Ag commodities outlook is defined by volatility.
At the International Sweetener Colloquium in La Quinta, California, on March 1, experts stated that war, weather, economic tension, and limited global supply continue to drive volatility across numerous commodities.
Analysts predict a gradual recovery for the present and future global dairy markets following a steep decrease in global dairy products in 2021–2022, following a production rise in 2020–21.
Global dairy strategist at Rabobank Mary Ledman stated, “Dairy farmers got the signal to produce more products during the pandemic.” However, recent production has been impacted by weather, fewer export opportunities, and greater feed costs. Compressed profit margins from increased feed costs, for example, caused the average compound growth rate of dairy production in the United States to decline.
“The price of milk has corrected, but farmers still need to purchase expensive feed,” Ms. Ledman stated. “We can turn on the dairy faucets again if maize prices drop to $4 a bushel.”
Production in exporting nations has also been reduced by decreased shipments to China, the world’s largest buyer of dairy products.
“From a demand standpoint, the market felt underwhelmed because China imported 850,000 tonnes of milk powder in 2021 but only 200,000 tonnes in 2022,” Ms. Ledman stated.
However, some dairy products—like butterfat—were actually exported more from the US last year.
“The US is gaining market share in exports,” Ms. Ledman stated, adding that since US butterfat prices are currently among the lowest in the world, an increase of about 9% was anticipated in US butterfat exports. The US has been selling more dairy goods to China, including dry whey and other ingredients that are high in protein, to satisfy China’s increasing need for infant formula and animal feed. The United States was leading the way in the slight increase in global dairy stocks, but Ms. Ledman issued a warning that any kind of market event may cause significant price increases.
However, despite persistently high demand, there were still limited supplies of grains and oilseeds globally, and the future of those markets was still unclear.
Executive vice president and global sector strategist for grains and oilseeds at RaboResearch Food and Agribusiness Stephen Nicholson stated, “There are many swing factors in play, from what’s going to happen to the economy to unstable geopolitical situations.”
Weather was one of the main market factors that Mr. Nicholson mentioned. He stated that drought is still having an impact on major grain producing regions in several nations, including the US, which has had several years of diminishing wheat supplies.
Mr. Nicholson declared, “We have the worst conditions for winter wheat production in the United States that we have ever had.” “As everything has to be flawless moving forward, it will be difficult to predict what kind of crops we’ll have. In the end, prices will be supported until we find out.”
The market was mostly unaffected by the recent prediction for a record corn crop in the United States since experts were taking into account the existing pressure on profit margins due to problems with protracted dryness in prior years. The Corn Belt has only seen one drought-free year in the previous 12 years, which occurred in 2015.
“They’re going to plant as much corn as they can, so we should see a greater crop barring weather concerns, but I don’t think we’ll go back to $4 or even $5 a pound maize,” Mr. Nicholson stated.
The timely arrival of rain is crucial for this year’s crop, as years of drought in some areas of the Corn Belt have reduced soil moisture levels, so affecting crop yields. 2023–24 corn prices, according to Mr. Nicholson, should range from $5.50 to $6.75 a bushel.
The massive Brazilian soybean crop was having trouble due to weather-related factors as well. The country’s opportunity to optimize harvests may be closing due to heavy rains, which were also postponing the planting of the subsequent maize crop.
Grain exports from a few Black Sea ports to Ukraine were stabilized, but Russia continued to threaten the humanitarian deal for safe transit. In Ukraine, efforts were being made to reinforce infrastructure that supported alternative export routes, but these efforts also created new targets that could be attacked by the military in the future.
Mr. Nicholson stated, “We also have to consider what’s going on in the Middle East.” “If something happens in this area, oil prices will soar, which will affect all commodities. There is a leadership vacuum in that region, and players from Iran, Pakistan, Turkey, and Israel are all eager to take a stand.”
In addition, Mr. Nicholson anticipates that the prices of soybeans and soybean oil will be strongly supported by the biofuels industry’s increased demand, rising crush, and excellent crush margins. Prices for soybean oil have dropped from their top in 2022, when they were about 80¢ per pound, but they are currently attempting to find support at 58¢ per pound, which could present a buying opportunity for certain consumers.
Mr. Nicholson stated, “From a buyer’s standpoint, you have to find a good reason not to put coverage on because soybean oil will probably be well supported going forward.”
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Constrained demand from renewable diesel plants, which haven’t gone online as quickly as the market had predicted, has contributed to a decrease in soybean oil prices. Soybean meal demand has also increased. Although soybean meal traders are at almost all-time highs, Mr. Nicholson said that the rise in soybean meal and the optimistic spread between meal and oil was a little unstable.
“Livestock producers are frustrated by the high prices,” Mr. Nicholson stated. He went on to say that the historically wide gap between the two products may soon narrow, particularly given the anticipated rise in demand for renewable diesel feedstocks. This has led to a boom in renewable diesel refineries that primarily use vegetable oil as a feedstock.
Mr. Nicholson issued a warning, saying, “But even if all of the renewable diesel production capacity is realized, there will still not be enough vegetable oil domestically or globally to meet the demand.”