Outside markets continue to be a main factor in price discovery in the commodity market. The main one of these is the U.S. dollar, which remains elevated compared to other currencies in the global market. This is softening export demand, even where the U.S. is competitive on commodity price. We continue to see concerns over U.S. interest rates as the economy has not slowed, even with rates already up. There are now thoughts the Fed will eventually take the rate to 6 percent, which is higher than first thought. What may be a greater concern is that rates are forecast to remain high for an extended period of time. This will start to impact cash flows in the near future.

Trade is also concerned with the slower rate of economic recovery in China following COVID, which is further dampening commodity market interest from the managed money crowd. While we will see support from fundamentals, buying from this group will be needed to make another leg up in the market.

One benefit for the market recently has been a need for risk premium in futures. U.S. production is forecast to be record high this year, but stocks to use will hold at rationing levels. Until we see this improve, liquidation will remain limited.

As more attention is starting to be placed on the spring planting season in the United States, more debate is taking place on potential acres. Last year, U.S. farmers seeded 88.6 million acres of corn, 87.5 million acres of soybeans and 47.5 million acres of wheat. In the February Ag Outlook Forum, U.S. acres were estimated at 91 million for corn, 87.5 million on soybeans, and 49.5 million on wheat. We are starting to hear more farmers talking of higher corn acres, though, as economics favor that crop over others. Corn inputs have receded in recent months, mainly fertilizer values. It is thought this could encourage more corn plantings than the Outlook Forum projected, with some reports from the country indicating corn acres could top 92 million this year.

A question with these predictions is where the acres would come from. Soybean balance sheets remain tight and cannot afford to lose any plantings this year. Wheat acres are also in need and likely to remain elevated. Corn may draw acres from other crops though, such as cotton. Weather will be a key factor in spring plantings though, and some regions of the Corn Belt are much wetter than in recent years. While this is positive for yield potential, if plantings are delayed, we may see fewer corn plantings than some believe.

Even with harvest advancing, Brazilian soybean sales remain lighter than usual. Farmer sales of soybeans in Brazil currently stand at an estimated 35.4 percent of the total 2022/23 crop. This puts cumulative sales close to 54 million metric tons (mmt) given a crop projection of 153 mmt. A year ago, Brazilian farmers had sold 48.5 percent of production and the five-year average on sales is 51.7 percent of the crop. The slower sales pace is a result of delayed harvest activity, better returns on sales, and a bigger crop. These slower sales have not elevated demand for U.S. offers though, and that is what trade has been hoping for. In fact, the slow selling pace makes it more likely to see pressure longer than usual for U.S. exports, especially with a larger South American crop on a whole.

Brazilian farmer soybean sales for the 2023/24 crop year are also light at just 1.6 percent of predicted production with 10.6 percent being normal forward sales.

World food values continue to decline. The latest data from the United Nations’ Food and Ag Organization showed global food values decreased 0.6 percent in February. This makes 11 consecutive months that world food costs have receded. Record costs on grains prevented further declines to food costs. Vegetable oils declined 3.2 percent in the month and dairy costs were down 2.7 percent, which led the way lower. Beef and poultry costs were also down despite ongoing losses from avian flu. Pork values crept higher during the month. Economists believe food costs may start to level out at current values until we see further reductions in the commodity markets.

The U.S. Farm Price index, a tool that is used to measure commodity values and returns, was down a large 9.9 percent from December to January. This put the index at 124.6, which was still 11 percent better than in January 2022. Crop values were down 3 percent in January but up 13 percent on the year. Livestock returns were down 9.7 percent from December but up an equal amount from last January. At the same time farm costs were up 1 percent in January, mainly from rising interest rates. The concern in the market is that this division will continue and stress farm cash flows.

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