The USDA did it again, managing to surprise traders who were anticipating a relatively benign supply and demand report. The 1.6 million acre reduction in corn acres harvested, as hundreds of thousands of acres in Kansas and Nebraska were chopped or baled for feed, more than offset the 1 bushel per acre increase in production and reduced the US corn crop 200 million bushels from the November estimate.
While the production reduction was tempered by a significant 150 million bushel drop in export expectations, a 25 million bushel reduction in corn used for feed and a 10 million bushel reduction in food, seed and industrial usage, carryout falling from December’s estimate was a bullish surprise.
A similar scenario was seen in soybeans, with a drop in yield and a small cut to harvested acreage taking overall production down 70 million bushels from November’s estimate, when traders were anticipating a 16 million bushel increase. The drop in production was partially offset by a 55 million bushel reduction in expected export demand, with a slight adjustment lower to residual usage as well.
Domestic wheat ending stocks came in slightly lower than anticipated, though the adjustments were minor compared to what was seen in soybeans and corn.
From a global standpoint, the reductions in the US corn crop carried through, lowering global carryout more than expected. Global soybean ending stocks came in higher than anticipated on the back of an increase to Brazil’s soybean production last year, taking it up to 129.5 mmt. Wheat figures held little in the way of surprises on the world stage.
Thursday’s numbers in a nutshell: there is little room for error in the year ahead when it comes to production, as supplies remain tight.
So, what are we looking at when it comes to production? Obviously, we have issues in Argentina, with heat and dryness continuing to stress the crop and draw down soil moisture reserves. Vegetation indices show much of the crop is stressed, with overall conditions on the low end of historical ranges. Farmers in the country have delayed planting for as long as they can, with around 2 million acres of soybeans expected to go unplanted as the dry conditions lasted well past the solstice.
Corn plantings were delayed as well, with some farmers in the region just now finishing. The heat, dryness and later plantings had the USDA, Buenos Aires Grain Exchange and the Rosario Grain Exchange all drop their production outlooks significantly from last month.
Rosario made the largest cut, putting the soybean crop at 37 mmt, while they expect the corn crop to come in around 45 mmt. The Buenos Aires Grain Exchange produced two outlooks, one if rainfall returns and conditions stabilize, one if weather patterns do not change. The optimistic outlook put the bean crop at 41 mmt, still nearly 3 mmt lower than last year’s crop. Without rain they believe the bean crop could drop to 35.5 mmt, which is below the country’s annual crush demand.
The USDA for its part was a bit slower on reductions, which is typically the case, putting their bean crop estimate at 45.5 mmt this week, down 4 mmt from last month. Their corn production estimate of 52 mmt, though down 3 mmt from last month, is well above other Argentina production estimates.
With losses in Argentina well known and now the smaller crop in the US, what Brazil is able to produce will become key. When it comes to soybeans, the outlook is relatively well known, with most able to anticipate a crop will fall somewhere in the 150-155 mmt range. Neighboring countries are faring much better than a year ago as well, helping to stabilize the continent’s production outlook, even with multi-year low for Argentina.
With the bulk of Brazil’s corn coming from plantings set to start over the next month into March, we have a long way to go before we know what will be produced. Right now, it is easy to assume the crop will be put in early enough to move through much of its important reproduction phases with monsoonal moisture still present. However, the same extended models calling for weather patterns to shift moisture back into Argentina, are calling for drier than normal conditions to emerge across much of Brazil over that same period of time.
In the short term this dryness will be needed, as beans need to be harvested and conditions are already challenging. However, this will need to be monitored as La Nina has a 71% chance of breaking down in the February through April time period, meaning there is still a chance it could wreak havoc on weather patterns.
The uncertainty over global supplies will likely keep end users on their toes, with the US emerging as one of the cheapest suppliers thanks to Brazilian export capacity being tapped out and Argentina farmers sitting on their hands.
The question now becomes whether the buyers show up and buy US supplies or whether they wait. At this point China appears to be the wildcard. Imports have spiked recently, with new data released over the weekend showing soybean imports for December at their highest level since June 2021. Freshly harvested US supplies combined with the sharp uptick in shipments out of Argentina thanks to September’s soy dollar was the main driver behind the increase.
Corn shipments have seen an uptick as well, with nearly 2 mmt of corn coming in from Ukraine, 1.5 mmt of Brazilian corn shipped in November and December, with another 1 mmt expected to go in January, as well as 3.8 mmt of earlier purchased corn shipped from the US since September 1st has a large amount of bushels making their way to ports as well.
The USDA has Chinese corn imports at 18 mmt in the year ahead, meaning over half of that would currently be covered.
Outside of global production and demand uncertainty, we’re going to continue to monitor what is happening in the macro world. Some will argue a recession will have limited influence on grain demand overall, while others would point to gasoline demand and the limited buying power of countries struggling with weak currency as signs that is incorrect.
Psychology has shifted back to bullish the US and world economy as we are seeing signs of inflation waning and consumer sentiment is improving. Though every member of the Fed has cautioned premature exuberance could worsen the situation, the futures market is pricing in rate cuts still for late 2023. Many believe a soft landing seems to be more possible, while others warn the worst is yet to come.
Similar to grains this likely means the only answer to all of the questions we have regarding what will happen next can only be answered by time. Considering we cannot simply pause the markets until more is known, it is likely we will continue to see a wide range of back and forth until the picture becomes clearer.
As always, don’t hesitate to reach out if you have any questions. Have a great week.
More Grain News from Barchart
- Mixed Friday for Wheat Market
- Friday Soy Markets Close Mixed
- Friday Corn Extends Rally
- Friday's Last Call: Let's Talk About Corn Exports
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. For more information please view the Barchart Disclosure Policy here.
/Intel%20Corp_%20Santa%20Clara%20campus-by%20jejim%20via%20Shutterstock.jpg)
/EV%20in%20showroom%20by%20Robert%20Way%20via%20Shutterstock.jpg)
/AI%20(artificial%20intelligence)/Businessman%20touching%20the%20brain%20working%20of%20Artificial%20Intelligence%20(AI)%20Automation%20by%20Suttiphong%20Chandaeng%20via%20Shutterstock.jpg)
