The grains gapped higher to open March’s second week of trading. Most of the support came from South American weather forecasts as Argentina remains dry and rains continue to fall in Brazil. And at this point, there does not look to be any change in either forecast for weeks. Forecasts are actually calling for the rain to remain an issue in Brazil for the next month.
There are pictures starting to float around of ripe soybeans that are starting to sprout in the pod due to so much rain. There are even reports of heavily damaged soybeans being delivered to the ports. At this point, it might be a stretch for Brazil’s soybean production to reach record levels. Argentina’s officials are on record saying that if rains do not come soon, Argentina’s crop potential will start to decline. As of March 5, Brazil’s soybean harvest was at 35% complete versus 49% average, first crop corn harvest was at 46% harvested versus 42% average, and planting progress for the second corn crop was at 50% versus 80% average.
The grains are in position to trade to the next level, but until traders get comfortable with the estimates on the South American crop, traders are reluctant to push the grains higher. And although demand news has dried up, traders are not willing to take too much premium out of the grains either. It seems the grains are in an old-fashioned standoff.
U.S. stocks remain tight and although U.S. Department of Agriculture kicked the can down the street by not making any changes in their March Crop Production estimate, at some point USDA will have to catch up.
USDA’s March Crop Production report was a nonevent for U.S. wheat as USDA left all of wheat’s projections unchanged. U.S. ending stocks were left unchanged at 836 million bushels, as expected.
But once again the wheat world numbers were friendly. On the production side, Australia’s production was increased by 3 million metric tons to 33 million metric tons and Russia’s production was increased by 100,000 metric tons to 85.4 million metric tons. On the demand side, world wheat feed demand increased 5.2 million metric tons due to a 500,000 metric ton increase for Australia and a 5 million metric ton increase for China. World ending stocks dropped by 3 million metric tons to 301.2 million metric tons, which came in 3.2 million metric tons less than expected. The report was neutral to negative U.S. wheat but friendly world wheat.
The report was also a nonevent for corn as USDA left all numbers unchanged for both 2019 and 2020. The only adjustment USDA made was to decrease feed demand 4 million bushels and increase ethanol by the same amount. U.S. ending stocks were left unchanged at 1.502 billion bushels while the trade was expecting to see a cut of 52 million bushels.
For South America, Brazil’s production was left unchanged at 109 million metric tons (800,000 metric tons above expectations) and Argentina’s production was left unchanged at 47.5 million metric tons (also 800,000 metric tons above expectations). World ending stocks were increased 1.2 million metric tons to 287.7 million metric tons (the trade was instead expecting a 3.3 million metric ton drop in stocks). Chinese imports of corn were left unchanged at 24 million metric tons. The report was neutral to disappointing to both U.S. and world estimates.
For soybeans, U.S. ending stocks were left unchanged at 120 million bushels while the average trade estimate was calling for a 5 million bushels drop in stocks.
Brazil’s production was increased by 1 million metric tons to 134 million metric tons while Argentina’s production was lowered by 500,000 metric tons to 47.5 million metric tons. World ending stocks were increased by 300,000 metric tons to 83.7 million metric tons (the trade was expecting to see a 900,000 metric ton drop in stocks). Chinese imports of soybeans were left unchanged at 100 million metric tons. The report was neutral to negative soybeans as deep down most were expecting USDA to increase crush and exports just slightly.
Nothing has really changed fundamentally in the market. Brazil is making slow harvest progress due to ongoing rains and more rains in the forecasts. Argentina remains dry and although there is rain in the forecast for the end of next week, the next week to 10 days will be dry. Production estimates have increased slightly in Brazil but continue to decline for Argentina.
The three big issues hanging over the U.S. market right now are U.S. planted acreage estimates (which we will get a look at the end of the month in USDA’s Prospective Plantings report), export demand, and China’s African swine fever problems.
USDA will come with their first farmer acreage survey at the end of March. This will set the tone for the grains starting the last week of March when most of the private analysts start to release their estimates. At this point all of the grains are in need of either protecting the acres they have bought or are in need of adding acreage. Soybeans, to make 2021 supply and demand numbers work, need to add over 7 million acres. At this point the estimates are looking for an increase closer to 6 million to 7 million. That could work with ideal growing conditions in the U.S. But looking at the long-term weather forecasts, the entire major crop growing region in the U.S. is expected to see above normal temperatures through the spring and fall. Precipitation is expected to be below normal for the Plains but normal to above normal for the Corn Belt. If that happens, warm and wet for the Corn Belt means good growing conditions while warm and dry for the Plains means average to below average yields. That doesn’t really define how production could fall this year, other than average.
Back to the acreage, wheat doesn’t have to buy acreage as winter wheat acres are already higher than last year. That takes the pressure off spring wheat and allows some acreage in the Northern Plains to switch. But where will it go? Canola is definitely looking at buying acreage and has likely grabbed the questionable spring wheat acreage. The acreage battle will not be decided on March 31, it will just be starting.
U.S. export demand has seen a slowdown. It is disappointing to see just how much the exports have slowed down since the end of January. But this is a seasonal occurrence. It happens every year when South America’s harvest begins. Wheat exports are struggling and likely will not make USDA projections. Corn is trailing in shipments due to taking a back seat to the aggressive soybean shipments. But now that the U.S. is virtually caught up with soybean shipments, corn shipments are seeing a good increase. This too is seasonal. We are only halfway through the corn and soybean export marketing year and have already sold 85% of corn’s expectations (shipments 39%) and sold 98% of the soybean’s projections (shipped 85%). It seems reasonable to think exports for soybeans will increase as all we have to average per week to make USDA’s projection is 1.6 million bushels.
The market looks tired and ready for a break, but at this point it is too early to put a fork in this market and say the top is in. That question will likely be answered at the end of the month when we see where U.S. intended acres fall and when we have a little better look at U.S. weather. Until then, traders seem to be more than comfortable keeping the market trading in the established trading range.
The stock market has been able to post some impressive gains with the Dow Jones setting a new contract high. The influx of money expected to flow into the economy from the $1.9 trillion pandemic bill supported the Dow Jones and cattle.
In other news, the USDA Crop Progress report continues to be released on a limited basis with only a few states reporting weekly. States reporting crop conditions were Kansas, Oklahoma and Texas. Kansas’s winter wheat crop dropped 1% to 36% good/excellent. Oklahoma’s wheat crop improved 7% to 53% good/excellent. Texas’s wheat crop was down 1% to 27% good/excellent. Texas’s crop was estimated at 21% headed versus 20% the prior week and 6% for the five-year average.
Cattle had a better week with technical buying the main supporting factor. Expectations of increased demand as most expect a demand explosion to happen once the economy reopens. Support came from the passing of the pandemic bill as well as from reports of aggressive vaccinations. The lack of a cash trade limited the gains in the live cattle.
In their March Crop Production estimate, USDA increased beef’s second quarter production 105 million pounds, but the net change in 2021 beef production was a modest 40-million-pound increase putting production at 27.58 billion pounds.
“The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.”