It is hard to believe we are in the last couple of days of 2024. The year absolutely flew by and was one I will remember.
As we work to wrap up the year and head into the next, I thought I would highlight some of what I am watching from a fundamental standpoint. The developments in the year ahead are guaranteed to be plentiful, with what feels like a greater chance we will be surprised by more than one thing, especially as we head into the New Year with so many unknowns.
The bulls got Christmas it seems, or at the very least, the bearish pressure that had been present for much of the last couple of weeks in the soybean and wheat markets let up for the holiday week. While beans and wheat have struggled, corn has quietly worked its way to six-month highs, providing some relief to what has been a pretty dire outlook on the farm.
Looking around the world there is plenty to watch, almost too much you could say, with more than the weather dictating margins and grain movement in the year ahead. This week, I wanted to try and break it down by subject, working to cover the big picture developments that could matter.
Argentina
Argentina’s weather has been relatively benign to start the growing season. Precipitation amounts and temperatures seen so far have been in line with average levels, allowing the crop to get off to a decent start for the most part. However, dryness and a spike in temperatures is expected over the next couple of weeks, with some extreme heat seen in the GFS outlook.
From a crop development standpoint, Argentina has a percentage of its corn that was planted in October, with the bulk of its beans planted in November, before a second round of corn planting happens in December. This makes for variability in the effects this stretch of heat and dryness may have on the production outlook, with thoughts a continuation of the pattern will likely start to trim yields.
In addition to their weather, we will be watching how the situation in the Argentine economy unfolds over the next few months. Reports of struggles by input suppliers have been on the rise after the carry trade in the country’s currency disappeared. With the reduction in the country’s import taxes already seen, there are thoughts we will soon see reductions in the country’s export taxes. This would likely push the Argentine farmer to change their approach to selling bushels, after grain and soybeans had been a hedge against inflation for so long.
The improvement in the economic outlook is bringing crush demand back online as well, as margins come back to the country’s businesses.
With the outlook feeling quite a bit rosier than seen even 6 months ago, Argentina will be the place to watch for expansion in the years ahead it seems. For now, though, we will want to watch not only production out of the country, but also what it looks like for domestic demand and export potential if we were to see a change to their taxes and see processing margins continue to improve. Farmer movement will be interesting as well as farmers in the country have traditionally held supplies out of the pipeline to hedge against currency weakness and inflation.
Brazil
Brazil’s weather is far less threatening, with conditions described as ideal in many parts of the country. There is some dryness creeping into the south that will need to be monitored, with reports of too much rain in parts of Northern Brazil possibly beginning to cause issues. There has been some early harvest progress seen in Brazil, though the bulk of the country’s bean harvest will start in two weeks, with February seeing the greatest amount of movement. Production figures continue to grow on the back of good weather, with some putting their Brazilian figure into the upper 170s. For the most part, it appears production consensus is landing in the 170-175 mmt area. While the production outlook is great, the economic outlook feels a little bleak, with the Central Bank injecting over $30 billion in reserves over the past few weeks to combat the weakness seen in the real. Like what we are seeing in Argentina, farmers are having to change their approach to risk management, now having to defend themselves against inflationary pressure and a weak currency.
As mentioned above, when we saw similar developments in Argentina, farmers began to hold supplies out of the pipeline. While we are likely far from that being the case in Brazil, especially with the surge in supplies coming to the market in the next several weeks, this will be something to watch as we move forward as it could have a great impact on expansion plans in the years ahead.
In addition to all that is happening weather and economic wise, we are watching an explosion in domestic corn demand for ethanol, with great growth seen in soybean crush as well after the Fuels of the Future bill bumped both biodiesel and ethanol demand. This change in market structure will help to absorb some of the expected production increases this year, though it is likely we will see a push of cheaper supplies if harvest is able to progress with limited weather delays.
Biofuel Blending
Brazil is not the only country with growing biofuel demand. Indonesian officials announced their state-run refineries are prepared to roll out the B40 blend rate, with the start date still January 1st. They also announced the push for B50 as of the first of January 2026 is still in the works as well. This contrasts with the many rumors of a delay to the implementation, though meeting the B40 requirement across the country is likely to take months at best.
Indonesia is not the only country looking to expand their biofuel blending rates, as nearly every developed nation seems to be looking at biofuels as low hanging fruit when it comes to lowering their carbon footprints and supporting their farmers. Here in the US though, uncertainty remains with questions on what biofuel producers can expect for tax credits after the first of the year. This uncertainty will likely result in some production slowdowns after the first of January until more is known.
China
Chinese officials continue to look at spurring domestic consumption in 2025 to combat their economic struggles. Late last week they announced a desire to increase whole grain consumption in diets, with a whole host of other policies set to increase demand in the works. There has been talk lately that China may be looking at increasing their presence in the world biofuel market while also supporting domestic demand via ethanol or other biofuel production as well, with an emphasis on SAF seen.
In addition, we have seen slower but continued buying of US beans by Chinese government entities. Talk has grown louder recently that the approach to trade negotiations between the US and China looks very different this go around, with some of what was already outlined in the Phase One trade agreement being brought back into the conversation.
While the outlook for US/Chinese relations under Trump’s leadership may be improving ever-so-slightly, we are seeing a demise in the relationship between them and a handful of other countries. Talk that the EU will restrict Chinese produced lysine will likely lead to a bump in soybean meal demand across the region. Canada and China are in their own battle as well, with talk Canadian canola imports will soon be limited by Chinese officials. In addition, China announced an investigation into beef imports, something that will likely center on Brazil.
Other Things That Matter
Exports and ethanol demand were phenomenal again last week, with corn exports coming in above pre-report expectations. Wheat exports were strong as well, with bean exports reasonable, though on the lower end of what traders had anticipated.
Russian ground fire was said to be responsible for a plane crash last week, with officials saying the plane was hit as Russia worked to repel a Ukrainian drone attack. What that means in the big picture is unclear, though Russia says they will punish whoever was responsible. Speaking of Russia and Ukraine, Russia continues to advance on the frontlines in both Ukraine and their Kursk oblast. We have seen a huge surge in funding for Ukraine as Biden prepares to leave office that is helping with air defense systems and other tools, but the damage to Ukraine’s energy infrastructure is vast as they head into winter.
While many believe peace will be pushed in a big way by Trump, not everyone is as certain we will see it come to the region. At this point, the problems with Ukraine’s infrastructure are starting to cause issues with grain movement, with some reported quality issues and reduced production slowing corn exports as well.
I head into 2025 excited for what the year will bring and prepared for incredible volatility. I do feel we have found what should be long-term support in corn and wheat, with beans a bit more questionable, though any trip to trade war lows would not last long in my opinion. I thank you for reading this year and hope 2025 brings you health, wealth and happiness!
