Update for October 22nd, 2021
The corn market continues its trading range between $5.10 and $5.40 a bushel. We have seen a weakening in the value of the U.S. dollar which some bulls believe could generate an uptick in export demand. One potential source could emerge from China as domestic wheat prices recently surpassed their domestic corn prices. Several months ago, the Chinese changed the hog feed recipe to include less corn when prices hit record highs, now that wheat has outpaced the price of corn there is talk we could again see more corn usage and demand. Like in the U.S. input costs have also seen a significant increase in South America, this could also deter some producers from corn acres this season as well as the 2nd corn crop season which will be planted early next year.
Soybeans also seem locked into a trading range. “Technically” there appears to be upside resistance around $12.50 to $12.70 and price support is in the $11.80 to $12.00 range. Soybean exports and shipments are down considerably from a year ago. This will likely force the USDA to lower their export estimates in coming months unless we see a large shift in demand. Without drastic improvements in exports and usage we could realistically have a 2021/22 carryout near 500 million bushels. Last month’s estimate from the USDA showed a significantly lower U.S. carryout of 320 million bushels.
While the U.S. 2021 crop is bountiful, Reuters reports that consultancy AgResource believes additional land for crop production will be necessary to meet growing demand for food and renewable fuel. Here in the U.S. production capacity for renewable diesel is expected to double in the coming year as over 1 billion gallons of capacity comes online.
Dan Basse, president of consultancy AgResource told the GrainCom conference in Geneva that the current push for renewable fuel has ignited growth in the use of soyoil. While at the same time global yields of major grain crops have hit a plateau over the last 5 years. “We need more acres,” he said. Basse added that he believes that “U.S. planted acreage may have reached a ceiling, adding further cropland growth would need to occur primarily in South America, Africa and the Black Sea region.” If the current regulation stays in place that bans U.S. companies from using imported feedstocks we may need to see a shift of 40 million acres to soybeans. Basse said, “I don’t think there is any way America can shift 40 million acres to soybeans from other crops, but you’re going to see some sort of shift.”
Just announced this week Southwest Airlines has decided to join Delta, JetBlue and United in their decision to switch to sustainable aviation fuel. Southwest announced that, “by 2030 the airline plans to replace 10% of its total jet fuel consumption with the sustainable aviation fuel.” The airlines have made both short and long-term commitments and are setting up partnerships with suppliers.
Partners with SWA include Nestle, Marathon Petroleum and Phillips 66. Peter Meyer, head of the Grain and Oilseed Analytics says this list “reads like a who’s who in the renewable fuel business and speaks to their commitment to sustainable aviation fuels.” Meyer and S&P Global Platts have been exploring how sustainable aviation fuel could improve the soybean industry and be the answer to increasing domestic demand. Meyer stated, “The light might e dimming in ethanol, but there’s a brighter light down the line as far as renewable fuel is concerned.” Looking ahead, “The fact of the matter is that, in our opinion, by the year 2025 we will need 40 billion pounds of feedstock to keep the renewable energy refineries running.” S&P Global Platts believes that the renewable diesel and aviation fuels could be bigger for the soybean industry than ethanol has been for corn. Not only could this be a huge market for U.S. soybeans it would also mean less dependency on China for demand and price support. Meyer said, “What’s going to happen is you’re going to see these renewable diesel plants, sustainable aviation fuel plants and a domestication of U.S. soybean production, which means we will be impervious to all sorts of issues that are going on in China and elsewhere. We’re going to be able to use it if we can get the crush capacity.”
The White House is commited to sustainable fuel with the goal of totally eliminating the use of fossil fuels in the airline industry by 2050. Dan Basse told Farm Journal that this rapid development in the renewable diesel industry is similar to how ethanol changed the U.S. corn industry from 2007 – 2010 but also believes renewable diesel will be even bigger. “We’re calling for 90.5 million soybean acres in 2022 versus this year’s 87 million, and that just gets us started I meeting renewable diesel demand. Then we’d need to increase soybean acres by 5 million to 7 million each year. We have to top 120 million acres of soybeans to meet the growing demand for renewable diesel.” As more large oil companies invest in soybean movement some agricultural economists and analysts feel the windfall in demand could arrive in the 2023 crop year.
Brazil is receiving regular rainfall and dry conditions are quickly disappearing and more rainfall is on the way. The potential is definitely there for record corn and soybean yields this growing season.
More rainfall is expected to arrive the central Corn Belt early next week. A large system is set to arrive Sunday/Monday and bring with the potential for up to 2 inches of rain to many areas across Iowa, Illinois, Missouri and Wisconsin. Some areas of Illinois, Kentucky and Tennessee along with the majority of Indiana have already received over 5 inches of rain in the past 30 days, any additional rainfall will likely slow harvest activity in those areas.