Agricultural futures markets in the US and Europe slowly eroded during February with US corn, wheat, and soybeans ending mostly 5-7% lower for the month, says Chad Burlet of Third Street Ag Investments, LLC.
The break in the corn market was the most relentless with a few positive days before its late-month recovery. At its lows, it was one dollar/bushel below its early December highs. Unfortunately, many farmers were forced to either sell their corn or pay 15 cents/bushel to roll their basis contracts from the March contract to the May.
A month ago, we wrote that South American production near the high end of estimates would put us in a situation where all available US acres would not be needed. At times it has felt like the market is trying to discourage marginal production. Prices in several key areas around the world have fallen below the total cost of production. However, very few have fallen below variable cost, and we believe we’ve priced very few acres out of production. Longer term we found the USDA’s ten-year baseline projections very interesting. By 2027 they believe acreage planted in the US’s eight major crops will be 6.3 million lower than what was planted last year. They see the US as the marginal producer.
Even amid that concerning outlook, we do note a couple of encouraging signs. While the corn markets in the US and Europe have been breaking, the corn market in China has rallied. They’ve been a strong buyer of corn, sorghum, and barley and their import margin on US corn is at a one-year high. In the soybean market, Brazil’s FOB prices had been as much as two dollars/bushel discount to FOB US prices. Brazil is still a clear discount, but that spread has been cut in half.
US politics always play a role in our markets, but the number of important items in Washington seems higher than usual. Ukraine has shipped more than 30 million metric tons (MMT) via their Humanitarian Corridor, but President Zelensky said they may not be able to keep that open without additional aid from the US Washington is also making two important decisions on ethanol. They agreed to let eight Midwestern states sell E-15 year-round, but they pushed the start date back to 2025. They will also soon decide whether corn-based ethanol qualifies for tax credits for Sustainable Aviation Fuel. The final item in Washington is the Farm Bill which is already six months past due. Environmentalists see this legislation as an opportunity to push their agenda and farm state legislators are pushing back aggressively.
Weather is always central to our markets, but March is a month when we need to watch both the northern and southern hemispheres. Safrinha planting is underway in Brazil as is corn planting in Texas. Winter crops are coming out of dormancy in North America, Europe, and Asia. There are currently no severe weather problems, but the “watch list” is a bit longer than normal. Traders have covered some of their shorts, but they remain shorter than usual at the start of the US growing season. If forecasts turn bad it won’t take the markets long to recoup this month’s losses.
Learn more about Chad Burlet at Third Street Ag Investments.
