Posted on January, 23, 2023 at 09:33 am
The grains finished the second week of January with gains due to support from USDA’s friendly data dump on Thursday. The grains started the week posting losses in the first two sessions but posted strong gains the last three sessions of the week. By the end of the week Minneapolis wheat was up over 10 cents; Chicago wheat steady; Kansas City wheat up 12 cents; corn up 20 cents; and soybeans up 35 cents.
The second week of January started off on the negative side with most of the early week activity focused on index fund repositioning. As is usually the case, index funds evened up positions ahead of the holiday season and looked to reposition during the first full week of trading. That drove the market early in the week as the only other news in the grains was old news.
Hot dry conditions continue to be in the forecast for Argentina and southern Brazil. There is a chance of rain around mid-January, but at this point there is little confidence in that forecast. Longer term forecasts are calling for the weather pattern to completely change by February, returning to a more normal weather pattern. That forecast has not gained much traction at all.
Private analysts continue to lower production estimates for Argentina and have even started to adjust Brazil’s numbers. Safras and Mercado lowered their soybean production estimate for Brazil 1.1 million metric tons to 153.4 million metric tons. The ag attaché in Brazil is estimating Brazil’s planted acreage of soybeans at 107 million versus 106 million previously. That will be an increase of 5.9% over the previous year versus 3.4% expected. The ag attaché is estimating production at 153 million metric tons versus 152 million metric tons previously. Brazilian officials also increased their corn export projection to 5.02 million metric tons from 4.33 million metric tons due to the recent signed trade agreement with China.
AgRural is estimating Brazil’s corn harvest activity at 2% complete. Agronomist Dr. Michael Cordonnier lowered his Argentina corn production 1 million metric tons to 45 million metric tons. He also lowered their soybean production 2 million metric tons to 41 million metric tons.
U.S. exports for the week saw Mexico buying 174,000 metric tons of U.S. soybeans. South Korea bought 65,000 metric tons of U.S. corn and 65,000 metric tons of U.S. feed wheat. An unknown destination was in and bought 124,000 metric tons of U.S. soybeans.
By Wednesday, the grains started to see most of the attention focus on Thursday’s USDA data dump. The trade expectations for the report were negative as most expected production to be increased in the Final Crop Production estimate and for the updated supply and demand tables to show decreasing demand.
What do you get when the trade is running in one direction with its expectations and USDA goes the other direction with report’s numbers? You get a market that needs to reverse direction and one that needs to return some premium back into the market. That is exactly what happened with Thursday’s USDA date dump.
The Quarterly Grain stocks estimate was bullish all around. USDA’s December 1 stocks estimates were all sharply below expectations and sharply below last year’s stocks estimate. This might help explain strong basis levels. December corn stocks were estimated at 10.81 billion bushels, 344 million bushels below expectations and 833 million bushels below last year. Soybeans stocks were estimated at 3 billion bushels, 110 million bushels below expectations and 130 million bushels below last year. Wheat stocks were estimated at 1.28 billion bushels, 64 million bushels below expectations and 98 million bushels below last year.
The Final Crop Production estimate and monthly supply and demand estimates were also friendly to bullish for the grains. For old crop wheat, USDA reduced feed demand 29 million bushels which ended up increasing stocks by the same amount. That also followed through to increase 2023 beginning stocks. But the increase was offset by an increase in seed and feed demand. The net change was a decrease of 4 million bushels in wheat’s ending stocks, 15 million bushels below expectations.
World numbers were friendly as well as USDA made little adjustments to the world supply and demand.
Corn had the biggest adjustments, which was expected. USDA started off by reducing corn harvested acreage by an impressive 1.6 million acres. The region that saw the largest decline in harvested acreage was in the western Corn Belt. That resulted in corn’s yield increasing 1 bushel. The net change was a decrease in production of 200 million bushels, 203 million bushels lower than expected. The drop in production was offset by a 25 million bushel cut to feed demand (USDA increased silage acreage by 415,000 acres) and a decline in food demand by 10 million bushels.
As expected, exports were trimmed 150 million bushels. The net change was a 15 million bushel decline in corn ending stocks, 68 million bushels below expectations. Stocks are now at 1.2 billion bushels.
On the world stage, not much changed for world ending stocks, but once you look deeper at the numbers a few items jump out. Both Brazil (-1 million metric tons) and Argentina (-3 million metric tons) saw production cuts in this report as it appears the drought is starting to result in much more damage than expected. But what was interesting was China’s corn production estimate increased 3.2 million metric tons. China is trying to become self-sufficient and starting to increase acreage on the crops that they currently import.
USDA did not cut South American production as much as private analysts did. CONAB cut Brazil’s corn production 700,000 metric tons (125.1 million metric tons versus 116 million metric tons last year). Rosario Grain Exchage cut Argentina’s corn production 10 million metric tons to 45 million metric tons versus 51.5 million metric tons last year.
Like corn, soybeans also saw surprising cuts to production. USDA lowered harvested acreage 300,000 and cut yield 0.7 bushels. That resulted in a 70 million bushel cut to production, 86 million bushels more than expected by the trade. On the demand side USDA trimmed exports 55 million bushels and residual by 4 million bushels. The net change was a 10 million bushel decrease in ending stocks, 15 million bushels lower than expected. Stocks are estimated at 210 million bushels.
On the world stage, USDA increased stocks more than expected, but that was due to an increase in China’s production as they are trying to become self-sufficient. As expected, Brazil’s production increased 1 million metric tons while Argentina’s dropped 4 million metric tons. Again, not as significant as in-country analysts as Rosario cut Argentina’s production 12 million metric tons to 37 million metric tons while BAGE cut production 7 million metric tons to 41 million metric tons. CONAB is estimating Brazil’s soybean production at 152.7 million metric tons, a decline of 800,000 metric tons from their previous estimate and versus 127 million metric tons last year.
Source: AGWeek