Can grains buck deflation?

This analysis is by Bloomberg Intelligence Senior Commodity Strategist Mike McGlone , with contributing analysis by Jason F Miner, Ama Kyerewaa, and Alvin Tai. It appeared first on the Bloomberg Terminal.

Superabundance and deflation may be new normal for agriculture

The 2025 deflation path indicated by gold’s about 25% rise vs. crude oil’s 12% decline to April 24 may gain fuel from the grains. Unless there’s a Corn Belt supply surprise, we see corn, soybeans and wheat more likely to seek low-price cures toward $4, $9 and $5 a bushel along with $40-a-barrel crude.

Soybeans face increasing supply, declining demand

Declining imports from China vs. rising exports from Brazil may pressure soybeans toward $9 a bushel in 2025. Our graphic shows falling demand from the largest importer and increasing supply from the top exporter. Absent a Corn Belt drought or a shock akin to Russia’s invasion of Ukraine, we see greater potential for soybeans to seek a low-price cure toward the 2019 $8.92 average vs. around $10.55 on April 24. That grain prices typically bounce for planting season in April-May adds to the propensity to set peaks before the June-August growing period.

Can soybeans stay above $11 is a top question for 2025, and we view reversion toward levels from before the 2020-22 distortions as more likely. Reversion is emphasized as it appears to be the current stage in highly elastic commodities that got too high to the 2022 peaks.

Can corn stay above $5? Trend is toward $4

Corn appears as a bear market that’s bounced, with threshold resistance at about $5 a bushel. That the 2025 high at $5.04 a bushel on Feb. 19 coincided with a pump in futures open interest to the highest ever and managed-money (hedge fund) net-longs spiking to almost 20%, could signal an enduring peak. Farmers took advantage and lightened up on inventory, but prices are mostly about this year’s production. Absent a poor growing season, it may take something unusual to end the downtrend.

Prices might need to dip below 2024’s front future nadir of $3.60 for a low-price cure. The about 6% jump in prospective corn planted acres to 95 million suggests plenty of new crop supply in the wings, especially if yields stay near last year’s 183 bushels per acre.

Grains on track to follow crude oil lower

Gold at the top of our annual performance dashboard and crude oil on the bottom is a deflationary track with agriculture stuck in the middle. The rest of 2025 may be about what stops these trajectories, and absent a poor Corn Belt growing season, the grains appear more likely to follow crude. Both sectors face excess supply vs. demand on the back of the price pumps to the 2022 highs. That crude’s low-price cure for about two decades has been around $40 a barrel may add fuel to corn, soybeans and wheat to revert toward 2019 averages of $3.85, $8.92 and $4.94 a bushel.

The dollar declining with the US stock market is a tailwind for soybeans and wheat, of which the US exports roughly 45% of production. Declining US exports along with demand from China vs. rising South American supply are top corn and soybean headwinds.

Deflationary dominoes might be tumbling

What matters in 2025 could be the scope for downward reversion in US stocks with a worthy catalyst. Our graphic shows US equity prices might have just started declining, on the back of falling crude and Chinese government bond yields. History points to deflationary cycles reciprocal to inflation and this one could have been delayed by US deficit spending that was unprecedented outside of recession or war, as highly speculative assets like cryptocurrencies stretched to records. Reversion is emphasized, as that’s what Brent crude was doing before US equities peaked. The low-price cure has been around $40 a barrel over the past 20 years.

Gold might be a canary in the coal mine, with the gold/silver cross at 100 and the yellow metal beating beta and most commodities well before US tariffs and austerity.

Whither commodities if US stocks break down?

Copper, corn and natural gas on the same scale as China’s 10-year government yield show downward leanings and might face headwinds if US stocks fall. A final barrier for global deflation to emerge from the inflation distortions of 2020-22 could be tumbling, as evidenced by the S&P 500 breaching its almost two-decade uptrend vs. the MSCI Ex-US Index. The typical commodity process of probing for low-price cures following spikes akin to the 2022 highs might not be done, especially if US equities drop.

Average 2019 prices could be guides of the gravity pull. For economy/stocks sensitive copper, that’s about $2.70 a pound vs. $4.70 on April 17. Corn is less subject to equities, but was about $3.85 a bushel in 2019 vs. $4.90 now. Gas often falls below $2 per million British thermal units after spikes above $4.

Extended surge fading to former price level

Corn has remained above $4 a bushel since the pandemic, pressing the question of whether elevated prices are signaling a new point of stability. Since 1990, corn prices have been relatively stable for two extended periods. The first, roughly 1996-2006, followed a drought-damaged crop in 1995 and was essentially a return to the mid-$2 range established in the early 1970s. The second period of stability followed the 2005 introduction of the Renewable Fuels Standard in the US. Prices stabilized around $3.70, though the financial crisis and a drought in 2012 drove spikes in pricing.

High corn prices, without a visible temporary factor (such as drought), can begin to create self-sustaining conditions as slower-moving costs, such as rent or seed, begin to ratchet up.

Soybean prices hover near US farm breakeven

Our US soybean scenario suggests the typical farmer is facing a breakeven cost near $9.67 a bushel for the 2025 crop, above the current price reflected by the National Soybean Index. This would likely send farmers into planting preparing to stall sales in hopes of better pricing. The USDA’s prospective plantings report suggests production will be roughly flat assuming yields hold near the 52.5 projected in its Annual Outlook Forum.

Despite a slower-than-expected ramp-up in renewable diesel demand, crushing capacity continues to rise. Though crush margins are well below the recent peak, they’re higher vs. spring 2024. Should new capacity run near historical rates, we expect more crushing than the USDA and tighter stocks-to-use. There appears to be room for the USDA’s latest 2025-26 market-year price forecast of $10 to rise.

China could use a larger Brazilian soy crop

Brazil’s increasing soybean production could be crucial to prevent a shortage of soybean supply in China if tariffs jeopardize its US soybean imports. The world’s largest soybean consuming country could simply shift to importing from Brazil, which has increased production and could export 100 million tons of soybeans to China. In 2018, when the first tariff war took place, China’s imports of Brazilian soybeans surged 29.7% to 66.08 million metric tons — 75% of its total soy imports — though its soybean requirements fell as African swine fever decimated its local pig population. According to Brazil’s Supplies Association, CONAB, the country’s soybean production may climb 1.3 million tons to 167.4 million in 2024-25. Wilmar is among the largest soybean crushers in China.

According to Brazil’s Supplies Association, CONAB, the country’s soybean production may climb 1.3 million tons to 167.4 million in 2024-25. Wilmar is among the largest soybean crushers in China.