Laws of economics still work
At some point, and it’s impossible to know the exact timing, corn and soybeans and meal will make a short-term bottom and a corrective rally could well retrace 50% of the market drop since January 1
By Richard Brock
Will Rogers’s famous quote “I have a great memory it’s just short” is a classic. How true it is in commodity pricing. Sometimes, old rules of thumb still work. Keep the price of any commodity, including agriculture commodities, too high for too long and someone figures out a way to either grow more of it or use something else. The world is telling us now that there is not a shortage of $17 soybeans or $450 per ton soybean meal or $6 corn. We clearly have a surplus of those commodities at those price levels.
Over the last couple of years, producers in the United States have been very hyped up over the potential of renewable diesel and what that means for soybean demand. Many were so convinced that the price of soybeans was going to soar and never come back down to earth again. If producers developed a marketing plan on that assumption, they are looking at a very tough year ahead. Price levels for both corn and soybeans are now below breakeven for many producers, if you include land costs. This happens after every major bull market.
If you have a chance, print off a long-term monthly bar chart of corn and soybeans. The peaks in prices in 2012 are almost identical to the ones that just happened in 2022. You can take the current chart and just lay it on top of the 2012 and it maps almost perfectly. It took three years for that market to hit bottom, finally settling down in 2015 at price levels well below where they started. Could that be happening again now? Probably.
Demand is Changing
No matter what your business is, every one of them needs customers, and the more the merrier. If you are in feed manufacturing, the more livestock operations you service, the better. You don’t want one hog or poultry operation accounting for 70% of your business. If you were to lose that one customer, you would be out of business. Similarly, since the 2007/08 marketing year, the United States has gone from a 63% share of the world corn export market to an projected 27% for 2023/24. Not a favorable trend. In soybeans as is visible in the graph, Brazil now exports more than twice the quantity of soybeans as the U.S. does. For the U.S. farmer, the renewable diesel market had better work, because we are in the process of giving away nearly our entire export market. Brazil is taking over.
On almost a monthly basis, soybean crush is making new highs. Since November, soybean oil has been driving the crush rates and thus producing large amounts of soybean meal. Poultry and pork numbers are not increasing fast enough to absorb the sharp increases in supply.
Every change in market prices makes somebody happy. The majority of the readers of this magazine benefit more from lower prices than higher prices. Not true for everyone and certainly not true for farmers. In my opinion and I hope I’m wrong, is that U.S. farmers are facing a very dangerous scenario and most of them are not even aware of it. What if the renewable diesel market doesn’t materialize to the level that many people are expecting? We are losing our market share of the world’s soybean exports to Brazil. We have drastically cut the number of buyers for grains and oilseeds coming from U.S. farmers. If this trend continues to mirror what happened from 2012 to 2015, we’re looking at prices making a long-term bottom more than a year from now.
At some point, and it’s impossible to know the exact timing, corn and soybeans and meal will make a short-term bottom and a corrective rally could well retrace 50% of the market drop since January 1. Beyond that, I don’t see much potential on the upside. It will take some weather problems this spring. New demand does not just appear and so it will take weather issues to rally this market significantly and that won’t likely happen until springtime. For the foreseeable future this is a buyer’s market.
Richard Brock is owner and president of Brock Associates, an agricultural marketing advisory service and publisher of The Brock Report, a 20 page weekly fundamental and technical newsletter. His firm, now with seven offices, manages grain sales on over 700,000 acres throughout the U.S. and is an advisor on purchasing strategies for many large poultry, pork, dairy and food companies.
