What is Driving Corn and Soybean Prices & Snow, Cold Temps & Wind Welcome 2022
Update for December 29th, 2021
Many analysts agree that there are a couple of key factors at work in the commodities market. A lot of focus has been placed on SAM weather forecasts over the last 30 days as another La Niña weather pattern has formed for the second season in a row. What adds to the serious nature of this outlook for below-normal precipitation is that it follows a growing season with similar precipitation levels, meaning this year moisture reserves are mostly depleted from the start. The extended outlook for the “problem areas” including Argentina, Paraguay and southern Brazil offer little relief through the first few days of 2022, possibly longer. This extended outlook has already changed 3 times this week and it’s only Wednesday. Sunday and Monday the region was forecast to receive some much-needed moisture in early January. Tuesday the outlook reversed and precipitation was predicted to miss these driest regions but today the forecast looks wetter again.
These maps show the moisture level during the last week of December for 2003 through 2021:
At this time the other key factor in the market is that commodities are still cheap compared to the stock market, bonds, and real estate which are all at record highs. The Bloomberg Commodity Index has more than doubled since the April 2020 low but current values are still less than 50% of the value seen during the peak in 2008. Because commodities can be viewed as a better risk than many other investments, traders expect that a “wave” of institutional money will shift into the commodity market as an “inflation hedge” early next year.
Both BP and Maersk shipping companies have tested the use of marine blend biofuels known as BP Marine B30 biofuel in their tankers. Reuters reports that the global shipping industry is responsible for approximately 3% of all carbon emissions and since marine fuel is unique there had been no known replacements until now. BP told Reuters that, “No adverse effects to equipment or machinery were observed during or after the trial. No modifications to the engine or infrastructure were required.”
United Airlines has completed the first flight fueled by SAF (Sustainable Aviation Fuel) which is a 100% renewable fuel made from sugar and corn. Scott Kirby CEO of United Airlines stated, “This is an important and historic moment for global aviation. There’s simply no battery technology, even theoretical technology, that has enough energy density that you could put enough batteries on the airplane to get an airplane this big with this many people flying this far. And so, what works in a lot of other transportation industries won’t work for aviation.”
Analysts are promoting the use of soybeans in SAF which could mean a huge increase in demand for our U.S. soybean market. A change away from the use of fossil fuels will require a major increase in the production of renewable fuels. S&P Global Platts reports that currently the U.S. has 6 plants online with 20 more in various stages of development. Estimates indicate that by 2025 U.S. plants will need 40 billion pounds of feedstock to keep the refineries online but currently we only produce 12 to 14 billion pounds. This volume already includes cooking oil but if soybean oil was also used it could help bridge a portion of that gap. In order to reach the 25 billion pounds needed with soybean oil there needs to be more crush plants built because currently U.S. crush plants are already at max production. The needed 25 billion pounds equate to all of the soy produced each year in the U.S. AgResource Company’s data shows that to meet this added soybean demand the U.S. will need to double soybean oil supplies. “We are going from 25 billion pounds up close to 50 billion by 2024. That’s gong to take an increase of the U.S. crush industry, somewhere to the vicinity of 60% to get there. That’s why you see all these oil companies combining with local crushers or let’s say U.S. crushers here today.”
AgResource says, “So we will see it both in basis but more importantly, we will see it in crops. We need more soybean acreage each year, somewhere in the vicinity of 3 to 7 million acres depending upon the year. And when these refineries are coming online, the market will have that demand pull. So, as you'll start thinking about soybean-corn relationships, soybean, wheat, or soybean, sorghum, these are really important as we think about going forward to 2024.”
We have focused a lot of attention on the developing dry conditions across several areas in SAM but we forget that portions of the U.S. are still in a drought. The USDA Drought Monitor map from a week ago shows that a large section of the western U.S. remains overly dry as does 19% of the U.S. corn production areas and 14% of soybean production.
It looks as though a large section of the Midwest will start out the new year with a weather system that is expected to deliver snow, wind, and much colder temperatures. The EURO and GFS weather models for this potential winter storm are shown below but keep in mind these are not actual forecasts just early model guidance.
EURO
GFS
Following the snowfall on New Year’s Day a strong north wind will deliver the coldest temps we have seen in 11 months. The temps shown on the following map are 25 to 30 degrees below normal for this time period.
Wind chills of 15 5o 25 degrees below zero are also possible thanks to the strong north wind.
On a positive note, temps are forecast to return to more seasonal levels by Monday.