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January USDA Numbers ‘Somewhat’ to ‘Very’ Bullish

Wednesday, February 1, 2023
filed under: Marketing/Risk Management

By Mike Krueger*
        Back in “the day,” there was a saying that the USDA “threw a shoe.” 
        That’s what the USDA did in its January series of reports.  USDA gave the markets a small “kick start” to 2023. Nearly all of the USDA numbers were somewhat to very bullish.  This series of reports included the “final” 2022 corn and soybean production estimates, the December 1 quarterly stocks numbers, the first official estimate of winter wheat plantings, and the monthly supply and demand numbers.  Here’s what the numbers told us:
        •  The “final” corn and soybean 2022 production estimates were smaller than all of the pre-report guesses.  The corn yield was increased slightly, but harvested acres were reduced because of the drought across the Southern Plains and southwestern Corn Belt.  The soybean yield estimate was reduced, and so was total production.
        •  The wheat, corn and soybean quarterly stocks estimates were also all smaller than the guesses.  (The stocks were as of December 1, 2022.)  It is unusual to see smaller-than-expected stocks for all three major grains.  The lower corn and soybean production estimates were part of the reason.  Feed usage for corn and wheat had to be the other factor. Smaller-than-expected December 1 stocks make sense based on the fact that domestic and export pipelines have been so tight and basis levels have been very strong even through the harvest period. That typically means supplies were not as big as expected — especially when cash prices have been high.
        •  U.S. wheat, corn and soybean ending supplies were reduced despite a reduction of the corn export forecast by 150 million bushels and a reduction in the soybean export forecast by 55 million bushels.
        •  The USDA reduced Argentina’s corn and soybean production forecasts; but they are still well above most other estimates.  It is still not raining there.  Argentina has a crop production disaster on its hands.
        •  The winter wheat planting numbers were way above expectations; and even the expectations were big.  The reason for the big increase in winter wheat “intentions” was two-fold:
        1.  The crop revenue insurance price was right at $9.00.  That generates a huge insurance guarantee per acre.
        2.  It was so dry across so broad an area that farmers claimed wheat acres for the prevent plant benefit.
        The big increase in winter wheat acres came in Texas, where the intentions were up 1.4 million acres (26%) from last year.  The winter wheat acreage number will be re-visited with the March 31 spring planting intentions report.
         The reaction by market analysts to these reports was varied and interesting. Some thought the rally following the reports was too strong.  Some analysts thought the numbers were the most bullish to soybeans, while others thought the corn numbers were the most bullish.  The reduction in the corn export forecast was likely justified because sales are still running far behind year-ago levels.  Corn exports should be better than expected by marketing year end (August 31) as Brazil’s supplies tighten and Argentina is out of the game.
        The reduction in the soybean export forecast might also be questionable. The USDA had to drop the export forecast or ending supplies would drop to about 150 million bushels.  That is almost less than bin-bottoms.  The soybean market has to ration exports, and only price will do that.  The accompanying chart shows U.S. soybean ending supplies.
us soybean ending stocks

        The wheat ending supply number is slightly bullish.  It continues to slowly drift smaller.  The winter wheat acreage estimate is bearish, but many question the state-by-state numbers. 
        The Southern Plains winter wheat crop is also still a big question mark.  The drought persists. Stands and root development are not good.  The impact of sub-zero temperatures in December won’t be known until the crop breaks dormancy.
        These reports should stabilize prices until we know more about how South America finishes.  This tightens the world numbers as well.  We’ve been hearing about the record soybean crop in Brazil for months now. That should be old news.  The Russia/Ukraine war shows no evidence of ending.  The level of China’s imports of soybeans and corn is still uncertain.
        The world will need big Northern Hemisphere crops again in 2023 to prevent markets from setting new highs. Any noticeable increase in corn and wheat export sales will be price-positive.
        The next major USDA reports will be the March 31 planting intentions and quarterly stocks estimates.
           * 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.
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