Soyoil surges on global supply shortfalls

Our Feedback from the Field series is live for the 2022 season! Just click this link to take the survey and share updates about your farm’s spring progress. I review and upload results daily to the FFTF Google MyMap, so farmers can see others’ responses from across the country – or even across the county!

My first Feedback from the Field column of the season is here! But – spoiler alert – we only had two respondents over the past few weeks report any meaningful corn planting activity and those responses both came from states far outside the Corn Belt.

Wheat conditions, particularly for white wheat crops in the Pacific Northwest, face significant headwinds this season which could trigger higher prices in the coming weeks. Overall, the cool and excessively wet or dry weather faced by grower so far this spring has done little to instill farmer confidence in the 2022 growing season.

Good morning! Two and a half years ago, I was working in a cheese plant and personal protective equipment – PPE – was strictly enforced in my life to keep hair (and literally any other bodily fragments) out of products. Two years ago, PPE was again strictly enforced to curb virus transmission.

This morning, here is another perspective on PPE I found from a Reuters article published yesterday. Ukrainian farmers are gearing up in helmets and bulletproof vests to ensure safety while performing spring fieldwork.

It’s a harrowing concept to grasp, especially as planting season ramps up in the U.S. I encourage you to check out the Reuters article as it contains a video (!) of interviews with Ukrainian growers and explains the processes they are undergoing to plant 2022 crops safely.

"We go out, pass the checkpoints, get to work, drink tea and coffee, put on our vests and go. We fill up (the gas tank) and then go to fields. If there is shelling, we pack up and go to the office," a Ukrainian farmer named Yuri told Reuters.

Also – John Deere: can we get these Ukrainian farmers some bulletproof glass in their equipment, please?!

Inputs

Norwegian fertilizer producer Yara released its first quarter (Q1 2022) earnings statement overnight. During that period, high fertilizer prices more than compensated for rising raw materials costs, sending Q1 EBITDA (earnings before interest, tax, depreciation, and amortization) to $1.35 billion. A year ago, Yara’s EBITDA stood at $585 million – less than half of this year’s volumes.

Yara expects more headwinds in sourcing available and affordable natural gas supplies critical to the fertilizer production process. Rising natural gas prices in Europe have been a constraint to fertilizer producers in the region since the Black Sea war’s onset, with the majority of supplies sourced by Russia.

Overnight, Russia cut off Poland and Bulgaria from its natural gas supplies which will likely add further pressure to fertilizer producers. Yara expects to pay $1.15 billion more in natural gas costs in Q2 2022 and $750 more in Q3 2022 than it did during the same periods in 2021.

"Although Yara's business is flexible and resilient, the impact of the war on global food security will be dramatic," Chief Executive Svein Tore Holsether said in a statement. "We repeat our calls for government action to strengthen food supply chains and decrease dependency on Russia."

This means that elevated input prices are likely to stick around for the 2023 growing season across Europe and likely around the rest of the world. Thankfully, current new crop futures prices have risen at a faster clip than fertilizer prices and could reach higher peaks in the coming months if supply constraints continue.

That translates to strong net earnings (yes, even after land costs are factored in) for growers, as I concluded in yesterday’s newsletter. Even though farmers have planted few corn acres so far this spring, considering the overarching price dynamics in the grain and fertilizer markets, it would be wise to start booking at least some new crop sales to provide cash flow for 2023 input purchases sooner rather than later.

Corn

Corn prices were mixed this morning with old crop futures contracts shedding $0.01/bushel and new crop futures trading unchanged to a penny higher at last glance. Dry weather in Brazil is threatening crop conditions for its safrinha corn crop, which helped boost export prospects for new crop U.S. corn futures contracts this morning.

Ag consultancy Agritel said in a note that “fears of extensions of the conflict in Ukraine, combined with weather risks in both the U.S. and Brazil," continue to be the driving market forces behind today’s price movement. Planting delays are likely to keep any potential losses in the corn market today at a minimum.

Soybeans

Soybean futures charged $0.11-$0.18/bushel higher overnight as growing pressure from the global edible oils market as Indonesia’s looming palm oil export ban and Canada’s smaller-than-expected canola crop this spring have dominated market headlines over the past couple days.

Once again, soyoil was the chief driver of the soy rally with nearby futures contracts in Chicago trading 2.3-2.45% higher this morning. Soymeal prices rose to stay competitive with soyoil prices.

Statistics Canada – USDA’s counterpart in our neighbor to the north – released its 2022 Prospective Plantings report yesterday. Canadian farmers are expected to grow 7% fewer canola (rapeseed) acres in 2022, totaling 20.9 million acres.

Many of those acres are going into wheat following last summer’s devastating spring wheat crop shortfall in the U.S. Northern Plains and Canadian Prairie. Plus, spring canola sowings require nearly three times the nitrogen applications compared to other spring-planted crops and high fertilizer and alternative crop prices were a likely deterrent to more canola acres being planted in Canada this spring.

Canada is the world’s fourth largest producer and largest exporter of canola oil. But it is also expanding its domestic crushing capacity, which could limit global exportable supplies. As global edible oil supplies remain constrained, especially in the aftermath of the Black Sea conflict, this news is likely to have bullish impacts on oilseed pricing in the coming months.

Canola oil is the world’s third largest produced edible oil following palm and soyoil and ahead of sunflower oil. Some of Canada’s canola acreage loss has been offset by an increase in acreage in the European Union. And the soybean acreage expansion in South America is slated to continue for another year, which will provide a favorable substitutive edible oil product to markets.

With all of these top four edible oils facing supply constraints, the bulls are not likely to leave soybean prices alone for quite some time.

Wheat

Wheat prices fell prey to profit-takers this morning following yesterday’s rally. Losses were held in check by poor U.S. winter wheat crop conditions and spring planting delays as well as by the ongoing tension over global supply availability amid the Russian war in Ukraine.

Weather

Mostly clear skies across much of the U.S. Heartland today will give way to showers in the Central and Northern Plains tomorrow, according to NOAA’s short-range forecasts. A storm system developing in the Central and Northern Rockies will push east into the Plains overnight, dousing the Upper Midwest with more rain tomorrow and Friday.

Most of the accumulation will be realized on Friday, as the Central Plains are only expected to receive up to a quarter inch of precipitation in the next 24 hours.

Financials

S&P 500 futures posted a 16-point (0.38%) gain overnight to $4,186.50 on a round of bargain-buying after equity indices fell to a six-week low during yesterday’s trading session. Ongoing tensions surrounding energy issues in the E.U., the COVID crisis in China, and rising U.S. interest rates will continue to keep a cap on any potential rallies the stock market may hope for today.