Marcelo Teixeira & Mark Weinraub

CHICAGO/NEW YORK – Big U.S. harvests are boosting supplies of soy and corn.

Rising stocks suggest that these key crops and other staples may have seen a sharp increase in prices after the spike triggered by the pandemic. Analysts, brokers, and farmers said this.

After global food prices rose to their highest levels in 10 years, the United Nations Food Agency reported that crop prices could fall.

Fears of food shortages were fueled by the dwindling supply and high global demand for crops during the last 18 month.

Lower prices for soy and corn could lower livestock feed costs, which was prohibitively expensive during the COVID-19 epidemic. However, falling prices may endanger farmers’ profit margins especially since seed and fertilizer firms raised the prices of crop inputs.

Chicago Board of Trade soybean futures dropped 27% and corn futures 24% since May’s near-decade-highs. This is due to near-perfect conditions in broad areas of the United States that led to an abundant harvest.

But with the northwestern United States and Canada still reeling from a historic drought and dry weather potentially continuing there due to the La Niña climate phenomenon, prices of oats, wheat and canola are poised to remain high, meaning food inflation is far from over. Recent wheat futures surged to an all-time high of nine years.

Soybean prices are under severe pressure due to rising supply and worries about Chinese cooling demand.

Drew DeSutter, who was pleased with the 2021 harvest on his 3,600-acre Woodhull farm, Illinois soybean farm, booked sales for soybeans that he would deliver in 2022 to grain dealers, in case there is a decline in the market.

DeSutter indicated that he believes it’s a good idea for farmers not to establish prices on the next crop.

Every month, the U.S. Agriculture Department has raised its forecast for global soybean supply since May when it released initial projections. The current global soybean stocks would surpass the record for the most world records if it is achieved at 104.57 millions tonnes.

China is the world’s largest buyer of soybeans. However, China has been slowing down its purchases over recent months because it cannot afford to crush soy to make meal or oil for livestock. Due to the collapse of profitability in the hog industry and sharp increases in use of wheat as animal feed, analysts predict that China will import less than 100,000,000 tonnes in 2021.

The prices for vegetable oils such as palm oil which rose due to shortages of labor in Malaysia have now started to decline. In fact, palm oil has posted losses in the past three weeks. As companies shift to greener fuels, canola and soy oils have been high in demand.

China is expected to import less corn this year than it did last, despite the fact that poor weather conditions have cast doubt on China’s crops. USDA data shows that global corn stocks rose by 4.1% for the 2021/22 harvest year.

An analyst at a Chinese government institution said that China would import 20,000,000 tonnes of corn for the 2021/22 years, compared to 29 million tonnes in 2020/21.

Camilo MOTTER, Brazil’s top grain broker, said that “given the current balance in supply and demand I believe the higher prices are behind,” referring to Brazil as the largest global producer of soya, sugar, and coffee.

IDEAL PLANTING WEATHER

The Buenos Aires Grains Exchange projects that Argentina will be the world’s fourth largest soy and corn supplier.

After a rough growing season, Brazil has had ideal weather for planting its next crop – long stretches of dry days for field work followed by ample rains that helped shepherd crops through the early stages of development.

After farmers suffered from the worst drought since nearly 100 years ago in 2021, Brazil’s coffee belt saw the most rain in October. Market players think that the abundant moisture will give next year’s crops a boost, even though some plants were already damaged by drought and frost.

Montesanto Tavares Group is a major coffee processor and producer in Brazil. It expects to see a record crop for 2022.

Montesanto Tavares Group reported that “the abundant rains of the past 20 days gave breath to farmers.”

Benchmark sugar prices on the ICE (NYSE:) exchange touched a 4-1/2-year peak on Oct. 11 amid signs of renewed demand from China in a period when Brazil production data confirmed a dismal crop in the world’s top grower after a harsh drought.

Analysts believe that the improved long-term supply outlook is due to favorable weather conditions in Brazil, as well as the good harvest prospects in India and Thailand. As a result, market speculators may have started to reduce the length of their sugar position. This is a signal that their decade-long betting on higher prices could be coming to an end.

According to a European sugar trader, “With the market being limited in its range and with upside potential considered to be low, speculators may have decided to use their profits elsewhere.”

WHEAT, CANOLA REMAIN STRONG

Farmer Doyle Lentz of the Northern U.S. Plains managed to survive this drought, despite having a large soybean crop. However, he was limited by the lack of canola or spring wheat due to the dry soils. Due to uncertainty over the price of fertilizer, Lentz booked some soybean sales but was unable to sell canola and wheat contracts for next year.

Lentz claimed that at present prices, he could not turn a profit from canola. He would also need to wait for a better rally before committing any additional acres.

Lentz who owns a Rolla, North Dakota farm covering 6,000 acres, said, “We’re going to need to spend a lot longer with the calculators. And when we get there where we can turn a profit, will we have to lock that up.”

Colin Laroque from University of Saskatchewan, professor of soil science, stated that the extreme drought which has reduced the production of canola and grains in Canada’s Prairies is likely to last into 2022.

The La Niña weather phenomenon usually means cold, dry weather for the Prairies, at least into February, he said. To counter drought in spring and replenish soil moisture, it will take rain, but that would mean it would be difficult to plant crops.

Laroque explained that multi-year droughts usually mean multi-year recharge. “A fast solution is rarely a good option.”