Article Archives
March 31 USDA Reports Key For Markets Through Spring
Thursday, March 25, 2021
filed under: Marketing/Risk Management
The markets have basically “marked time” since the bullish series of USDA reports in January sent prices to new highs. This is especially true of wheat and corn. Soybean futures have flirted around the contract highs several times, and soybean oil futures have continued to soar higher along with canola/ rapeseed futures. World vegetable oil supplies, including sunflower and canola oil, are at critically low levels because of small European production in 2020 and China’s seemingly insatiable appetite for vegetable oil and soybean meal (protein).
China’s hog herd is once again expanding rapidly. Some analysts say it could increase by 30% or more from year-ago levels. China’s economy is also starting to gain some steam, and that means increased consumption.
In the meantime, however, the USDA decided to sit on its hands in both the February and March WASDE (supply and demand) reports. They have made only marginal or, in most cases, no changes to the U.S. estimates, and have also made virtually no changes to corn and soybean production estimates in Brazil and Argentina. This is despite the fact that U.S. corn and soybean exports are clearly on pace to exceed USDA current forecasts.
In terms of South America production, Brazil’s soybean harvest is far behind normal because of too much rain across major soybean production regions. Argentina has also continued to struggle with exceptionally dry conditions since last fall, but the USDA has not reduced corn or soybean production estimates.
The USDA will release its quarterly grains stocks estimates on March 31. This report could be the most important report of the year for corn and soybean markets. U.S. soybean supplies will be at bin-bottom levels by midsummer. If the stocks on hand as of March 1 are smaller than expected, we’ll be at bin-bottoms earlier. Many private analysts believe the USDA’s corn ending supply estimate is 300 to 400 million bushels too high. The March 1 corn stocks number will be an important benchmark to show whose numbers are more accurate.
Cash markets across the U.S. suggest corn and soybean supplies are smaller than the USDA’s estimates. Basis levels in many places have already exceeded previous record high levels. Feedlots across the Southern Plains are scrambling to cover summer feed needs. It is likely new-crop winter wheat feeding will surpass estimates by a wide margin. That is somewhat friendly to wheat prices.
The USDA will also release planting intention numbers on March 31. The acreage estimates are based on actual farmer surveys conducted the first half of March. Early guesses were that farmers will plant six to eight million more acres of soybeans and one to two million more acres of corn than in 2020. The market needs all those soybean acres.
It appears that spring wheat acres will be lower in both the U.S. and Canada as corn and soybeans take U.S. spring wheat acres and canola takes spring wheat acres in Canada. Winnipeg canola futures have been setting new record highs weekly.
The planting season across the Northern Plains and western Canada could get started early because of warm and dry conditions. That could save some spring wheat acres.
So where does all of this leave the markets?
• Final soybean and corn production numbers from Argentina will be important. They will be smaller than the March USDA estimates.
• The late soybean harvest in Brazil has resulted in Brazil’s second-crop corn (Safrinha) being planted late. Less than 50% was planted by the last day of February, and that is the last date farmers in Brazil can plant and still insure that crop. Time will tell whether yields will be impacted by the late planting dates. The Safrinha corn crop represents more than 65% of Brazil’s total corn production.
• Northern Hemisphere winter wheat crops are starting to break dormancy. It will be important to see what condition these wheat crops will be in, because many regions were planted in dry conditions last fall.
• China remains the wild card. No one knows the full extent of their appetite or the real size or condition of their supposedly massive wheat and corn reserves.
The March 31 USDA reports will set the tone for markets through the spring planting season. Summer weather and new-crop yield potential will be more important because of tightening U.S. and world supplies. Volatility should stay with us through at least midsummer.
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company. 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.