It is mid-winter, but farmers really should think of it as midsummer in our agricultural commodity markets. In the southern hemisphere crops are actively growing as well as being actively harvested. At the same time, we are expecting the Safrinha crop to chase combines across the fields in the next few weeks putting a lot of pressure on our commodity prices. Through the auspices of modern technology, we can even get visual evidence of crop conditions that back in the day we could only dream of. Needless to say, Brazil is expecting another record corn and soybean crop.
That is getting to be a little bit of old news, but it is always the punchline to that old axiom here in North America that “they aren’t making farmland anymore”. I always answer that query by saying there’s lots of land in South America coming into production and we haven’t even got to Africa yet. The bottom line is there is lots of farmland being made every day in the southern hemisphere. The challenge of course will be to see if demand can be maintained with all of this renewed supply at our current price levels.
You might remember a few weeks ago I wrote about Brazil increasing corn production and having signed a new phytosanitary trade arrangement with China to ship more corn. Keep in mind that China is set to overtake the United States as the world’s leading exporter of corn in the coming year. Our Brazilian friends are expected to harvest 5.6 billion bushels of soybeans when harvest wraps up this year. That represents a 22% increase from last year on a 4% increase in acres. On the corn side of the ledger Brazilian production is expected to rise 11% to 4.9 billion bushels. It’s also important to keep in mind 75% of that will come from the Safrinha crop which is being planted now behind combines harvesting soybeans. The Brazilian corn acreage will be approximately 55 million acres this year
I have often said I would like to take my readers with me on a trip to see some of the production that is boosting our supply as well as some of the demand that might be out there to take it. For instance, it is hard to imagine for many of us here in North America the scope of the acreage increases in Brazil and the southern hemisphere. It’s hard to imagine because we have such a different type of agriculture here in eastern Canada and such a different farming culture. For the most part, expanded acreage in Canada and the United States is tapped out compared to Brazil and the southern hemisphere.
If I could make that happen, I’d load up my A380 Airbus jet liner and take everybody to Brazil and China. I’d also go to some other South American countries as well as South Asia. If we had time we would stop in Africa. All of these places represent areas where we can increase global agriculture production, but they also represent populations where diverse diet choices are increasing. With increased economic growth, this can only bode well for agricultural demand.
The difficult part will be how it all balances out. in many ways the increased global production of grain in 2023 gives every opportunity for grain prices to slump in an inflationary agricultural economic environment. However, that’s not pleasant to think about.
China has been importing more corn since about 2010 for their own domestic use. Before that, they actually exported corn two other East Asian nations. In 2022 China imported 20.5 million metric tons of corn to satisfy the combined demand of feed mills, ethanol plants amino acid manufacturers and other industrial users. Approximately 7.2 million metric tonnes of corn can be imported into China at a 1% tariff rate, but after that the rate jumps to 65%. However, it’s difficult to determine what is paid with regard to tariff rate. You know what I mean. It gets mysterious from there, but the bottom line is China is a huge consumer of corn. Ditto for soybeans.
It almost makes you muse that we need that South American production to satisfy the huge demand coming from China, East Asia and other places. I certainly think so, but I do not subscribe to the narrative that the Brazilians are going to bury us with their production. I also don’t subscribe to the narrative that they will take all the Chinese demand away from us. As I’ve written here many times before as long as we can produce within our basis levels here in eastern Canada, we can be successful. Mother Nature will have something to say about that as well.
Keep in mind this might mean cheap Brazilian soybeans or corn landing into Quebec or Ontario. We have seen that with soybeans. We all know what cheap American corn does to our eastern Canadian basis levels. As we look ahead, some things are just uncomfortable to think about.
Does it all lead to bluer skies ahead. Well, you know, not necessarily. There is that messy war in Europe, there is also the reality that grain players around the world don’t always trust each other. That said, Ontario new crop cash prices right now are $8.10 bu for corn and $17.80 bu for soybeans. Those are pretty good prices. Keep in mind, farmers in far off places like them too. That will likely increasingly define our future.