Farm Director KC Shepherd speaks with Tanner Ehmke, the Lead Economist for Grains and Oilseeds at Farm Credit, to discuss the latest developments shaping the market for U.S. soybeans, corn, and wheat. The conversation covers the volatile state of international trade, the surge in domestic demand, and the persistent challenges of massive grain inventories.
China Trade Update: A Win for Soybeans
Ehmke characterizes the current U.S.-China trade situation not as a formalized deal, but as a trade truce, noting that a signed agreement is still forthcoming, possibly after the new year.
The “great news” is the absence of further trade escalation and a positive shift in demand:
- Buying Resumption: China’s state-owned firms like COFCO and Sinograin have resumed buying U.S. soybeans. Ehmke calls this an “absolute win” that led to a recovery in soybean prices.
- Persistent Hurdles: Private crushers in China are still not buying U.S. soybeans because of the 13% tariff and the fact that Brazil continues to offer cheaper alternatives.
- Demand Sustained: While current purchases haven’t reached the 12 million tons previously promoted, the demand from state-owned firms is expected to provide a firmer floor under soybean prices.
📈 The Two-Pronged Positive for Soybeans
In addition to foreign demand, U.S. soybeans benefit from a domestic boom:
- Biofuel Demand: The expansion of crush capacity in the U.S., driven by nationwide biofuel demand, is creating significant domestic demand.
- Price Strength: Soybeans have shown the strongest price retention compared to other commodities.
Ehmke advises farmers to be cautiously optimistic, acknowledging that high prices rarely stick around long, especially given the instability of the current trade truce. Sustaining the rally requires new, consistent demand from China.
Logistics and Opportunities for Wheat and Corn
Following strong harvests, logistical challenges—specifically the shortage of storage—are forcing a lot of grain, including Milo, to be piled on the ground.
Wheat Market Opportunities
- Strong Basis: The excellent wheat export program to Mexico has been particularly beneficial for Oklahoma and Kansas due to proximity, providing a firmer floor under basis (the difference between the local cash price and the futures price).
- Marketing Strategy: Since flat wheat prices remain low, farmers are encouraged to lock in a stronger basis and benefit from the carries offered in the futures market. Ehmke stresses a focus on “base runs” (capturing basis and carry) rather than waiting for “home runs” (huge flat price rallies).
- Corn: The strategy for corn is similar: abundance of bushels and strengthening basis mean opportunities lie in maximizing carry and basis for profit.
The Corn Conundrum: WASDE Report Analysis
The reopening of the government allowed for the release of the latest World Agricultural Supply and Demand Estimates (WASDE) report, which held few surprises for the market.
Corn Yield and Carryout
- Disappointing Revision: The downward revision of the national corn yield to 186 bushels per acre was disappointing to many farmers, though it still represents a record yield.
- Abundance of Supply: Ehmke points out that even if the USDA were to revise the yield down further—say to 183 bushels—it would still result in an estimated 2 billion bushel carryout (ending stocks).
- Market Reality: The current low price for corn reflects this abundance of supply. The market has a lot of work ahead to move these bushels, which is typically done through low prices.
Looking Ahead to Future WASDE Reports
Ehmke offers expectations for the final reports in January and beyond:
- Yields: He expects cautious downward revisions on corn yield, estimating perhaps a drop to 184 or 183 bushels at best.
- Exports (Upward Bias): There is optimism for continued upward revisions on exports for both corn and potentially wheat, driven by phenomenal sales data.
- Soybeans (Cautious): Revisions on soybean demand will be highly data-based, with USDA remaining cautious until concrete sales data from China rolls in.
Overall, Ehmke’s bias is for continued slight positive adjustments (upward on exports, cautious downward on yield), but the massive supply, particularly in corn, remains the dominant factor.
