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Oilseed Keys: Production & South American Weather
Wednesday, October 25, 2023
filed under: Marketing/Risk Management
By Mike Krueger*
The summer has quickly come and gone, and crops were generally better than expected despite the hot, dry start to the season across the Northern Plains.
USDA’s October crop production report pegged sunflower production as down 22% from 2022; but, acres were also down 22% from last year. This year’s sunflower yield was projected to be just slightly below last season and is the third highest on record. The North Dakota yield will be the highest ever if the latest estimate holds true.
The USDA revised hard red spring wheat production higher in the September 29th annual small grains production forecast. That made sense to most observers. Nearly all farmers across the Northern Plains region reported much better wheat yields than expected.
Nationally, the USDA made slight downward adjustments to corn and soybean yield numbers in the October production estimates. Corn and soybean ending supply levels were reduced slightly. Wheat ending supplies were increased because of the larger spring wheat crop.
Soybean ending supplies will again be near bin-bottoms. That is bullish.
Corn ending supplies will be significantly larger than last year. Keep in mind U.S. farmers will harvest nearly eight million more acres of corn than in 2022. Corn acreage estimates were increased in nearly every USDA report since the March planting intentions. The 2023 corn yield will be about eight bushels per acre below early estimates, but increased acres more than offset the yield decline.
U.S. wheat ending supplies will also be slightly larger than last year, but are not burdensome. Wheat ending supplies have been steadily declining because of smaller planted acres and the Southern Plains drought. (Note too that Canada’s wheat crop is smaller than last year because of a “droughty” summer. Canada’s wheat ending stocks are among the smallest ever.)
Sunflower supplies will remain large despite the 22% drop in production from last season. The 2022 sunflower crop was huge, and demand remains relatively constant. We anticipate the demand for vegetable oils of every type will increase much more quickly than current USDA projections as renewable diesel production and consumption escalate.
The markets have also become apathetic to the Black Sea war. It has become a “back-burner” event. The Black Sea Grain Initiative (BSGI) expired in July and hasn’t been renewed. Russia continues to attack and damage Ukraine facilities in Odessa and along the Danube River. Ukraine started to attack and damage Russian export facilities in August.
Corn and wheat markets have been immune to all this news. Shipments of wheat and corn from the Black Sea have continued to be larger than expected. Crop production in Ukraine hasn’t been reduced as much as once thought. Russia seemingly has an endless supply of cheap wheat and continues to export that excess supply.
The weather shift from La Niña to El Niño has had some major consequences for Southern Hemisphere crop production, but it is wheat that has been the most affected. Australia’s wheat crop is now expected to fall from a record 40 million metric tons in 2022 to as low as 25 to 26 MMTs this year. Argentina never has recovered from the La Niña-induced drought from last year. Their wheat crop will, again, be small.
Southern Brazil has been too wet, and central and northern Brazil has been too dry as planting gets underway. The USDA (and other analytical groups) are still forecasting very good corn and soybean production in both Argentina and Brazil. It is very early in the season, and better weather is in the extended forecasts. If the wet weather continues to slow soybean plantings in southern Brazil, it could push second-crop corn plantings later than desired for optimum yields. There are no major worries about that as of this mid-October writing.
Export demand, or, better said, lack of export demand, for U.S. wheat, corn and soybeans continues to press prices lower. The world wheat situation among the major wheat exporting countries continues to tighten. That has not resulted in any appreciable increase in U.S. wheat export activity, although China has bought U.S. soft red winter wheat recently. China has been a regular buyer of U.S. soybeans in recent months, but not in the kind of big quantities that would get the soybean market excited.
The world geo-political situation seems to get more complicated. The Ukraine/Russia war continues to drag on with no end in sight. The Middle East is the latest region to face significant tensions. China is still pressing the envelope with Taiwan.
U.S. and world economies are faced with many headwinds. Economic growth is generally slow. Inflation is still a problem. There has been no relief from higher interest rates. The dollar is getting stronger. All of this holds agricultural prices somewhat in check.
The markets’ focus has now shifted to production prospects in South America. Any evidence of a potential problem with weather in Brazil or Argentina will bring buyers back to corn and soybeans.
The world wheat situation feels “comfortable” on the surface, but smaller crop production among the major wheat exporting countries has led the USDA to reduce wheat export trade by nearly a billion bushels from the last marketing year. We don’t think we can ration that much wheat at current price levels.
In summary, corn and wheat markets are still subject to any action that would disrupt Black Sea shipments. Oilseed markets will still depend on weather and production prospects in South America. China will always be the wild card. Increased purchases of soybeans, corn or wheat from the U.S. would be bullish.
Looking ahead, price volatility should stay with us for several more months.
* 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.