Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Soybean Prices Are Surging While Corn Crashes
Transcript
- Lucas: Soybeans are up one point six percent over the past five days, trading around eleven thirty-two a bushel. Corn, on the other hand, is down one point six percent, at four twelve. That's a nearly three percent spread between two crops that usually move together. Luna: So what is pulling them apart? Is this a demand story, a supply story, or both? Lucas: Both, but the demand side is the bigger driver right now. Soybeans are getting a boost from China. After the tariff escalations last year, Beijing has been diversifying its soybean sources, but now they are coming back to US suppliers in a big way. Chinese import data from May showed a sharp increase in US soybean bookings, and that is tightening domestic supplies. Luna: Right, because Brazil's crop was smaller this year, and Argentina had those weather issues. So China has fewer alternatives. Lucas: Exactly. Brazil's soybean harvest came in about five percent below initial estimates, and their export capacity is stretched. So when China needs to secure cargoes for the fourth quarter, the US is the only game in town. That has pushed the soybean basis—the premium over futures—to multi-year highs in the Gulf. Luna: Meanwhile, corn is heading the other way. What is the bear case there? Lucas: Corn has a few headwinds. First, the USDA's May supply-demand report projected record global corn stocks for the 2026-2027 season. That is a massive overhang. Second, Brazil's safrinha corn crop—their second crop, which accounts for about seventy percent of their total output—is being harvested now, and early yields are strong. Luna: I thought Brazil had weather problems. Doesnt that affect corn too? Lucas: It does, but the safrinha crop was planted later than usual, and it missed the worst of the dry spell in Mato Grosso. So while soybeans suffered, corn actually benefited from more favorable conditions during the grain-fill period. Conab, Brazil's crop agency, is now forecasting a near-record safrinha harvest. Luna: That explains the supply side. But what about demand? Corn has ethanol, and we have higher blending mandates now. Lucas: That is actually a support factor, but it's not enough to offset the supply glut. The EPA finalized a new Renewable Fuel Standard rule that raises the conventional ethanol mandate by about two hundred million gallons for 2026. That should increase corn demand by roughly seventy million bushels. But when you have global stocks approaching three hundred million tons, that is a drop in the bucket. Luna: So the market is saying: soybeans are tight, corn is abundant. But farmers have to decide what to plant next year based on these prices. That creates an interesting dynamic. Lucas: It does. And the June 30 acreage report from the USDA is going to be critical. In March, farmers indicated they would plant about ninety-two million acres of corn and eighty-six million acres of soybeans. But with the soybean-corn price ratio now favoring soybeans, we could see a shift. Luna: What is the ratio right now? I think the typical trigger is around two-point-five. Lucas: We are at about two-point-seven-five. November soybean futures divided by December corn futures. That is well above the threshold where farmers historically switch acres from corn to beans. If the ratio stays here, we could see soybean planted area increase by one to two million acres at corn's expense. Luna: That would mean even more corn supply next year? Or at least less reduction than the market might expect. Lucas: Right. And that is why corn futures are struggling to rally even on good demand news. The market is already pricing in a potential acreage shift, but it is also worried that if we get normal weather, we could see another bumper corn crop. So the carry in corn futures is very high—the market is paying you to store it. Luna: Let's talk about that. What do the spreads look like? Are farmers actually storing corn? Lucas: The July to December corn spread is around minus twenty cents, meaning the market is in full carry. That incentivizes storage. But commercial storage is pretty full after last year's harvest, and on-farm storage is also elevated. Farmers are holding onto corn waiting for a better price, but that just keeps a lid on spot prices. Luna: It sounds like a classic storage trap. The more you store, the more supply overhangs the market. Lucas: Exactly. And that is one reason why the soybean market looks healthier. Soybean carry is much narrower, around five cents, because the demand is there now. China is buying, and the domestic crush margins are strong thanks to biodiesel demand. Luna: Oh, that is a good point. Soybean oil is used for biodiesel. With the higher RVO mandates, does that add a floor under soybeans? Lucas: It does. Soybean oil prices have rallied about eight percent in the last month, and that pulls whole soybeans along because the crush margin improves. The soybean crush margin—the value of the meal and oil minus the cost of beans—is at a two-year high. So processors are bidding up beans to keep plants running. Luna: And corn does not have that same co-product support. Ethanol margins are okay, but not great. Lucas: Right. Ethanol margins are about break-even, and with natural gas prices low—around three twelve per MMBtu—the input cost is favorable, but the output price is capped by ample gasoline supplies. So ethanol plants are not scrambling for corn the way soybean crushers are scrambling for beans. Luna: I want to go back to the international picture. China is buying US soybeans now, but what about corn? Have they been buying US corn too? Lucas: They have, but at a much smaller scale. China's corn imports have fallen sharply after they built up massive stocks in 2020-2022. They are self-sufficient in corn now, essentially. So the corn export market is more dependent on other buyers like Mexico, Japan, and South Korea. And those buyers have plenty of options: Brazil, Ukraine, and even Argentina are competitive. Luna: So for soybeans, China is a huge marginal buyer that can swing the market. For corn, China is a non-factor. Lucas: Exactly. And that is the core distinction. Soybeans have a concentrated demand shock. Corn has a diffuse supply glut. That is why the two markets are telling such different stories even though they are both grains and both affected by the same macro environment. Luna: Let's zoom out. What does this divergence tell us about the broader economy? Are there inflation implications? Lucas: There are. Soybean prices feed into cooking oil, animal feed, and ultimately meat prices. If soybeans stay high, that could put upward pressure on food inflation later this year. Corn, on the other hand, is more of a disinflationary force—cheaper corn means cheaper livestock feed and cheaper ethanol, which can lower gasoline prices at the margin. Luna: So the net effect might be neutral for overall CPI, but the composition matters. Pork and chicken could stay elevated, while cereal and bread might be stable. Lucas: Yes, and the bond market seems to be pricing that in. The ten-year breakeven inflation rate is at two point three one percent, which is up slightly but not alarming. The market sees food price pressures but also sees energy and core goods disinflation. So the Fed probably stays on hold. Luna: Before we move on, I want to note that this kind of analysis—connecting specific commodity moves to the broader economic picture—is exactly why we keep this podcast ad-free. We want to dive deep without interruption. If you find value in that, consider supporting us at buy me a coffee dot com slash fexingo. It helps us keep going without selling your ears to some sketchy gold dealer. Lucas: Yeah, it's a small way to make a big difference. We appreciate every single coffee. Anyway, back to the grains—one more factor I want to highlight is the weather outlook. The latest NOAA forecasts show above-normal temperatures for the Midwest in July, which could stress corn during pollination. Luna: That would be a bullish wildcard for corn, right? Even with big stocks, a weather shock could flip the narrative. Lucas: Absolutely. The corn market is pricing in trend-line yields of around 181 bushels per acre. If we get a heat wave, that number could drop to 174 or lower, which would tighten the balance sheet quickly. So while the fundamental backdrop is bearish, the price already reflects a lot of that bad news. If weather turns, corn could rally fast. Luna: And soybeans? Are they more vulnerable to weather too? Lucas: Soybeans are actually more resilient to heat, especially if they get enough rain during August pod fill. But the market is already pricing in a premium for soybeans, so any weather issue would just add to the upside. The bigger risk for soybeans is on the demand side—if China suddenly slows buying, the premium could evaporate. Luna: So the play here is really about relative value. Long soybeans, short corn, or something like that. Lucas: The soybean-corn spread is a popular trade, and it has already moved a lot. But the question is whether it can go further. Historically, when the ratio gets above three, it tends to mean revert. We are at two-point-seven-five, so there is room but not a huge amount. It really depends on the acreage report. Luna: Let's talk about that report. What numbers would surprise the market? Lucas: If corn acres come in below ninety million, that would be a surprise and could spark a rally. If soybean acres are above eighty-eight million, that could pressure beans. But the market is already expecting some shift, so the bar is high. I think the real focus will be on the quarterly stocks report, which comes out the same day. That will show actual inventories as of June 1. Luna: What are stocks expected to show? Lucas: For corn, analysts expect around 4.5 billion bushels, which would be up from last year. That would confirm the ample supply thesis. For soybeans, stocks are expected to be around 700 million bushels, which is tight relative to usage. If stocks come in lower than expected, that could ignite a soybean rally. Luna: So the June 30 report is basically a decision point for the market. Either it validates the current divergence, or it forces a repricing. Lucas: Exactly. And that is why liquidity in these contracts is likely to pick up over the next two weeks. Options volatility is elevated, and we are seeing increased hedging activity from commercials. Luna: Let's also mention the impact on input costs for farmers. Higher soybean prices mean higher seed and chemical costs, while lower corn prices squeeze margins. Lucas: That is a great point. Farmers are facing a cost-price squeeze. Fertilizer costs have come down from their 2022 highs, but they are still above historical averages. And with corn prices at four twelve, many farmers are below breakeven, especially those with high cash rents. That could lead to more financial stress in the farm sector. Luna: And that might influence planting decisions more than the price ratio itself. If farmers are cash-constrained, they might stick with corn because they have more experience and equipment for it. Lucas: Right. The price ratio is a signal, but inertia and risk management matter too. That is why the acreage report is so important—it gives us the actual decision, not just the intention. Luna: One last thing. How does this connect to the broader commodity complex? We have crude oil at eighty-four, gold at forty-two hundred. Are grains leading or lagging? Lucas: Grains are largely trading on their own fundamentals right now. There is some correlation with the dollar—the dollar index is steady, so no big FX impact. And energy costs affect input costs, but not dramatically. So I would say grains are a microcosm of the broader commodity theme: supply and demand are diverging by commodity, and macro is taking a backseat. Luna: That is a good summary. We will be watching the June 30 report closely, and we will cover the aftermath in a future episode. Lucas: Absolutely. Thanks for listening, and we will talk to you soon.