U.S. farmers harvested the second-largest corn and soybean crops in history last fall, leading to improvements in the futures market and boosting the profit potential for grain elevators storing these commodities. While prices for both corn and soybeans have dropped to four-year lows, domestic and export demand have surged, driven by strong biofuel production and livestock feed usage.
The surge in demand has been propelled by the expansion of U.S. biofuel production, along with steady consumption from the livestock sector. This has helped clear the significant inventory of U.S. corn and soybeans, despite the drop in prices. Additionally, the U.S. has benefitted from a robust export program, further reducing the supply surplus.
However, according to a recent report by CoBank’s Knowledge Exchange, the rapid pace of U.S. corn and soybean usage faces multiple risks in the coming months. A continued strengthening of the U.S. dollar is expected to increase the cost of American goods, potentially dampening demand from international buyers. The looming possibility of a trade dispute under the new administration is also raising concerns, particularly with key trading partners like China and Mexico.
Tanner Ehmke, CoBank’s lead grain and oilseed economist, highlighted the uncertainty surrounding biofuel policies under the incoming administration, adding to concerns about the future of domestic demand for corn-based ethanol and soybeans used in biodiesel and renewable diesel production.
“For grain elevators, these factors are likely to improve the profit outlook by weakening the buy basis in the cash market and widening futures spreads for both corn and soybeans,” said Ehmke.
One of the most significant risks facing U.S. agriculture is the export market outlook. A combination of abundant U.S. supplies, record crops from South America, and potential retaliatory tariffs could slow exports. If exports to key markets like China and Mexico are hindered, U.S. corn and soybean shipments may need to be redirected, which would slow the export pace and increase the cost of shipping to smaller markets.
Although strong demand from the U.S. livestock sector is expected to persist, it may not be enough to compensate for potential export losses. Additionally, the margin outlook for biofuels has weakened, and policy uncertainties regarding biofuels under the new administration could slow ethanol demand for corn and crush demand for soybeans.
Despite these challenges, domestic demand for soybeans remains strong, with soybean crush capacity continuing to expand to meet rising demand for renewable diesel. However, as profit margins for renewable diesel production decline, the growth in this market is beginning to slow. New crush capacity is expected to come online in the coming months, but it may not be enough to offset the broader slowdown in demand.
“The combination of growing global supplies of corn and soybeans, slowing exports, and a reduction in domestic demand will likely incentivize storage, with grain elevators benefitting from larger carries in the futures market and cheaper basis in the months ahead,” Ehmke concluded.
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