Energy policy, weather grab headlines in grain market

At mid-year the grain markets typically are focused on the winter wheat harvest and weather during the summer growing season. While the harvest is key, non-fundamental events are mostly at the forefront of traders’ minds this year, including tariffs, war(s), energy policy and others. Weather is expected to be mostly benign if not favorable this season.

A major jolt came to the market on June 13 when the US Environmental Protection Agency (EPA) stunned with much higher-than-expected proposed Renewable Fuels Standard volumes for biomass-based diesel, with other parts of the energy policy yet to be announced.

The news sent Chicago soybean oil futures up 17% in two days, including limit-up price gains of 3¢ per pound on June 13 and gains of 3.18¢ to 4.50¢ per pound under expanded trading limits on June 16. Prices were mixed on June 17 as some exuberance faded.

Soybeans failed to follow suit, while soybean meal futures tumbled, and corn and wheat markets traded mostly on the bearish fundamentals of favorable growing season weather (corn) and harvest pressure (winter wheat). The EPA 2026 and 2027 mandates for ethanol were unchanged from 2025 at 15 billion gallons, limiting impact on corn.

The EPA news came on the heels of intensifying fighting between Israel and Iran that sent crude oil prices soaring to recent highs. And, during the same week, news of a potential trade deal (yet to be approved) between the United States and China briefly supported markets until traders realized more details were needed.

Market disruption and uncertainty from US import tariffs ranging from zero to 145% (and reciprocal tariffs) dominated markets in the first half of the year. Tariffs haven’t gone away, but the actual impact on prices, from the producer to the consumer, has been minimal to date, according to most speakers at the Sosland Purchasing Seminar in Kansas City June 8-10.

With the exceptions of aluminum, steel and China, speakers said they expected disruptions but mostly minor price increases from tariffs. A major hurdle was crossed with a tentative deal between the United States and China announced in the second week of June. The fact that few if any tariffs on trade of agricultural products between the United States, Mexico and Canada has been a major factor limiting significant market disruption.

The summer weather outlook delivered by Drew Lerner, senior agricultural meteorologist, Global Weather, Inc., at the Purchasing Seminar called for mostly benign if not favorable summer weather for North America, which should be good news for farmers. But the global outlook also was mostly benign, which may mean increased competition for US exports.

The EPA’s June 13 announcement of proposed requirements for biomass-based diesel for 2026 and 2027 ushered in “a complete reset of the market,” said Brian Harris, executive director and co-owner, Global Risk Management. The “reset” included sharply higher soybean oil futures prices, a surge in the oil share of the soybean crush value and changes in export flows.

Before the EPA announcement, soybean oil was seen in the 45¢ to 46¢ a pound range, but now summer prices will be closer to 50¢ to 52¢ a pound, with third-quarter values “north of 49¢,” Harris said. The soybean oil ending stocks-to-use ratio at 5% in June already was the lowest ever, he noted. Cash soybean oil users who had been limited forward coverage in hopes prices would drop back to 42¢ to 43¢ per pound won’t fare well with the new market dynamics, he said.

Higher demand for soybean oil solidifies the recent trend of crushing soybeans for oil. Traditionally, soybeans were crushed for meal, which is a primary high-protein livestock and poultry feed. With the upsurge in demand for soybean oil, Harris expects some processors may “crush until they can’t find a market for meal.” Increasing supplies of soybean meal come at a time when US cattle numbers are at multi-decade lows and profit margins for hog and poultry producers are “not good,” he added. However, lower prices for soybean meal and corn could help livestock and poultry producers’ margins.

Soybean oil’s share of the soybean crush market jumped to 49% from 44% in the days after the EPA announcement.

The US Department of Agriculture in its June 12 World Agricultural Supply and Demand Estimates (WASDE) report forecast use of soybean oil for biofuel manufacture in 2024-25 at 12.9 billion pounds, down 200 million pounds from its May forecast and down 89 million pounds from 2023-24. The current-year number may not change significantly as the biomass-based diesel requirement for 2025 remains at 3.35 billion gallons and the marketing year for soybean oil ends Sept. 30.

The USDA projected soybean oil used for biofuels in 2025-26 at 13.9 billion pounds, unchanged from May and up 8% from 2024-25. But that will change with a requirement of 5.61 billion gallons of biomass-based diesel, which is raised to 5.86 billion in 2027. The USDA doesn’t adjust its projections until federal policies are announced.

If 12.9 billion pounds of soybean oil are used to make 3.35 billion gallons of biodiesel in 2025 (other oils also are used), extrapolating that number to 2026 would put soybean oil needs near 21.6 billion pounds and for 2027 near 22.565 billion pounds.

“But it’s impossible to put an actual number on it as we need to see the final 45Z (new clean fuel production tax credit) and what they are going to do with the SRE (small refinery exemption) requests,” Harris said. “Even with the additional (crush) capacity that has come online, it would be a difficult proposition to fulfill all needs for both biodiesel and food without imports and relying on mostly US soybean oil.”

Part of the EPA’s proposal also sought to discourage imports of oils, including used cooking oil, for biodiesel production.

The US market “reset” means less reliance on exports for soybeans as more supplies will be crushed domestically to meet biodiesel demand. China’s downturn in US soybean purchases because of tariffs may work in the market’s favor. The trade rift between the United States and China has encouraged China to reduce its imports of US soybeans, with Brazil likely the major benefactor.

Brazil is forecast to have a bumper soybean crop this year and an even larger crop in 2025-26. The USDA in its June WASDE projected US 2025-26 soybean exports at 1.815 billion bushels, down 1.9% from 2024-25. That number is expected to be lowered in future WASDE reports. The USDA projected 2025-26 US soybean crush at a record-high 2.49 billion bushels, up 2.9% from 2024-25. That number will need to go higher to meet soybean oil demand for biodiesel.

Argentina is the world’s largest soybean oil exporter and likely will have to fill more of the world’s needs as exports from the United States pull back to meet biofuel demand. US soybean oil exports were “huge” in 2024-25, forecast at 2.6 billion pounds compared with 617 million in 2023-24. Tight supplies and high prices for palm oil from Southeast Asia contributed to increased demand for US soybean oil. Harris expects 700 million to 800 million pounds of US soybean oil will be pulled from exports for domestic use.

Another result of the EPA requirements may be disappointment for both corn and soybean growers. When planting decisions were being made earlier in the year, corn appeared the more profitable crop, with producers indicating they intended to plant 4.7 million more acres of corn and 3.6 million fewer acres of soybeans in 2025, according to the USDA’s March Prospective Plantings report.

Fast planting progress this spring suggested even more corn may have been planted than indicated in the report, with fewer acres to soybeans, with the threat of losing exports to China further supporting fewer soybean acres. Now, prices for corn are heading lower and for soybeans are moving higher, although soybean futures prices haven’t seen gains as robust as those of soybean oil futures.

Wheat market stakeholders face a bevy of considerations at the dawn of the 2025-26 crop year, including decreased US wheat production, record-high world wheat production and spillover effects from macro markets as global tariff upheaval unfolds.

The USDA on June 12 forecast 2025 US wheat production at 1.921 billion bushels, unchanged from May but down 3% from 1.971 billion in 2024. That defied the pattern of increased production forecasts between May and June in 9 of the past 10 crop years. The forecast pegged winter wheat production at 1.382 billion bushels, up slightly from May and up 2% from 2024, based on a June 1 average yield forecast at 53.7 bushels per acre, up 2 bushels from last year.

The Department forecast production of hard red winter wheat at 782 million bushels, down less than 1% from May; soft red winter wheat at 345 million bushels, up less than 1% from May and white winter wheat at 254 million bushels, up 1% from May.

Meanwhile, world wheat production is on track for its seventh consecutive record high in 2025 at 809 million tonnes.

“We’re seeing a steady climb in the amount of wheat we’re producing in the world,” said Bill Lapp, chief economist with Advanced Economic Solutions, Omaha, Nebraska, US. “Not all of it’s competing with the United States for exports. It would be overstating it to say this is all bearish all the time, because a lot of it stays home and is stored in places like India. We’re not seeing much in the way of production that’s a problem globally.”

Export sales of US wheat for 2025-26 have been strong. As of the week ended June 5, net export sales totaled 5.8 million tonnes, which compared with 4.6 million tonnes a year earlier. By class, sales were 2.3 million tonnes of hard red winter wheat (which compared with 1 million tonnes a year earlier), 1 million tonnes of soft red winter wheat (799,300 tonnes) and 1.5 million tonnes of hard red spring wheat.

“The US was trading at significant premiums to world wheat and now we’re seeing prices drop down to where we’re more competitive in feed channels,” Lapp said. “It’s spurred some more export sales and suggests wheat being somewhere near a floor pending the outcome of the crop as we go farther north and harvest and into the spring wheat territories. We’re probably somewhere near a floor.”

The effects of global trade disruption kicked off by tariffs placed on US imports by the Trump administration will dramatically impact trade flows, Lapp said.

“Tariffs dramatically impact our economy and economies around the world,” he said. “The flow of wheat and wheat products from Canada continues because there’s no tariff for the crops from Canada and Mexico due to the US-Mexico-Canada Agreement. We have no wheat or corn on the books for shipment to China, so the one global trade market that specifically should be most impacted is not in the case of wheat and corn. To this point in the game, it’s more of a macro situation for other crops, and right now we have not seen any impacts on our wheat and corn markets for the most part.

“Reaching these record global levels means that one country can have a significant fall off, but if other major exporters are near normal, we will probably reach a record again. With the exception of Australia being down, we’ve got good crops across the board until weather tells us differently. The rebound in Europe is pretty meaningful both for wheat markets as well as feed corn demand, corn export demand because Europe will feed a lot of their wheat in lieu of importing corn from the US.”

US wheat-corn spreads have widened and narrowed in the second quarter, most recently the latter, which again raises the possibility of increased wheat for feed, especially in corn-deficit areas from southwest Kansas into the Texas Panhandle where feed corn must be shipped at a cost versus locally produced wheat. The calculus for ranchers in 2025 also includes large stockpiles of sorghum.

“Wheat’s harvested before corn, so typically over the summer months, if you get that relationship right, you can feed a lot of wheat,” Lapp said. “At this point we’re not talking about quality issues for either crop, but when you get the price of wheat to decline toward $1 per bushel premium for KC or Chicago over corn, it encourages some feeding. This year is an exception because we’ve got a mountain of milo sitting in Kansas. When ethanol and the China markets aren’t available, milo is used for feed, and that’s what farmers are being forced to either store milo or dump it into the market. The net result of that is more limited feeding of wheat, and it means that the floor for wheat prices may be lower.”

Kansas City December futures traded as low as $5.40 per bushel before rebounding toward the $5.70 to $5.80 range. Wheat futures price direction depends on how much demand offsets harvest pressure and weather in the northern Plains, Lapp said.

“Into harvest, we could have downside risk, but demand has been pretty good,” he said. “I would say $5.55 to $5.85 Kansas City December, and Chicago will come down and probably trade at a modest premium, say 5¢, to Kansas City, plus or minus. Minneapolis is weather dependent and probably has a downside toward the $6.30 to $6.60 range.”

Heading into peak pollination season in July, the US corn market is awash in bearish indicators, with few signs of potential support to bail it out, analysts said.

Uncertainty surrounding US trade policy already has roiled the market in the first half of the year, and that’s likely to continue with the White House’s July 9 tariff deadline looming. Sales to Mexico, which took more than 40% of US corn exports in 2024, remain safe under the United States-Mexico-Canada Agreement, but ongoing talks with No. 2 buyer Japan and other leading trade partners are still in rocky territory with the deadline fast approaching.

The top presiding feature is weather, and forecasts look “absolutely perfect ahead of pollination,” Lerner told a record-large audience at the Sosland Purchasing Seminar.

“It’s all about the weather right now,” explained Patrick Sparks, vice president of Global Risk Management, Inc. “If you look at things, no season is perfect, but it looks like a pretty good year, and things seem to be improving.”

In the USDA’s June 16 Crop Progress report corn condition in the 18 major states was rated 72% good-to-excellent, 23% fair, 4% poor and 1% very poor. That compares to 71% good-to-excellent in the previous week and 72% at the same time last year.

“Unless there’s a big change in weather forecasts that I don’t see coming, that would be about the only thing that could offer much pressure,” said Dan Basse, president of AgResource Co. “But with the overall availability of world feed grains, I just don’t see it becoming a bull market.”

The USDA continues to project US and world corn production at record highs for 2025-26, amid slight adjustments to projected stocks and exports. In its June 12 WASDE report the USDA projected the US carryover of corn on Sept. 1, 2026, at 1.75 billion bushels, down 50 million bushels, or 2.8%, from the May projection, based on a like reduction in beginning stocks, but 28% above 2025. Carryover on Sept. 1, 2025, was forecast at 1.365 billion bushels, down 50 million bushels from May based on a 50-million-bushel increase in 2024-25 exports, forecast at 2.65 billion bushels.

Brazil’s National Supply Company (Conab), meanwhile, recently raised its “safrinha” second corn crop projection to 101 million tonnes, which would represent an increase of more than 12% over the previous year’s safrinha harvest, for a total Brazilian corn crop estimate of more than 128 million tonnes this year.

“The safrinha crop is a little bit slow to start as far as harvest,” Sparks said. “Last year was a fast year, so below that, and just a touch below average. The crop looks really big. One of the stories with old-crop corn has been the impressive US export pace, and I think that’s going to slow down here. If safrinha’s as big as we think it is, then that will put some pressure on our new-crop export season.”

US corn exports for the 2024-25 marketing year are well ahead of historical averages: 52,047,567 tonnes versus 40,515,035 tonnes the year prior, or up 28% year over year, according to the USDA’s June 16 weekly export inspections report.

“The USDA made a move with the WASDE to increase their old-crop corn export projection,” Sparks said. “They’re probably not done there. When you look at shipments or sales on the books, there’s definitely room for another increase. That number has some room to go to the upside still.”

In yet another pressure point for the US corn market, the EPA on June 13 announced the “highest volume requirements ever” under the Renewable Fuel Standards program, boosting requirements for soy-based biodiesel while leaving corn-based ethanol flat.

“From an ethanol perspective, it was a non-event,” Sparks said. “But it was very bullish to soybean oil. We’re going to have to find a home for all this extra soymeal we’re going to make as a result, and you can expect some further headwinds there for corn getting into feed rations.”

Basse agreed, “It’s going to produce so much soybean meal that it’s going to be a competing feed grain. We’re thinking that as (soybean) crush ramps up and you get more plants coming online, the competition from US soymeal in feed rations is going to be increasing. So ultimately it probably means much less corn being fed.”

Look for new-crop corn futures to slide as a result of weather, production and other factors, Sparks and Basse said. The CME Group December corn futures contract, which settled at $4.35 per bushel at the end of trading June 16, could fall another 8% to 15% this year, according to their projections.

“If we continue with normal weather, I think we have no problem getting down to $4 corn and then a little bit below that into the late summer-early fall period,” Sparks predicted.

“We have a downside target for December corn, a late-summer harvest or autumn low, around $3.70 to $3.90 per bushel,” Basse said. “Funds are now net short about 160,000 corn contracts, and the US farmer is the least sold that we can find in the last decade on new crop. So his mentality is likely to store it. I think the piles could get pretty high come this fall. I don’t know what else they’re going to do. It’s going to be a big crop, and we’ll need to find prices low enough to move it.”

When corn harvest exceeds storage capacity, grain elevators pile corn outside and work through that supply first to avoid losses. Outside corn piles typically are a sign of a bumper crop and ample corn supplies.

The trade will be watching closely the June 30 Acreage and Grain Stocks reports for all commodities, with the first survey-based forecasts for spring wheat released July 11 and for corn and soybeans Aug. 12.

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