The U.S. Department of Agriculture’s Ag Outlook Forum was held on Feb. 18 and 19. Of course, this forum is an economist's view of what producers should do on their farm and has no producer influence in its conclusions. As expected, the numbers from the forum were supportive as they continue to show very little opportunity to increase stocks of the three major grains.
For wheat, USDA is projecting acreage at 45 million, which was 500,000 acres less than the average trade estimate, 1 million less than USDA’s projections in October, but 650,000 higher than last year. Taking into consideration USDA’s Winter Wheat Seedings report from January 2021, if all winter wheat acres are at 31.99 million, other spring wheat and durum acreage for 2021 would be at 13.01 million, which would be a reduction of almost 1 million acres from last year. Wheat’s trend line yield is estimated at 49.1 bushels (0.3 bushels less than the average trade estimate) putting production at 1.827 billion bushels versus expectation of 1.879 billion bushels and their October estimate of 1.89 billion bushels.
Wheat exports are projected to drop 25 million bushels to 925 million bushels due to an increase in price. Ending stocks are projected at 698 million bushels versus expectations of 739 million bushels and 783 million bushels from their October estimate. The national average price is projected at $5.50 (equal to reference price) versus $5.15 in October. If realized, this would make 2021 the sixth straight year of decreasing wheat ending stocks.
For corn, USDA was not as bullish, but the numbers still show very little room for production concerns. USDA is expecting U.S. producers to plant 92 million acres of corn, which is 900,000 acres less than expected, 2 million higher than USDA projected in October and 1.2 million higher than last year. Corn’s trend line yield is projected at 179.4 bushels, which is 1.1 bushels higher than expectations, 1 bushel lower than October’s projection, and 7.5 bushels above last year. Production is estimated to come in at 15.15 billion bushels versus expectation of 15.16 billion bushels, 14.89 billion bushels in October and 14.18 billion bushels last year.
On the demand side, ethanol demand is projected to increase to 5.2 billion bushels (4.95 billion bushels last year), feed demand is up 200 million bushels to 5.85 billion bushels, and exports are projected at 2.65 billion bushels, up 50 million bushels from last year. This would put ending stocks at 1.552 billion bushels versus expectations of 1.665 billion bushels, 1.59 billion bushels in October and 1.5 billion bushels last year. The national average price is projected at $4.20.
The much-anticipated number from the Ag Outlook Forum was the soybean acreage estimate. The biggest question was, would soybean acreage increase enough to build stocks to a more comfortable level? The answer was, not really.
The Outlook Forum estimated 2021 soybean acreage at 90 million acres, versus expectations for 89.4 million, 89 million in October, and versus 83.1 million last year. Trend line yield for soybeans is estimated at 50.8 bushels, which is 0.6 bushels above last year’s actual yield. This puts soybean production for 2021 at 4.525 billion bushels versus expectations of 4.5 billion bushels, 4.47 billion bushels in October and 4.1 billion bushels last year.
On the demand side, USDA increased crush 10 million bushels to 2.21 billion bushels and decreased exports 50 million bushels to 2.2 billion bushels. This put soybean ending stocks at 145 million bushels versus expectations of 184 million bushels, 85 million bushels in October and 120 million bushels last year. The national average price is projected at $11.25.
The Ag Outlook Forum numbers verify that even though acreage is increasing in corn and soybeans and yield is projected to be at trend, stocks are not increasing at an alarming rate, but instead maintaining. This means that there is little margin of error for weather or production concerns.
The past two weeks, traders have started to pay more attention to the new crop price (December corn and November soybeans have outperformed the front months in gains) as traders are starting to realize the race for acres is not over yet. All of the major grains need to maintain last year’s acreage levels or add more acreage. Either way, the fight to secure acres for 2021 is just starting to evolve. Soybeans need to add between 7 million to 8 million acres to make the supply and demand numbers comfortable. That appears to be a tall order at this point.
Soybeanshave reclaimed the leader roll of the grains, along with canola. Brazil’s harvest progress continues to disappoint, with progress at the slowest pace in 10 years. And weather forecasts are not showing much improvement as more rains are expected to plague much of Brazil in the coming days. At some point, you would expect quality to start to become an issue as well.
Brazilian officials were estimating soybean harvest at 12% complete versus 27% average. The first corn crop harvest progress is estimated at 30% complete versus 27% average and the planting of the second corn crop is rated at 14% complete versus 43% average.
To add to the tight world stocks, Ukraine is rumored to also be out of soybeans and looking to import soybeans from Brazil. This would mark the second time this year that a major export of soybeans will have import product to cover its needs. The first was Brazil (they imported U.S. soybeans).
Canola has also been the market to watch as old crop continues to push to never-before-seen levels. Tight world vegetable oil supplies are helping to push canola to levels only dreamed about. The front month March contract is currently trading at $865.10 per metric ton. The spread to new crop continues to be extremely wide as November is trading at $612.90, a $252 spread. That might result in some producers shying away from canola on the thought that they are not trying to add acreage. But in reality, a lot of acres are going to be switched in Canada from spring wheat to canola. It is also expected that North Dakota producers will be leaning more toward canola, shying away from spring wheat.
In other news, USDA released their February Crop Progress report. Although wheat conditions declined in most regions, the decline was not as much as expected. The Monthly Crop Progress report for the top winter wheat states showed the following: Montana: 69% good/excellent up 1% from January; Colorado: improved 2% to 19% good/excellent; Kansas: dropped 3% to 40% good/excellent; Oklahoma: off 13% to 48% good/excellent; and Texas: down 3% from last week to 30% good/excellent. Texas’ crop is also 22% headed versus 18% last week and 5% for the five-year average.
Corn and soybeans were sluggish to start the week, especially the old crop months. Most of the slow trading was due to the lack of China buying and from the concern that although shipments continue to be strong, China has not been as aggressive in wanting delivery of purchased soybeans as they were in the beginning of the marketing year. In defense of the slowdown in shipments, China was on holiday the last ten days and there is only so much load out capacity and with corn and other product shipments increasing, soybeans shipments have to slow down.
The slowdown in old crop exports caused the old crop contracts to volley back and forth to start the week while new crop months rallied to new contract highs. The market was also starting to show that it was not as concerned with old crop supplies as they are with new crop. The surge in new crop corn and soybeans is also an attempt to buy acreage as at this point, one would assume soybeans has the edge. By midweek, the old crop months came alive and started to outpace the new crop contracts once again. Old crop was not able to break to new highs as of this writing, but soybeans were only a dime away. A close above the old contract high would open this market up to rally to the next resistance level, which is about $1 higher.
Cattle struggled to start the week, with most of the selling tied to Feb. 19's bearish Cattle on Feed report. The report showed higher than expected number of cattle on feed, higher placements than expected and marketing’s lower than expected. The negative Cattle on Feed report coupled with the recent arctic weather, which disrupted cattle movement and slowed cattle feedlot performance, added pressure. But the slow down in movement due to the adverse weather was enough to trim a lot of the extra weight off the slaughter ready cattle. A strong performance in the stock market and expectations of improving demand added to the optimism.
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