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Geopolitical & Fundamental Issues Combine for Uncertainty
Saturday, March 1, 2025
filed under: Marketing/Risk Management
By Mike Krueger*
Rarely has there been a time of so much market uncertainty as there is right now. The uncertainty has nothing to do with fundamentals or technical considerations; it has everything to do with geopolitical factors – and specifically the impact of the Trump Administration tariffs on both imports and exports of U.S. agricultural commodities.
The big player in the room is obviously China. China accounts for about 61% (4.0 billion bushels) of total world soybean imports. Brazil supplies about two-thirds of China’s imports (2.7 billion bushels), with the US supplying most of the balance (1.3 billion bushels). This split has been gradually shifting more toward Brazil as their soybean production continues to set records. Tariffs on imports from China will push China to increase purchases of soybeans from Brazil.
Mexico is the largest buyer of corn from the U.S. The Mexicans are also the first or second largest buyer of U.S. wheat. Big tariffs against Mexico can also have a negative effect on corn and wheat exports to Mexico.
The hope is that these tariff wars will get settled sooner rather than later and export disruptions will be minimal. The problem today is that no one knows for certain what the outcome will be. Markets don’t like that uncertainty.
As of this mid-March writing, the soybean harvest in Brazil is in its last phases, heading towards completion. The harvest there is later than normal because planting was delayed in some areas. Rainy weather also added to the harvest delays, although the harvest pace has gotten back to normal in recent weeks.
The Brazilian soybean crop will not be quite as big as expected, but it will still be one of the top two or three largest crops in history. So Brazil will be awash in soybeans.
The delayed soybean harvest also means that Brazil’s Safrinha (second-crop) corn will be planted a bit later than normal. That can push pollination into a hotter, drier weather pattern that could hurt production prospects. This will be an important factor to watch in the corn market.
It has been a very dry growing season across most of Argentina. The USDA has not reflected much of a yield reduction in its production estimates for Argentina. It is far from a disaster there, but other analysts are carrying a production estimate 2.0 to 3.0 million metric tons below the USDA.
USDA will release its U.S. planting intentions estimates on March 31. The betting today is that soybean acres could decline as much as three to four million from 2024, with corn gaining most of the lost soybean acres. The expected shift is based on the sharper decline in soybean prices than in corn prices. Concerns about the level of future U.S. soybean exports to China because of tariffs can shift even more acres out of soybeans.
These expected acreage shifts out of soybeans set up an interesting dichotomy in the world soybean market. U.S. soybean ending stocks will remain much tighter than expected because of a 100- to 150-million-bushel potential drop in production. Brazil, on the other hand, will maintain a big surplus of soybeans. This has been the situation for the last three to four years. It also means that world soybean supplies could actually be smaller than last year despite the huge Brazil crop.
USDA made very few changes in the March WASDE (world supply and demand) estimates. They left U.S. corn and soybean ending supply estimates unchanged from the February numbers. They increased the U.S. wheat ending supply estimate slightly by reducing the wheat export forecast. The trade was expecting at least small reductions in the soybean and corn production estimates for Brazil and Argentina, but the USDA left those unchanged as well.
The Northern Hemisphere growing season is fast approaching. This will give markets something to think about besides the world geo-political situation. There will be plenty of fundamental issues to watch:
• It was a very cold and dry fall and winter season across southern Russia and Ukraine. Their winter wheat yields will be lower than last year. The degree of loss will depend on how the spring season develops.
• Much of western Europe had a very wet fall and winter season that hurt their winter wheat yield potential.
• The mix of acres in the U.S. will also be important, as mentioned previously. Federal crop revenue insurance initial (and minimum) price guarantees have been established for soybeans, corn and spring wheat, along with oil and confection sunflower. These numbers favor corn over soybeans and could also drag some acres back to sunflower.
Here are the 2025 numbers compared to 2024 for the various crops:
• Oil Sunflower — $24/cwt vs. $23.80
• Confection Sunflower — $32/cwt vs. $28.80
• Soybeans — $10.54/bu vs. $11.55
• Corn — $4.70/bu vs. $4.66
• Spring Wheat — $6.55/bu vs. $6.84
All of the above-discussed geopolitical and fundamental issues should mean that market volatility will continue well into the summer.
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.