Originally published in Today's Farmer

Current Market Conditions

Prices for old crop corn, soybeans, and cotton continue to remain below the cost of production for most Missouri producers in the new year. The outlook for the 2025/26 marketing year suggests another year of tight to negative margins. While there are bullish opportunities for row crops, three notable headwinds face row crop producers early in 2025: the strength of the US dollar relative to global currencies, uncertainty regarding US biofuel production incentives, and substantial global supplies. Following a year of relatively strong US production, most grain sits in storage, waiting for a favorable market opportunity in the months ahead. With seemingly constant increases in southern hemisphere production, has there been a change in market seasonality and a return to storage for US producers? This article seeks to answer those questions by first reviewing regional production growth and then examining production variability.

Production Growth in the Southern Hemisphere

Southern hemisphere production of corn, cotton, soybeans, and wheat has grown from 17%, 17%, 42%, and 8% of global production, respectively, in 2000 to 23%, 26%, 57%, and 9% in 2024. Figure 1 illustrates this growth from 1977 to 2024. The USDA started reporting regional soybean production in 1977. The southern hemisphere is defined as South America, Sub-Saharan Africa, and Oceania (Australia, New Zealand, etc.). While production growth has occurred in the northern hemisphere, it has not been at the same rate, especially for soybeans and more recently cotton. The two hemispheres have known calendar differences in plant growth stages and harvest, which impact global prices. US crop prices are most affected by production in the early stages of reproduction/pollination, typically in June and July. The same is true for southern hemisphere production stages. For spring-planted crops, June and July in the US are comparable to January and February in the southern hemisphere. These two calendar periods align with the historical relative price volatility levels producers experience annually. However, production share is only one part of answering the two questions posed above; variability must also be assessed.

Figure 1 Author Calculation using data from US Department of Agriculture, Foreign Agriculture Service.

Variability of Production in the Southern Hemisphere

Global commodity price changes related to supply occur when production differs from the expectations of market participants. Harvested acreage multiplied by trend-adjusted yield is a standard measure of production expectation. Using the standard deviation of annual percent change in production relative to expectations provides a reasonable measure of production variability for this analysis. Production variability is higher in the southern hemisphere for each crop compared to the northern hemisphere and combined global production for all four crops (as represented in Figure 2). Production variability relative to the northern hemisphere is highest for wheat (10 percentage points) and lowest for corn (2 percentage points). While the southern hemisphere has larger production variability for all crops, both hemispheres exceed global production variability for corn, soybeans, and wheat. Further examination reveals that the correlation in production variation between the northern and southern hemispheres is near zero for all crops, helping to explain the relatively low variation in global production. In other words, a production shortfall in the southern hemisphere provides no reliable information about production in the northern hemisphere and vice versa.

Figure 2 Author Calculation using data from US Department of Agriculture, Foreign Agriculture Service.

Farm Management Considerations

What does this mean for US producers navigating low profit margins and hoping their stored grain becomes more profitable? Here are a couple of points from this short article:

1. Production variation is relatively high in the southern hemisphere, which increases uncertainty during the production window, moving the volatility-influenced price opportunities for old crop supplies earlier in the calendar year.
2. Production deviations across the hemispheres are uncorrelated, leading to reduced world production variability, which supports the assumption that supply-induced price rallies will be short.
3. The reduction in global production variability lowers the need for global stocks and some, but not all, financial returns to storage.