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January USDA Reports Recap; Looking Ahead to March

Monday, January 30, 2017
filed under: Marketing/Risk Management

       The January series of USDA reports are always important because they include several different sets of numbers, including:
  • Quarterly stocks estimates as of December 1.
  • “Final” 2016 row-crop production estimates for sunflower, corn and soybeans.
  • Revised supply and demand estimates.
  • Estimated winter wheat plantings.
       There was actually some positive market in these reports for the first time in a long time, and the markets responded positively. Here are some of the key numbers from the January reports:
       Quarterly Stocks – The quarterly wheat feed usage number was the one bearish aspect of the January reports. It was smaller than expected and suggested that even super-low hard red winter wheat prices couldn’t stimulate demand for wheat in feed channels. The other quarterly stocks estimates were in line with expectations.
       Crop Production – The USDA increased the U.S. sunflower production estimate to a new record yield of 1,731 lbs/ac.  That eclipsed last year’s record by 106 lbs. Planted acres of oil sunflower were down 9% from 2015, but production was nearly unchanged from last year because of the great yields. The nonoil sunflower yield was actually down 139 lbs/ac, but that was still the second biggest yield on record.
       The USDA reduced the corn and soybean yield estimates slightly from their November numbers. They will still establish new yield records, but the reductions came as a small surprise to the market.
       Supply & Demand Estimates – The reduction in the soybean yield estimate did result in a 60-million bushel reduction in the soybean ending supply estimate. It is now at 420 million bushels. That compares to 197 million bushels at the end of the last marketing year. 
       Doubling the soybean ending stocks should be bearish, but very strong domestic and export demand, coupled with some weather issues in Brazil and Argentina, has kept oilseed markets strong. In fact, many analysts were surprised the USDA did not increase the soybean export forecast in this report because the sales and shipments are running well above the estimates. This could be adjusted higher in future reports.
       The USDA also left their estimate of Argentina’s soybean crop unchanged at 57 million metric tons. Argentina has suffered from heavy rains and flooding in the north and east to drought in the south. Some private groups have the there crop as low as 50 MMTs. We expect the USDA will eventually reduce Argentina’s crop production estimate. 
       On the other hand, the USDA raised their forecast for Brazil’s soybean crop from 102 to 104 MMTs. Brazil also has had some weather issues, and we believe the 104 MMT estimate is too high.
       Winter Wheat Planting Estimate – Every analyst expected to see a reduction in winter wheat plantings, but the USDA number was well below even the most pessimistic guess. They are projecting winter wheat acres will be down 10% from last year. That will be the smallest planted acreage of winter wheat in more than 100 years. The low price for winter wheat has been telling producers to plant something else, and they evidently listened. The spring wheat planting estimate won’t be released until March 31. We expect a 500,000- to 750,000-acre reduction in spring wheat planting as well.
       World demand continues to expand each year.  It is beginning to look like the world will not match the four-year string of record total crop production in 2017.                                                            
       Weather is a problem in Argentina, and there are a few trouble spots in Brazil. A significant percentage of the U.S. hard red winter wheat crop went dormant in much poorer conditions than a year ago. The Black Sea region and Western Europe have also had a tough winter so far. The market will be watching how the world’s winter wheat crop breaks dormancy.
       Of course, the March 31 U.S. planting intentions report will also be important. The strength in oilseed markets, led by the latest rally in soybeans, continues to re-inforce the markets’ assumption that U.S. farmers will increase soybean plantings significantly. These acres will come from corn and wheat.  Corn plantings are also expected to be down from 2016.
       The larger investment community also seems ready to increase its allocation to commodities of all types in 2017. There is more chatter about inflation, rising interest rates, etc. The big speculative trading funds continue to hold long positions in soybean, soybean meal and soy oil futures. Weather issues in South America have bolstered their bullish ideas. These same funds are still short wheat and corn futures.              
* Mike Krueger is owner of The Money Farm, a Fargo, N.D.-based grain marketing consulting firm.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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