Expectations for a record large soybean crop out of Brazil may be casting a long shadow over the agricultural markets, but there is still reason for demand and price optimism, said Neil Townsend, senior market analyst with FarmLink Marketing Solutions and GrainFox.
Taking part in a Real Agriculture podcast with host Shaun Haney earlier this week, Townsend said the Brazil soybean crop remains the “elephant in the room” in terms of the supply side, but added demand has in fact held up reasonably well, despite a common perception that it has so far lagged in 2022-23.
Townsend admitted that global demand for agricultural commodities has not been as strong as the markets would like, citing such factors as inflation and rising interest rates as reasons for the drag. However, he said demand is generally improving and remains pointed in the right direction.
To that end, FarmLink’s own analysis found that China remains on track to import the 96 million tonnes of soybeans the USDA is currently projecting for this year, and potentially even a bit more. The same is true for the country’s corn imports, which the USDA is forecasting at 18 million tonnes. Meanwhile, a record large global wheat trade is also expected for this year as well.
“The reality is it seems like demand has been pretty good,” he said.
Soybeans might have the least bullish outlook for the next six months due to the large Brazilian crop, but Townsend said growing demand for renewable diesel remains a major wildcard that could fundamentally change the soybean market in the same way ethanol changed the corn market.
According to the US Energy Information Administration (EIA), US renewable diesel production capacity at the end of 2020 totaled less than 600 million gallons per year, or 38,000 barrels per day. However, production facilities now under construction could push capacity to 2.4 billion gallons by 2024, while proposed and announced projects would add another 1.8 billion gallons. If all projects come online as intended, US renewable diesel production would total 5.1 billion gallons per year or 330,000 barrels per day by the end of next year.
If just one-third of those projects come to fruition, some estimates suggest the US soybean crush would need to increase by about 1 billion bu to provide them with the required soybean oil.
For corn, it is likely there will be a smaller crop again out of war-torn Ukraine in 2023, which could add to the demand for US supplies, he said. The supply-demand balance sheet for US corn could also tighten considerably in 2023-24, if yields fall below trend, Townsend added.
Wheat could see a boost from the likelihood of a smaller Russian and Australian crops in 2023, not to mention the fact this year’s US winter wheat crop remains in difficulty due to ongoing drought in the central Plains.
If the world can come through the recession expected later this year in decent shape, demand on the other side could be even better, Townsend said.
“Maybe 2023-24 has the potential to be a little bit better, because the demand side has not evaporated as much as some people have perceived it.”
