Global Grain Markets Poised for Strong 2023

Kevin McNew

Jan 12, 2023

Grain prices at the start of 2023 continue to be elevated at historic highs. Since the early days of the COVID pandemic, U.S. grain markets have soared, nearly doubling in the past two years.

While prices at the end of 2022 are below the highs set in the spring, conditions heading into 2023 should support, if not further elevate prices more.

Grain Demand Growth Outpaces Supply Trends

For most of the 20th century, the global ag supply system has managed to stay ahead of a growing world population. Technological revolutions in agriculture – what has been termed the “Green Revolution” – began in earnest in the 1950s through crop hybridization, synthetic fertilizers and controlled irrigation, and helped keep global food supplies on a steep advance.

But in the past decade, there are signs that the agricultural productivity gains are decelerating with recent data showing demand growth outstripping supply growth across coarse grain, soybeans and wheat. 

Indeed, the decade of 2013-2022 saw annual growth in demand of global coarse grains, soybeans and wheat outpace the annual supply for these commodities by a wide margin.  These trends will be challenging to reverse in the near-term, and will act as a supporting factor or even stimulus to grain prices in the coming year, especially with carryover grain and oilseed stocks at multi-year lows.

A Renewable Fuel V2 Wave 

The ethanol industry has been a key catalyst of agricultural demand growth since the early 2000s, especially for U.S. corn. But in recent years, the industry has seemingly plateaued as government policies have pivoted away from ethanol and instead targeted the electric vehicle (EV) market for small duty vehicles. 

While the widespread adoption of EV vehicles is a potential existential threat to ethanol and its linkage to motor fuel gasoline demand, the rate of adoption is still exceptionally low. Data from 2021 illustrate that even though EV and PHEV (plug-in hybrid EV) has doubled between 2018 and 2021, it is only 0.8% of all registered vehicles.

Indeed, the number of gas powered vehicles increased over 10 million in three years, while combined EV/PHEV adoption increased by only 2.5 million. The relatively slow adoption rate for EVs will likely keep ethanol as a viable industry for the years to come, but also create a slow but systematic drain on future ethanol demand. 

U.S. Vehicle Registrations by Power Type 

While ethanol may not provide a catalyst for growth in future grain demand, recent policy initiatives have placed more emphasis on renewable diesel as a sustainable and environmentally friendly fuel for the heavy duty transportation system. 

Renewable diesel, which is derived from renewable feedstocks, such as vegetable oils and animal fats, is chemically similar to traditional fossil diesel, but it has a number of benefits that make it an attractive alternative:

  • Reduce greenhouse gas emissions by producing significantly less carbon dioxide (CO2) emissions than fossil diesel.

  • Seamlessly replace fossil fuel diesel without any modifications to existing diesel engines or the infrastructure that delivers fuel. 

Soybean oil is likely to be a significant feedstock used to produce renewable diesel because of its large availability and scalability in the future. Significant investments are being made to date which will add new soybean processing capacity to meet this expected demand surge. 

Between 2023 and 2026, there is expected to be an extra 600 million bushels of new U.S. soybean processing capacity, representing a 27% increase over the sector’s output in 2021. This likely keeps soybean prices supported as the growing demand ramp up will require an extra 10 million acres from U.S. farmers in the coming years.

Farm Cost Inflation: Permanent or Transitory?

Nearly every farm input has seen drastic increases in the past two years, leading to higher costs for crop production. Fertilizer, energy, chemicals, labor, land and interest rates have all been on a steep incline. And while 2023 may bring modest pullbacks in some farm input costs, expect overall farm expenses to be on par with 2022. 

  • Energy: Oil, natural gas and diesel prices have been trending lower since the summer of 2022, but still remain twice as high as they were in late 2020. The continued war between Russia and Ukraine, as well as the lack of long-term investment in fossil fuel energy sources, should keep energy markets elevated in 2023 with limited hope of significant price declines.

  • Fertilizer: Nitrogen-based fertilizers are greatly influenced by natural gas prices, and as such 2022 prices were nearly double what farmers paid in 2021. As natural gas prices have turned lower, we likely see a bit of a pullback on nitrogen fertilizer costs in 2023, but not as low as 2021.

  • Land/Rent: U.S. cropland values soared 20% over the past two years, and is adding to the cost of renting farm ground. Cash rent costs over that same two-year period are up 6.5% and likely continue to increase into 2023 to keep up with higher land values and rising interest rates.

  • Interest Rates: High inflation over the past year has caused the U.S. Federal Reserve to aggressively raise interest rates to their highest mark in 15 years. Although there has been a modest pullback on the inflation front, current inflation readings are still too high for interest rates to return to lower values soon. We expect interest rates to remain at current lofty levels for all of 2023.


This panel was originally presented live at Farmer2FarmerVI in Omaha, NE. Sign up to be first in line for Farmer2FarmerVII by clicking here. 

FBN® Chief Economist and VP of FBN Research Dr. Kevin McNew discusses his predictions for the future of global grain markets in 2023 at FBN's Farmer2FarmerVI event.

[Sign up to be first in line for Farmer2FarmerVII!]


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Kevin McNew

Jan 12, 2023

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