Last week was a rough return back to normal trade, with wheat losing 48 cents on the week, corn losing 24 and beans losing 32—though they managed to recover a good share of their weekly losses with a 22 cent gain on Friday.
Though it’s a New Year the main fundamental drivers remain the same, South American weather, developments in the Black Sea and potential Chinese demand all remain vital to our daily and weekly market moves. This week though we get some additional data that will likely far better define trade direction as we work into the first quarter of 2023.
While there are a handful of other USDA data dumps that rival this one when it comes to importance, the January update is probably one of the biggest single reports we get in a year. This report gives us a plethora of data with final production figures for fall harvested crops, acreage on fall planted crops, insight into residual usage and feed demand for corn as well as an overall update to global supply and demand outlooks—all dropped at noon eastern this coming Thursday.
Quarterly stocks data is an estimate of total supplies available on and off farms as of December 1st and will be the first number I look at when the figures are released. These estimates give us insight into what is out there when it comes to supplies. A larger than expected quarterly stocks figure tends to indicate we either underestimated the crop or overestimated demand, while a smaller than expected stocks figure would indicate the opposite.
We will also get final production figures on Thursday, meaning the argument over 2022 production will come to an end, with the supply side of the equation considered finalized for the most part. Ahead of Thursday, the average trade estimate has corn yields increasing just slightly from November estimates, up 0.2 bushels per acre, to 172.3. Soybean yields are expected to come in slightly higher as well, up 0.1 bushels per acre to 50.3.
The increase in yields would take overall production up by a negligible amount for soybeans and corn, with traders expecting reductions in demand will bump corn carryout up 57 million bushels from last month to 1.31 billion bushels. Soybean demand is expected to remain unchanged, with traders anticipating a 16 million bushel bump in carryout that will come from the slight increase in yields.
With Argentine weather remaining hot and dry and more heat and dryness on the way, it is likely the USDA will reduce their production outlook somewhat significantly in this week’s report. Traders are expecting a 3 million metric ton reduction in the country’s corn production outlook to 52 mmt, while they expect soybean production to be cut by nearly 3 mmt as well, down to just under 47 mmt.
The USDA is well known for going slow on crop losses from weather, but with a good portion of Argentina’s vegetation indices hovering around multi-year lows, it is possible bigger cuts could be seen as the forecast remains less than conducive.
Many meteorologists have been calling for a significant shift in weather patterns to show up the last part of January into February. However, rainfall amounts for the week ahead were reduced significantly in Friday’s models, with many traders starting to say any pattern shift beyond the next couple of weeks would come too late.
The million-dollar questions now become what the crop losses in Argentina mean to the global end user and whether Brazil and its neighbors will be able to offset those losses. As it stands currently, Brazil remains poised to produce 24 mmt more of soybeans than it did a year ago, with Paraguay’s production expected to be nearly 6 mmt higher.
According to one well-followed crop analyst, overall South American soybean production will be up 30 mmt from a year ago, even in the face of a significant cut to Argentine production from current USDA estimates. That’s 1.1 billion bushels more of production.
As for corn, certainty over Brazilian crop size is months away since most of Brazil’s corn for export comes from second crop production. The delay in certainty over crop size there will likely make what is happening in Argentina more of a corn issue than a bean one in the weeks ahead, especially as supplies of old crop corn in Brazil are expected to dwindle.
I have been lamenting over slow corn export pace for weeks now, with last week’s sales pace not doing much to bolster confidence. However, there is a window of opportunity starting to emerge where the US could see the global end user turn its attention to our supplies as they become the only ones readily available from late February into May or even June.
There are three major factors at play when it comes to that potential bump in corn export demand though that I will be watching closely and those are currency, access to Ukrainian supplies and Chinese demand.
The world end user is continuing to see its buying power shrink for the most part, with Egypt’s recent drop in its currency resulting in a nearly 70% increase in the cost of imported wheat, even though Chicago futures were down during that same time period.
The high cost of supplies is slowing overall demand, and even though just 2 short years ago we thought countries would never revert back to just in time supplies, we’re finding there is an economic necessity in many of them doing so.
Chinese corn shipments from Ukraine have surged over the last two months, with the country taking nearly 2 mmt of corn out of Ukraine since the inception of the Black Sea corridor. The shipments of Ukrainian corn combined with a sharp uptick in Brazilian corn purchases has China with the lowest amount of US corn on the books for this time of year in over 2 years.
Many traders continue to expect China to turn to the US to bridge a potential supply gap, with the anticipation that could happen any day likely supporting both corn and beans until we get a better feel for what Chinese demand looks like after their initial Covid wave and New Year holiday celebration.
I find myself talking about all of this without even mentioning the macro factor and what is happening there. We continue to see many outside market traders anticipating a pivot by the Fed, even in the face of nearly every Fed member reiterating the need for higher rates and that rates need to remain elevated for the duration of 2023 into 2024.
We will get updated CPI data on Thursday, with traders expecting to see consumer prices up 5.7% from a year ago, the biggest December/December increase since 1981. Friday’s job numbers came in better than expected, though monthly wage growth was weaker than traders were anticipating.
Traders are currently expecting a 25 basis point increase from the Fed at the end of the month, though some members have indicated a 50 basis point increase is on the table, something that could be solidified with a larger than expected increase in consumer prices.
The moving pieces in the market are nearly mind numbing as they seemingly continue to grow. Thursday’s USDA data will be a welcomed update, helping transition the unknown of last year’s production figures and first quarter usage to a known. Getting just one piece of uncertainty removed will be helpful, though with everything else going on it is likely to just be replaced with something else….
As always, don’t hesitate to reach out with any questions. Have a great week.
More Grain News from Barchart
- Friday Wheats Stall and Close Red
- New Highs for Soymeal on Friday Soy Rally
- Corn Limits Weekly Loss with Friday Gains
- Friday's Last Call: Natural Gas, Oil, Wheat, and the R-Word Connecting Them All
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.
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