Rabobank’s April North American Agribusiness Review provides a mixed outlook for key commodities. Corn and soybean supplies remain tight which are expected to keep feed prices elevated. The bank notes that corn prices have held strong despite weaker futures prices. Looking at a regional, local bids remain strong. Rabobank says this does not bode well for feed given that substitutes are running thin. Soybean inventories as of March 31st were at the lowest level with respect to end-of-year estimates. Low supplies domestically will likely keep pressure on feed costs until new crop replenish inventories. Below are more details.
Corn:Rabobank notes that corn yields have been on a rough trend with a cap around 176 bpa since 2017/18. Yield this year will determine if US markets will be able to replenish inventories and bring prices down. The bank expects weather this year in particular will be a major price driver going forward, pointing to lower Q2 stocks than anticipated. Importantly, commercials are holding less in stock which could lead to increasing demand for spring and summer, causing basis to rise in the process. Rabobank also points out that corn inspections for export is -35% behind last year. However, the bank notes that the last two years have marked record US corn exports and the current pace is tracking more in line with pre-Covid years. Outstanding sales are showing that interest in US corn is increasing as challenges in Brazil are expected to see delays in corn exports.
Soybeans: The Chinese hog industry is undergoing some upheaval that may soon be felt here in the US. Rabobank points out that one in ten soybeans grown globally is fed to Chinese hogs, making them an important bellwether for soybean demand and prices. According to the bank, a sharp decline in China hog prices has pushed hog breeding margins into negative territory for the second time in less than a year. This translates to a decreased demand for feed that has helped push China soymeal prices – which account for 10% to 20% of feed rations – down -25% since early January. While US old crop supplies remain very tight, the pace of new marketing year export sales are at their lowest level in a decade excluding the two years at the height of the trade war. Rabobank notes that the EPA’s lower-than-expected RFS biodiesel volumes is also creating headwinds. The bank also highlights that the low soybean production estimate from Argentina has spurred international markets to buy more soybean meal from the US than usual.
Cattle: Cattle prices have remained stronger to start 2023 with market fundamentals mostly friendly for sellers. However, demand concerns create uncertainty regarding upside potential. Rabobank points out that boxed beef cutout is on average down -4% compared to last year. Considering US per capita beef supplies were also down -0.5 lb (-3%) in the first quarter, wholesale beef demand is down -8% compared to last year. That seems like bad news but Rabobank notes that this is still the second-highest first-quarter beef demand in the last two decades.
Pork: Rabobank expects hog prices to remain under pressure as the industry moves through the near-term bulge in heavy-weight hog supplies with Q2 2023 hog slaughter levels forecast to drop below year-ago levels. The bank notes that despite some moderation in feed costs, open market hogs are losing an unsustainable -$28 per head, which could drive further industry contraction. Rabobank’s current outlook sees producers returning to profitability in Q2 and Q3 2023 before returning to losses late in the year. Assuming producers respond to weaker returns by reducing farrowings, tighter hog supplies could begin in late Q4 2023 and early 2024.
Farm Inputs: It’s been three years since the start of a price and cost escalation that pulled the farm inputs sector from a near seven-year floor which saw some input costs spike by as much as 3.5x. This in turn pushed growers to evaluate products and processes and accelerated many secular changes. Some of the lasting impacts that Rabobank believes growers will see over the coming years include more biological offerings and higher-for-longer seed prices. They also expect people down the value chain to increasingly care about how grow, potentially paying a premium to secure certainty. The full report is HERE.