KANSAS CITY — Export demand and competition, the war in Ukraine, domestic supplies, the fight for planted area, and global weather will be primary factors influencing wheat, corn and soybean prices and production levels in the year ahead.

In the breadbasket of the US Plains, the hard red winter wheat crop enters dormancy in relatively good shape. The Nov. 28 US Drought Monitor map showed far less production area in drought versus a year earlier. The US Department of Agriculture said winter wheat areas in drought on Nov. 28 were 65% in Kansas (89% a year earlier), 29% in Texas (79%), 3% in Colorado (98%), 9% in Nebraska (100%), zero in South Dakota (93%) and 5% in Montana (83%). Oklahoma isn’t included in the drought analysis.

The USDA’s initial winter wheat crop condition ratings on Oct. 30, an aggregate of hard red winter wheat states of the Plains, soft red winter wheat in the Central states and east of the Mississippi River and soft white wheat in Michigan and the Pacific Northwest, were 47% good-to-excellent, up from 28% a year earlier and the highest initial rating since 2019. By the final weekly report of the season Nov. 27, conditions had improved slightly to 50% good-to-excellent.

“It’s hard to say in the fall what a crop’s conditions will be in the spring, but these improved ratings have the trade feeling more comfortable with the crop than a year ago,” said Erin Nazetta, an agriculture research analyst with Broadview Capital Holdings, St. Louis. “The crop is going to increase year-over-year, but spring weather is still the main driver of what final yields look like.”

The soft white wheat crop initially was hampered by dryness after seeding, but subsequent rain left crop conditions about average in Washington, Oregon and Idaho. Meanwhile, soft red winter wheat markets entered the year with ample carryover stocks off a bumper crop, good initial condition ratings and forecasts for lower wheat acres in Ontario.

“Overall winter wheat areas will be down 300,000 to 400,000 acres, specifically led by soft wheat acres down 15%,” said Mike O’Dea, risk management consultant, StoneX, Kansas City. “That’s just a combination of late corn harvest, late soybean harvest in the East and the drop in new-crop values we’ve seen. Insurance prices set back in August and September, around $6.42 a bu versus about $8.45 a bu a year ago, are down significantly, but probably won’t influence planting. Farmers will probably seed more full-season corn and soybeans and not plant as much double-crop wheat with short-season soybeans, because of the yield drag we’ve seen.”

The spring wheat acreage battle for 2024 is shaping up to echo 2023, Ms. Nazetta said, and acres may be flat to slightly lower.

“South American weather determines if we have a higher or lower flat price from here and what type of a challenge spring wheat is going to have to compete for acres,” Ms. Nazetta said. “The question of whether soybeans will be bid higher for renewable diesel use, right now it looks like soybeans would be winning that acreage battle, not only in relative pricing but in terms of overall flat price and the competitiveness of corn and/or soybeans versus putting a hard red spring wheat crop in the ground.”

Attractive soybean prices and increased soy crush demand will drive down 2024 spring wheat acres, Mr. O’Dea said.

“A new crush plant in North Dakota will chew through 60 million to 80 million bus of soybeans a year, and we’ve got more expansion on some other plants for renewable diesel,” he said. “It will change farming practices, logistics, export flows and longer term, renewable demand is going to have more impact than just on spring wheat acres. We’ll see fewer soft wheat acres in Ohio because of soybeans.”

Global wheat crops and exports will factor in US wheat prices in the coming year. The USDA projected US wheat exports at a 52-year low of 19.05 million tonnes in 2023-24. But more global business may come to US wheat amid smaller crops elsewhere.

Australian wheat production in the 2023-24 marketing year is forecast to fall by 37% from the previous year’s record harvest to 25.5 million tonnes, 4% below the 10-year average, according to the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) December crop report.

Argentina’s wheat crop struggled during development before rain brought a mild reprieve near the end of the cycle. Crop issues have popped up in Germany and Poland, and an estimated 10% to 15% of France’s crop won’t get planted due to wet weather, Mr. O’Dea said. A smaller crop is expected in Russia, the world’s largest wheat exporter and global price setter, where SovEcon has lowered its forecast for Russia’s 2023-24 wheat exports to 48.8 million tonnes from 49.2 million tonnes.

At the same time, drought conditions in Central America have put a growing kink in global freight movement. Low water around the Panama Canal, a crucial shipping route for North and South American agricultural trade, spurred restrictions, including vessels per day allowed to pass through, a report from Rabobank said. That’s an issue to which the trade hasn’t paid enough heed, as evidenced by surging ocean freight rates, Mr. O’Dea said.

“There are people that weren’t covered, now having to come in (at much higher rates),” he said. “With very few grain vessels flowing through the Panama Canal, it’s just extending scheme times. A typical corn cargo that takes 10 to 12 days to transit into Latin America via the canal will take twice that, maybe three times that. Grain vessels are being redirected into a building backup at the Suez Canal. There are a lot of logistics things that are supporting wheat, corn and to a smaller extent, the soybean market.”

The downtrend in domestic wheat prices may have struck a floor in late November alongside Paris Matif wheat futures. US wheat futures and Paris futures both bounced by the end of the month and trade analysts’ ideas were that a handful of minor bullish indicators would be offset by a general neutral tone, perhaps keeping futures quietly rangebound — sideways to slightly higher amid consolidation — into the new year. But all were watching the atypically short futures positions taken by funds. The trend reached record levels for the season, Mr. O’Dea said, and there will be implications should the funds shift to short-covering mode.

Intermarket wheat futures spreads remain a factor to watch. That was evident in late November when the Kansas City-Chicago July 2024 spread narrowed within 20¢ a bu (versus a more typical 40¢ to 50¢ spread, recently) and encouraged “some buying into the spread, though always your risk there is the fund short in Chicago,” Mr. O’Dea said.

“The KC-Minneapolis March already has traded out to a $1 spread,” he said. “If you do get a rally in KC, Minneapolis probably doesn’t do anything, so that perhaps needs to narrow up a bit. But it is bringing in some more demand. KC 13% protein basis is up 30¢ (to 180¢ over KC March) and 15% protein in Minneapolis at 300¢ (over Minneapolis March, both as of Dec. 1). You put that spread on there, it could create more demand for 11.5%- to 12%-protein hard red winter wheat, which could run basis up and bring in futures strength. That spread’s probably overdone to the upside for the short term.”

For the near term, if wheat prices haven’t bottomed, they might soon, since signals point bullish, Ms. Nazetta said.

“There’s still a lot of risk on global supply to get us through the winter months before the Northern Hemisphere harvests of the US, European, and next Russian crops come online with a smaller supply available over the next six months,” she said. “We may be approaching the short-term bottom in terms of flat price, particularly because corn is a pretty fair value today and we can afford to feed wheat, so we’re probably approaching the lows for wheat.”

For bakers mulling the timing for completing first- and second-quarter flour coverage, “when calendar spreads narrow up where they can go buy the back end without having to pay the big carries, extend coverage against the narrower spreads,” Mr. O’Dea said. They should “get some basis booked, too, because 12% proteins are cheap versus the three-year average.”

Corn supplies pressure values

If watching prices slump to three-year lows wasn’t evidence enough, the November USDA World Agricultural Supply and Demand Estimate report pretty much confirmed there is plenty of corn in the United States.

In the report released Nov. 9, the USDA raised its forecast for the carryover of corn on Sept. 1, 2024, to 2,156 million bus, which was 45 million bus higher than the October projection and 58% higher than the 1,361 million bus in 2023. The USDA increased from October its 2023 production estimate to a record-high 15,234 million bus, up 11% from 13,715 million bus produced in 2022. Based on Nov. 1 conditions, the crop was expected to average 174.9 bus per acre, up 1.9 bus from the previous forecast and up 1.5 bus from last year.

The impact of higher production and supplies was partially offset by forecast higher corn use and exports in 2023-24. The USDA raised its forecast of feed and residual use of corn to 5,650 million bus, up 50 million bus from October, and allocations for ethanol were raised 25 million bus to 5,325 million bus. The export forecast was increased to 2,075 million bus, up 50 million bus from the prior month’s projection. But some analysts questioned the usage adjustments, indicating the Department may be trying to manage an overwhelmingly excessive domestic corn supply without further tanking already tumbling prices.

“(The USDA) printed an ending stocks number above 2.1 billion bus so it had to invent some demand to keep it from being higher, in my opinion,” said Arlan Suderman, chief commodities economist for StoneX. “The ethanol-to-use increase was probably justified. You can make an argument for increasing the feed usage, but I think it’s a very weak argument at this point, and I think you’re really stretching it to try and increase the exports.”

In 2021, US corn exports reached a record $18.7 billion largely due to demand from China and reduced competition from Brazil and Ukraine. In 2022, US export value slipped to $18.57 billion and was expected to fall to $13.1 billion in 2023 as demand from China weakens, competition from Brazil’s recent massive and lower-priced crop siphons export opportunities, and abundant domestic supplies pressure prices.

With corn prices sinking to three-year lows, it is possible the market just may be trying to normalize after enduring impacts from supply chain disruptions related to the COVID-19 pandemic, grain export embargos after Russia invaded Ukraine in early 2022 and a host of transportation woes from railroad strikes to barge backups due to low water levels on the Mississippi River.

“Prior to the COVID pandemic, corn prices were in the $3-a-bu range, and we could get back down to that range,” Mr. Suderman said. “But while the path of least resistance is lower, traders holding big short positions do get nervous because it just takes an unexpected headline somewhere, and that could quickly give us a short-covering rally.”

Analysts watching out for those market-moving headlines were specifically keeping an eye on weather in South America. The current El Niño weather pattern was supporting adverse conditions in Brazil, which threatened to reduce its corn production, especially its winter crop, which may be supportive for US corn. Until then, US corn basis levels were rising, hoping to incentivize farmers to return to the market.

Another area of concern was the precarious export situation in the Black Sea as the war between Russia and Ukraine persists. Since the agreement between the two warring countries to allow safe passage of grain exports from Black Sea ports dissolved in July, Ukraine has worked to find alternative channels to move its grain.

“The farmer has to have a reasonable margin of profit to be able to produce the crop, and to do that they have to be able to export,” Mr. Suderman said. “If they’re not able to export, they’re not going to produce, but right now it looks like they’re going to be able to sustain exports. There’s been close to 160 ships that have moved through Ukrainian ports, and many of them are carrying corn, and so that continues to keep Ukraine as a significant supplier of corn in the world market.”

Soybean supplies to tighten

Like corn, the November WASDE leaned bearish for the US soybean market. The USDA raised its forecast for the carryover of soybeans on Sept. 1, 2024, to 245 million bus, up 25 million bus from the October projection. The soybean production estimate for 2023 was lifted 0.6% from October to 4,129 million bus, coming in slightly above the average of trade estimates. The average yield was forecast at 49.9 bus per acre, up slightly from the prior forecast and from a year ago.

After the November report was released, soybean futures dropped about 1% except for the expiring November contract, which posted modest gains. But the fall was short-lived as futures rocketed up to one-month highs just a few sessions later.

“The bottom line is when you look at where we stand on the projected ending stocks for 2023-24, the bigger picture really doesn’t change,” said Brian Harris, executive director and owner of Global Risk Management. “We’re still going to be relatively tight on soybeans. That ending stocks-to-use ratio below 6% for soybeans is still a historically tight number, and with the demand for domestic crush for renewable diesel, if export business would start picking up again, which I expect it will, you’re going to trim that number by the time all is said and done. I don’t think we’ll be at 245, we’ll be closer to 210.”

Soybean exports appear to be increasing. The conventional window for active US soybean exports is October to January, the period when South American supplies generally diminish. But this year, Brazil extended its export season by a month after its 2022-23 soybean production reached a record 158 million tonnes.

Early forecasts for 2023-24 soybean production in Brazil were as high as 165 million tonnes, but months of abnormally dry conditions in parts of the country’s major growing areas pushed its planting season back to its latest start in eight years. Analysts are now expecting the crop to average closer to 150 million tonnes.

But trying to define the soybean market based on weather reports in South America was proving difficult as forecasts oscillated from periods of rainfall to extensive spells of dryness. All of it was creating a series of fits and starts for the US soybean market. From November to December, January soybean futures featured several daily jumps and dives of around 2%.

While soybean futures whipsawed between large gains and losses, soybean meal futures touched multiple contract highs in November, also supported by the adverse weather in Brazil and by ramped-up global demand to help fill gaps after 2022-23 soybean meal production in Argentina, the world’s leading exporter, was drastically slashed after enduring its worst drought in 60 years. But the trade was taking note of substantial rains reviving Argentina’s soil profile, and the excellent start to this year’s planting season indicated Argentina may return to its typical production level, which was likely supporting the significant inverse in soybean meal futures.

Weakness in soybean oil markets and a drop in its product share value down to 36% also gave soybean meal futures a boost. But analysts were anticipating a correction in soybean meal and a rebound in soybean oil.

“Soybean meal is super strong right now, but I don’t know if it can sustain this $400-something-a-ton price,” said Logan Kuch, leader of the bulk oils division for Columbus Vegetable Oils. “The big question is what will soybean oil do, because its share has been historically higher and it could certainly strengthen, just depending on what demand looks like.”

Demand for soybean oil, especially from the renewable diesel sector, was expected to strengthen next spring, and some analysts were encouraging buyers to take advantage of current lows.

“If you’re able to get numbers put on the books below 50¢ a lb, then I think that will behoove you because I think by late spring and summer of 2024 we’re going to go right back into the very volatile times,” Mr. Harris said. “I’m not saying the market is going to go back up to 70¢ a lb, but 50¢ a lb is certainly too cheap.”