As reported in High Plains Journal, the Mississippi and Ohio rivers have sunk to historically low levels in the wake of the drought that has also affected corn and soybean crop yields across the Midwest. While some grain cargoes continue to move, they are moving in tows, or groups of barges, that are reduced in size, with lighter loads. Barge rates have skyrocketed and millions of tons of grain cargoes have been diverted.
However, strong domestic demand for soybeans from soy crushers, combined with reduced United States yields and some continuing export demand from China for corn have kept both corn and soybean prices relatively high so far, with corn prices in the high $6 a bushel range and soybean prices in the high $13 a bushel range.
Naomi Blohm, senior market adviser for Total Farm Marketing, told High Plains Journal that despite the logistics snarls, “Soybean export sales are running above the 5-year average, while export inspections (what actually leaves the country) is actually right on the 5-year average pace—via rail shipments out of the Pacific North West.” Already by June, grain export shipments out of the Great Lakes were up by 37% over last year.
“However, corn export sales and inspections are slightly behind the 5-year average due to low water. The low river is affecting local cash basis levels. So, yes, some elevators are not accepting grain right now, or if they are, the basis might be wider than normal,” said Blohm. But she adds, “For now I don’t think this will affect the corn futures prices in Chicago because the underlying fact is that 1.1-billion-bushel carryout in the U.S. is tight.”
Chinese corn demand
“For the past two years, the commodity industry has been told that Chinese demand for commodities would slow because the country is locked down due to strict COVID restrictions,” said Blohm. “But actually, Chinese demand for corn has grown over the past three years. China grows one-quarter of all the world’s corn. The Chinese use all of it, and export none of it. In the past three years their overall domestic demand has outpaced what they produce domestically, and that is why they have started to import corn.”
Blohm said Brazil’s increase in corn exports has largely gone to offset what was lost from Ukraine. “If you look closely at the numbers, the increase in export business that Brazil has gained over the past two years helps to offset the loss in export capabilities from Ukraine. So it is not as though there is more corn to export on the global front for 2022-23. It is just now that Brazil has become a larger competitor due to Ukraine becoming less of a competitor.”
Scott Sigman, an agricultural and marketing consultant, said, “Whatever the politics between the U.S. and China, hogs and poultry still have to be fed. And China continues to expand its hog herd. U.S. yields, while down somewhat due to drought, are still satisfactory, and growers are getting good prices.”
Blohm said World Agricultural Supply and Demand Estimates numbers over the past few years show that Brazil was the fourth largest corn exporter in 2020-21, after the U.S., Argentina and Ukraine. It has since moved up the list to second place, but that increase has been offset by decline in Ukraine. She said corn yield declines have already been priced into the market.
“U.S. export reduction has been priced into the market since May. Due to higher prices, a higher U.S. dollar, the USDA has been doing a good job of showing that demand for corn has been reduced. Also priced into the market already is the fact that Brazil has the potential to export larger amounts of corn due to not only a larger crop but also a recent agreement to sell corn to China.”
Blohm points out that Mexico bought more U.S. corn than China this year. followed by China, Japan and Canada with Columbia, South Korea, European Union, Taiwan, Honduras, and Guatemala rounding out the top 10 importing nations. “We have steady customers, but due to higher prices and a higher U.S. dollar, the customers are buying hand to mouth.”
“Corn is fairly priced,” Blohm concluded. “Quite frankly, I’m not sure how much additional demand destruction could occur for corn; it would take a black swan event.”
However, data from China’s General Administration of Customs released Oct. 24 showed that September corn imports into China declined by 56.6% year-on-year from the previous September. The September volume totaled 1.53 million metric tons, down by 15% from the 1.8 million mt recorded in August. Total corn imports in the first nine months of 2022 reached 18.46 million mt, down 25.9% from the same period last year.
Soy processing demand
Sigman noted the record high prices for barge transport but said the inherent flexibility of the multimodal U.S. transport system has helped—along with the increase in capacity in some soy processing facilities in the Dakotas, Nebraska and Minnesota—which he said was driven largely by anticipated demand for biodiesel and renewable diesel n California due to its emissions and truck regulations.
Guy Allen, senior economist with the International Grains Program at Kansas State University, credits domestic demand for keeping soybean prices high. “Strong Midwest crush margins above $3 are lending good support to prices. Without [those crush margins] soybeans would be nowhere near $14 (a bushel). While export values are historically strong, uncertainty in freight and transportation is limiting movement to export for all grains.”
Allen said, “The delivery value of CBOT Nov. 22 soybeans was not working into the export market, with prices being supported by strong demand from the domestic crushers, which are currently lending good support to harvest prices. A similar set of dynamics can be seen in the corn and sorghum markets as they are currently being supported by domestic demand.”
So even though tightness in the availability of freight, both barge and rail, is making logistics “very difficult for the country elevator this harvest across all grains,” said Allen, “while export markets remain ‘flat’ to ’inverted’, interior domestic cash and CBOT futures values are showing an increasing ‘carry’ structure.”
He added, “This change is welcomed by the country elevator which has been struggling in past months to capture a return to warehousing space. This situation will only work itself out as transportation becomes more readily available, i.e., we receive sufficient rainfall that puts sufficient water into the river system and it becomes commercially navigable again. The current situation is likely to persist a while and is not likely to rectify itself until we receive seasonal rainfall this spring.”