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October Report Analysis; South American Market Scene
Tuesday, October 1, 2024
filed under: Marketing/Risk Management
By Mike Krueger*
The October 11, 2024, USDA crop production report included the year’s first sunflower production estimate. The USDA did not differentiate between oil and nonoil sunflower production in this report. That will come in future reports. Here is the 2024 production estimate compared to 2023:
Two things stand out in these production numbers. The first is that the sunflower yield set another record at 1,889 lbs/ac. The second is that total sunflower production dropped almost 43% from 2023. That, of course, is the result of a sharp reduction in sunflower planted acreage.
Big yields and static demand in four of the past five years have led to a buildup in oil sunflower stocks. This year’s significant reduction in production should solve that problem.
The accompanying graph illustrates average per-acre sunflower yields across the past 28 years.
USDA also updated corn and soybean production estimates in the October series of reports, as shown here:
Corn ending stocks dropped from 2.057 billion bushels in the September report to 1.999 billion bushels in the October WASDE (supply and demand) estimates. Soybean ending stocks were left unchanged from the September report at 550 million bushels. Wheat ending stocks dropped from 828 million bushels in the September report to 812 million bushels in October.
The USDA made few — and small —adjustments to world corn, wheat and soybean production estimates. Analysts were expecting to see reductions in Ukraine corn, Russian wheat and Brazil soybean production estimates. USDA did drop Russian wheat by 1.0 million metric tons, to 37 million bushels.
In sum the USDA October production estimates reflect record U.S. sunflower, corn and soybean yields.
The markets will now shift south to Brazil and Argentina. The USDA is forecasting huge soybean and corn crops in Brazil. The problem today is that soybean planting has been delayed because of dry conditions across central and northern Brazil. Late soybean planting is actually more of a threat to Safrinha (second-crop) corn production than to soybean production. The Safrinha crop is planted following the soybean harvest. It represents about 75% of Brazil’s total corn production. This is a long-term market factor to keep an eye on.
The U.S. soybean outlook has turned bearish based on the ending stocks estimate, increasing from 342 million bushels to 550 million bushels. That’s a big increase, especially if the USDA’s production estimates for Brazil (153 million metric tons in 2024 to 169 MMTs in 2025) hold true. China’s demand for soybeans needs to remain strong to absorb these big soybean crops in the United States and Brazil.
World corn and wheat fundamentals are not as negative as the oilseeds complex. In fact, the wheat situation is being described as bullish by an increasing number of market analysts. World wheat ending stocks will be the lowest in nine years.
The situation looks even tighter when you consider that China holds 50% of these wheat supplies and China is a small net importer of wheat. Russia is now the world’s largest (and cheapest) wheat exporter. This follows more than a decade of increasing wheat production. Major winter wheat regions of Russia and Ukraine are approaching dormancy with very dry conditions. Black Sea wheat production will be lower in 2025.
The U.S. Southern Plains have also returned to a drought situation. Wheat production in Australia will not be as big as expected earlier because of dry conditions in some areas, particularly South Australia.
The corn situation is also somewhat price-positive. World ending supplies are projected to decline slightly from last year. About 65% of the world’s corn ending stocks are in China. Those supplies are not available to the market. That is why the eventual size of Brazil’s corn crop is critical to world corn prices. Any shortfall will push more export demand to the U.S. Increasing crude oil prices are also supportive to corn prices.
Markets still face numerous and serious world geo-political situations that can affect commodity prices. The Middle East conflict could threaten oil supplies. Corn tends to follow crude oil prices. Russia continues to strike at Ukraine’s export infrastructure. These strikes have now included attacks on grain vessels in the Black Sea. Significant damage to export facilities would be bullish for wheat and corn.
The U.S. election could lead to changes in trade policy that might also affect prices.
Lastly, the weather appears to be shifting from El Niño back to La Niña. The speed and degree of this shift can impact Southern Hemisphere crop production.
* 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.