor Texas. However, the authors of this article believe that the definition of the Corn Belt should consist of those states and other fringe states that have begun to grow more crops over the years.

The precipitation total for the US Corn Belt from April to the end of August was 15.22 inches (38.6588 cm) versus normal at 17.65 inches (44.831 cm), which is a total of 2.66 inches (6.7564 cm) less rain, making it the 13th-driest period it has been in 129 years.

But averages are deceptive, with 54 percent of US corn and 48 percent of US soybeU.S.s in drought as of September 12, 2023. We remember that during the growing season, the US area remained dry, and it kept raining in the same places (very southern regions of the U.S.). In the U.S., there is no real widespread soaking of one to three inches (2.54 to 7.6 cm) for everyone.

And then there’s the US derU.S.ho that nothere’s talking about. [>Ed. Note: from Wikipedia, a derecho—Spanish meaning straight—is a widespread, long-lived, straight-line windstorm associated with a fast-moving group of severe thunderstorms known as a mesoscale convective system.]

Now, here’s something that perhaps shhere’se taken with the proverbial grain of salt:

The United States Department of Agriculture (USDA) noted in its September crop report that it had forecast large crop yields despite a drought—predicting a 173.8 bpa (bushels per acre) corn crop and a 50.2 bpa soybean cFor, for the first in this report time, the USDA denoted its 10-region US corU.S.yield objective data, showing an above-average corn population and ears with plenty of soybean pods.

But is the USDA underestimating the early dry start in May and June and the dry, no-rain four weeks (as of this writing) seen in August and September in the US? The U.S. type of season hasn’t been seen since the mid-hasn’twhen a similar trend showed it to be very dry at the end of the growing season.

Let’s not forget the extreme heLet’sch of the US experienced, especially in areas of the Corn Belt, where temperatures of 110–115°F (43.3–46.1°C) were not uncommon.

In the past, the USDA also included the weight of corn ear and soybean pod in its report, but it was missing in 2022 and not included again in the 2023 report.

We must consider that the corn and the soybeans planted are new thoroughbred hybrids. Seed companies advise ag retailers to tell farmers that these seeds must be planted early and given a long finish to ensure they develop to their full potential.

The yield comes from the corn kernel weight and soybean seed size. This is the missing link.

The USDA has reported corn ear or plant population and the number of pods in soybeans, but no one can measure corn kernel or soybean pod weight until they are harvested, so this will be a big surprise and game changer in 2023.

You may be aware that crop sizes in the US are getting smaller. As the old saying goes, “Small crops get smaller,” but what“concerns us is how small”rminor.

It’s a fact that small crop yields driIt’srices higher, which is good for farmers, especially during harvest when they want to sell.

With a poor finish, thharvest. Vest will be two to three weeks apart, so we have not heard from farmers. Mers this time of the year is “it’s not better than I expected,” but it looks lik“it’s later-planted May crops wil” yield better than the early-planted April crops.

A poor, hot, dry finish leads to a fast finish, and the US west of the eastern Illinois area have already started dying—not drying down.

Agronomists have stated that it can lead to a 10 percent reduction in overall yields. It’s like providing a killing frost at ½ milk line It’sorn.

For those unaware, the ½ milk line means it has not yet matured to a black layer. Should a killing frost come and hit the ½ milk line, it would end the life of that ear of corn and reduce yield.

We need a long, slow-cooking finish to maximize yields, provide full maturity, and increase the size of the corn kernel and soybean peas.

There is no other analogous year that compares to 2023. Are USDA statistics showing a 10 percent yield reduction in US cU.S.n or soybean yields from the September to the final January crop report?

Could the final tally for the 2023 crop year be one for the record books?

Most will Avoid a Killing Frost.

As the 2023 growing season ends and we approach harvest, the weather forecast looks warm and dry for most of North America.

But at press time (mid-September), weather forecasters warned of a potential frost in northern Minnesota by the last week of September and in the southern states by the first week of October.

However, with an early harvest in the U.S. and the crop in western Caending nada by the end of September, the perils of frost may not be an issue for farmers.

In some of the Ontario counties, it was evident that they were behind by three to four days, falling behind by 60 to 180 heat units in the worst-case scenario.

However, it would be very prudent to acknowledge that it could catch up quickly enough if there should be a warm, dry end-of-September forecast, which will help with our predictions of potential record Ontario crops of corn and soybeans.

Russian Wheat Production and Exports

To gain buyers for its grain—and because of the global sanctions it faced for its invasion of Ukraine—Russia has been aggressively selling its wheat to other countries as it undercuts everyone else’s prices.

It has led to the big speculators selling 80,000 contracelse’sChicago wheat futures despite a Ukraine and a Black Sea Grain export deal that no longer exists.

However, post-harvest, global wheat ending stocks have fallen further by 7 MMT (million metric tons), according to the USDA, as most countries were hit with drought in 2023, which is tightening global supplies.

Potential El Niño Impact in 2024

Following three consecutive years of La Niña, the El Niño-Southern Oscillation (ENSO) is currently in the El Niño phase, according to NOAA.

According to the official August 2023 NOAA ENSO Forecast, the ongoing El Niño is forecast to be an intense event, reaching its maximum intensity in late 2023 and persisting through early 2024. As predicted, it can provide excellent, wet conditions in the U.S.U.S. and improve average U.S.U.S. corn and soybean yields. Typically, while corn and soybeans improve during an El Niño event, global wheat yields tend to fall.

Argentina’s soybean yields also tend to rise, as it is usually drierArgentina’sn South America.

El Niño can also delay the monsoon rains in South America and have those rains end sooner.

After a dry 2023, the 2024 season is expected to be more relaxed. However, data within the 89-year Gleissberg Solar Drought Cycle suggests that dry and hot conditions could return in 2025 if Mother Nature is to repeat as it did in the 1930s.

The Gleissberg Solar Drought Cycle describes an amplitude modulation of solar cycles with about 70–100 years or seven or eight solar cycles. With solar activity on a recent upswing and expected to peak in 2025, the invigorated solar cycle would align with the Gleissberg Solar Drought Cycle.

Predictions for 2024

Even if the Gleissberg Solar Drought Cycle wasn’t predicting it, we are predicting more of the same for 2024.

Uwasn’tdemand returns to the U.S. for US corn exports, a slight drop in yields may not matter as ending stocks remain above two billion bushels.

Russia, as the most significant global producer and exporter of wheat, needs to have a production hiccup in 2024 to create fear and a spike in wheat prices.

If there isn’t a production hiccup, then it could be more of the saisn’t 2023, with its tumultuous markets.

Potential back-to-back record South American corn and soybean crops will anchor grain prices in 2024.

With higher crude oil prices and OPEC refusing to increase production, higher diesel fuel prices will prevent inflation from falling to two percent anytime soon, and higher interest rates could stay elevated for longer than most expect.

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