Last week was definitely an interesting week in the grains. The week started off with the grains, energies, meats, and stock market trading with large gains. The push was all about Pfizer and their positive news on progress of a COVID-19 vaccine. Of course, the good news about the vaccine means we are one step closer to getting back to normal.
But some of that bullishness was tempered by the Nov. 9 Crop Progress report, which was neutral to negative for the grains. Winter wheat planting progress came in at 93% complete, 3% ahead of expectations. Conditions were estimated at 45% good/excellent, 1% below expectations, but showing good improvement. Most of the states showed only minor changes from last week except Oklahoma, which once again saw a huge improvement. Its crop improved 18% last week to 52% good/excellent.
Harvest progress continues to slowly advance as corn harvest is estimated at 91% complete (as expected), up 9% from last week. Soybean harvest progress was estimated at 92% complete which was 3% below expectations. Last week, only 5% of the nation’s soybean crop was put in the bin.
Brazil reported its first crop corn planting progress at 73% complete versus 72% average. Soybean planting is estimated at 54% complete versus 52% average. In Brazil, 40% of acreage is in some sort of drought stage.
All eyes were on the U.S. Department of Agriculture at 11 a.m. Nov. 10 as it released its November Crop Production report. Normally, the November report is a nonevent, but this year it appears all reports from USDA will be of interest. The November report made only minor changes to wheat but was bullish corn and soybeans. This puts the November report as the fifth straight friendly/bullish report from USDA, and from the looks of it, the December report will also follow that trend.
USDA’s report was expected to be uneventful for wheat, and that is exactly how it looked. For 2019, USDA made no adjustments to wheat numbers. For 2020, USDA left wheat production unchanged. On the demand side, there was a 5 million bushel increase in food demand and 1 million bushel increase in seed demand. The end result was a 6 million bushel decline in ending stocks, putting wheat stocks at 877 million bushels, 1 million bushels less than expected.
World wheat production for 2019 saw increases of 300,000 metric tons in Canada and 100,000 metric tons in the European Union while 2020 adjustments were a 1 million metric ton decrease in Argentina, 200,000 metric ton decrease in the European Union, and a 500,000 metric ton increase in Russia. World wheat ending stocks were estimated at 320.5 million metric tons, 800,000 metric tons above expectations but 1 million metric tons lower than last month.
Overall, the report was neutral wheat, but strength spilled over from the sharply higher corn and soybean markets. World wheat stocks tightened up slightly, but they still came in higher than expected. And stocks will likely grow as USDA failed to make any adjustments to Australia’s crop, which appears to be on track to be the third largest on record. But there are still 2021 production concerns that have helped to support wheat. Russia remains dry, as does Ukraine and the U.S. Southern Plains. This will give wheat a backdrop and help keep the market from falling out of bed. But the true strength in wheat is coming from the strength in corn and soybeans.
The November Crop Production report was just plain bullish corn. As was the case in wheat, USDA made no adjustments to 2019 estimates. But for 2020, supply was reduced an impressive 215 million bushels. USDA lowered corn’s yield 2.6 bushels per acre to 175.8 bushels per acre. That was 2.1 bushels per acre below expectations and the third largest yield decline from October to November in history. The yield cut put corn production at 14.507 billion bushels, 215 million bushels lower than last month and 175 million bushels lower than expected. Sixteen of the major corn producing states saw yield reductions. North Dakota saw the largest cut at 15 bushels per acre while Illinois saw a reduction of 5 bushels per acre.
Corn demand was increased 250 million bushels due to a 75 million bushel decrease in feed demand and 325 million bushel increase in exports. It seems like a stretch to increase exports that much since corn’s year to date pace is only at 56% of USDA’s expected goal.
The net result was a 465 million bushel cut in ending stocks, now estimated at 1.702 billion bushels. That was 346 million bushels below expectations and the lowest ending stocks have been at since 2014. Corn’s U.S. national average price increased 40 cents to $4.
On the world front, China’s corn import demand was only increased 6 million metric tons to 13 million metric tons to coincide with the China’s low tariff quote estimate. Brazil’s corn production was left unchanged as was Argentina’s, but Ukraine’s production was cut 8 million metric tons.
USDA made a lot of adjustments to corn’s supply and demand numbers and left us with the thought that more adjustments are coming. On the demand side USDA decreased feed demand slightly, but increased exports to 2.65 billion bushels. This was a questionable move as corn sales have been strong, but not strong enough to warrant this much of an increase.
But USDA is expecting corn demand to increase because of the slow planting progress of soybeans in Brazil (which will slow second crop corn planting) and dry conditions in Argentina. Couple that with the fact that the price of corn continues to set records in both China and Brazil due to short supplies. China’s import demand for corn was expected to increase in in the report, and it was increased to 13 million metric tons. It’s expected this number could hit 25 million to 30 million metric tons by spring as China will need to import more corn to feed its growing livestock enterprises.
USDA’s report was also friendly to soybeans and held a few surprises. To remain consistent, USDA made no adjustments to 2019 soybean numbers. For 2020, USDA cut soybean yield 1.2 bushels/acre to 50.7 bushel/acre. That was 0.9 bushels lower than expected by the trade and the largest yield cut for soybeans in history from October to November. Fourteen states saw yield reduction. The cut in yield resulted in a reduction in production of 98 million bushels which put production at 4.17 billion bushels, 76 million bushels lower than expected.
Soybean demand was virtually left unchanged except for a few minor adjustments to seed and residual demand. This was surprising as soybean crush has been running at record or near record paces. Soybean exports have also been on fire as after 10 weeks, sales are at 81% of expectations for the year.
The net result was a 100 million bushel decline in soybean ending stocks, now estimated at 190 million bushels. That was 43 million bushels lower than expected. The national average price for soybeans increased 60 cents to $10.40. Just like corn, soybeans stocks have dropped to levels not seen since 2014. But unlike corn, the national average price of $10.60 is in line with the stocks estimate.
On the world front, Brazil’s production was left unchanged while Argentina’s production was cut 2.5 million metric tons. China’s imports increased 2.5 million metric tons to 100 million metric tons. World soybeans stocks were estimated at 86.5 million metric tons, 2.2 million metric tons lower than last month and 1 million metric ton below expectations.
One thing this report did verify is there is no wiggle room for much of a crop issue in South America or in the 2021 U.S. crop as stocks have become a little tighter than expected. Surging demand and production concerns are the main drivers of the market. Both could be tempered if more seasonal weather returns to South America, but at this point, forecasts are not calling for much of a change.
Cattle put in a strong performance this week off the Pfizer vaccine news. The expectation with the vaccine is domestic demand will return as consumers return to eating out more. This likely will not be realized until the second quarter of 2021, but it has the trade looking for normalcy to return. Cash offers of $110 were rejected this week as most are looking for a cash trade of $112. Boxed beef prices have been sharply higher this week, which resulted in a call for higher cash.
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