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Markets Lethargic Despite Disruptive ‘Outside’ Factors

Thursday, February 1, 2024
filed under: Marketing/Risk Management

By Mike Krueger*

        On January 12, USDA released its latest series of reports that included “final” 2023 corn, soybean and sunflower production estimates, plus the first estimate of winter wheat seedings.  They also released the quarterly stocks estimates as of December 1 and revised world supply and demand numbers. 
        The reports were all neutral to slightly bearish except the winter wheat seeding numbers.  Farmers planted much less winter wheat than expected.
        In retrospect, with the exception of the drought-plagued Southern Plains hard red winter wheat crop, North American crop production was much better than most expected, given what was generally a warmer and drier growing season.
        USDA increased the corn and soybean yield estimates slightly from the previous estimates.  The result was that corn production set a record at 15.3 billion bushels.  That was up 108 million bushels from their previous estimate.  The corn ending supply estimate was increased by 31 million bushels.
        USDA increased the soybean yield and production by 36 million bushels. That supply increase went directly to the bottom line, and the soybean ending stocks estimate was increased from 245 million bushels in the December WASDE to 280 million bushels in January.
        There were no adjustments to 2023 U.S. wheat production.  The December 1 quarterly stocks number was slightly lower than expected. That prompted the USDA to reduce wheat ending stocks for this marketing year (ends May 31) from 659 million bushels to 648 million bushels.  This is an insignificant change.
        The more important number for wheat was the winter wheat planting estimate, the first official one for the 2024 U.S. winter wheat crop.  All winter wheat acres were projected at 34.425 million acres. That is well below what the trade was expecting (35.7 million acres).  Last year’s winter wheat acreage was 36.7 million.
        My opinion as of this mid-January writing is that spring wheat acres will also be down from last year.  They will be replaced by soybean and canola acres.
        USDA releases its Planting Intentions estimates for all spring-planted crops on March 31.  Keep in mind that smaller winter wheat acres doesn’t necessarily mean a smaller 2024 crop because the past two seasons’ yields were reduced by drought.
 
        Final 2023 sunflower yield estimates were impressive. The national average oil sunflower yield was the second highest ever at 1,747 lbs/ac.  North Dakota’s oil sunflower yield did set a record at 1,970 lbs/ac.  Oil content of the 2023 oil sunflower crop is hovering around 50%. That is amazing and, of course, adds significantly to the price received by farmers.                                  
        Nonoil yields also set records in the Dakotas and Minnesota. The Kansas yield was a record low because of the drought. Big yields partially offset big declines in planted sunflower acreage.  Harvested acres of oil sunflower were down 25% from 2022, while harvested acres of nonoil varieties were up 7% from the previous year.
 
        The next major market factor will be weather and crop production across Brazil and Argentina through May. 
        Argentina is in the midst of a much better growing season following two years of La Niña-influenced drought.  Their wheat crop was hurt again because conditions were still dry during its maturation period. Argentine corn and soybean crop are now projected to return to more “normal” levels.
        Brazil, however, had a very interesting start to its growing season.  Super wet weather across the southern areas delayed planting and resulted in a significant amount of replanting.  Central and northern Brazil suffered extremely hot and dry weather into early December, which caused farmers to wait for rain.
        Conditions improved significantly through December and into early January. The problem is that much of the soybean crop was planted 30 days (or more) later than normal.  No one knows today what, if any, impact that will have on yields.
        Late soybean planting also means late second-crop corn planting. Second crop corn planted following soybean harvest (called the Safrinha crop) accounts for about 70% of Brazil’s total corn production. Late planting can push corn pollination into a typically hot and dry weather period. Again, no one knows today what the impact on the corn yield might be.
        USDA did reduce their estimate of Brazil’s corn and soybean crops in the January report, but these reductions were minimal and smaller than many other private analytical groups.  They trimmed soybean production from 161 million metric tons in December to 157 MMTs in January.  They also trimmed corn production from 129 MMTs in December to 127 MMT's in January.  These are small adjustments relative to the crop sizes. The chart on page 6 shows the amazing expansion in Brazil soybean production:
 
brazil soybean production chart

        The world’s geopolitical situation has gotten worse over the past weeks and months.  The Russia/Ukraine war drags on and on but has had little or no impact on grain shipments from either Russia or Ukraine.  Russia continues to be the cheapest seller of wheat.
        Attacks on vessels in the Red Sea that have slowed shipments through the Suez Canal have also had no impact on agricultural commodity prices.  Crude oil prices have been impacted. Once upon a time, war and shipping disruptions were bullish on agricultural commodities.  That hasn’t been the case of the last 18 months.
        U.S. exports of wheat, corn and soybeans have also remained slow. Tightness in world wheat supplies (with the exception of Russia) has yet to translate into more U.S. wheat exports.  China has, at least temporarily, left the U.S. soybean and corn export markets.
        The markets have become lethargic despite all the disruptive “outside” market factors. This can change quickly if perceived threats to supply chains change to real threats — or if potential threats to crop production in Brazil change to real threats.
 
           * 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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