Acreage battle begins with corn gaining ground

Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.

The grains wrapped up the third week of February mixed with Minneapolis wheat ending steady, Chicago wheat 20 cents lower, Kansas City wheat 2 cents lower, corn down 3 cents, and soybeans mixed with old crop dropping 15 cents while new crop gained 13 cents.

This is the first sign of the battle for 2023 acreage.

Corn is expected to be the big winner in crop acreage in 2023. The break-even scenarios being run have all favored corn (in most regions) and with input costs decreasing, most expect corn to be the winner in the acreage race. Even the corn/soybean spread has been favoring corn. That was until last week when November soybeans got the memo, soybeans will have to go out and try and bid for acreage. What is strange, with all of the crush plant expansion and new construction , one would expect producers would be leaning more toward soybeans than corn.

As the spring plays out, it will be interesting to see how much of a battle there will be for acreage. In October, there were 18 soybean crush plant expansions or new construction plans on the drawing board, which if realized would result in an increase in crush of 689 million bushels. If even a third of that is realized in 2023, production would need to see an increase of 200 million bushels, or roughly 4 million more acres. So far, estimates have soybean acreage increasing only 1 to 1.5 million.

The grains were put under pressure during the third week of February with most of the selling tied to profit taking and technical selling. All of the grains were trading at or near recent contract highs at one point during the week and most of the markets were overbought and in need of a correction.

A change in the weather forecasts for both South America and the U.S. southern Plains put some selling pressure on the grains. But as much as the weather has flip-flopped the past two months, it seems traders are really just taking a wait and see attitude. At this point the driest regions of the southern Plains are expected to see snow while parts of Argentina are expected to see some rain in the short term, and then again in the 11 - 15 day forecast. But dry conditions are still expected to book end both potential rains systems.

Rain continues to plague the northern regions of Brazil, slowing down harvest activity and slowing down the planting of the second corn crop in Brazil. At this late stage in the game, it might result in lower planted corn acreage.

But that thought is being overshadowed by the expectations that the U.S. is going to sharply increase U.S. corn planted acreage in 2023 due to strong returns. Fertilizer prices have been declining as of late, sharply lowering corn’s input costs. This is also helping wheat's fundamentals. But it appears spring wheat’s biggest obstacle is the base crop insurance price. Not only is it lower than last year, but it is also at a huge discount to durum ($1.25 as of February 21). This will push durum acreage higher in the north central to northwest regions of North Dakota.

Soybeans were also under pressure from rumors China bought a lot of soybeans and soybean oil from Brazil. It would stand to reason as the U.S. Pacific Northwest basis for soybeans widened out, which in turn forced elevators in the northern Plains to increase basis.

For wheat, traders need to continue to watch the developments in the southern Plains. If the southwest region of Kansas does not see significant moisture in the next week to 10 days, it is likely winter wheat conditions will continue to deteriorate. The developing story will be the race for acreage in the northern Plains. Will durum grab acreage away from spring wheat? And will Canada look to add canola acres at the expense of wheat?

Like the U.S., Canada is seeing canola production starting to move toward the sustainable aviation fuel market, which will likely result in an increase in canola acreage.

Texas released their weekly crop progress report Tuesday afternoon. Texas' crop condition rating improved from 11% good last week to 2% excellent, 12% good, 34% fair, and 52% poor/very poor. Fifteen percent of the crop is heading out versus 13% last week and 8% average.

Soybeans are likely to see a set back at this time, especially since China has switched their preference to South America. Now soybeans won’t fall completely out of bed as tight stocks and an increase in demand for soybeans to crush will keep this market from crashing, for now.

Corn is in the same boat as soybeans, but if Brazil continues to see planting problems, corn will recover sooner than soybeans will. A lot more will be known for corn in the next two to four weeks. We will also have a better handle on potential acreage by then.

As of February 17, Brazil’s soybean harvest was estimated at 21% complete versus 23% average. First corn crop harvest was estimated at 25% complete versus 28% average.

Second corn crop planting was estimated at 27% complete versus 35% average. To add to that the Buenos Aires Grain Exchange (BAGE) lowered Argentina’s crop condition rating for corn to 11% good/excellent and lowered their soybeans crop condition rating to 9% good/excellent. With adverse weather conditions it is likely those estimates will decline this week.

Wheat continues to get a shot in the arm from the Russia/Ukraine war. Not only is the market worried about the end of the Black Sea Export initiative, but the market is also convinced the war will rage on, especially after President Biden’s visit to Ukraine pledging continued aid. The devastation of the war the first year was bad, but the longer it lingers on, the more Ukraine’s ag production will be disrupted.

We are fast approaching the year anniversary of Russia invading Ukraine. It is likely Putin has something up his sleeve to celebrate that day and it is likely another round of heavy missile attacks on the region. The continuation of the war will continue to lessen Ukraine’s importance as a major exporting country.

The Ag Outlook Forum meeting was held February 23 and 24. This will be USDA’s first look at what USDA expects the U.S. supply and demand tables could look like over the next 10 years. Of course this report is just an economist’s view to set baseline projections and set funding for government programs for the next 10 years, it does give us a look at what demand could look like.

Early estimates for the report has wheat acreage at 48.5 million versus 45.7 million last year (+2.8 million), corn acreage at 90.9 million versus 88.6 million last year (+2.6 million), and soybeans 88.6 million versus 87.5 million last year (+1.1 million). Just the added acreage for these three crops is equal to 6.5 million acres. With this aggressive of a planted acreage estimate USDA is certainly looking at minimal prevent plant acres and we still have to ask the question: What crop losses acreage?

Live cattle pushed to another round of new contract highs this past week with most of the support coming from a strong boxed beef market and tight supplies. Feeder cattle did not see the same strength due to the flip-flopping grain markets. Cattle are also seeing some position squaring ahead of USDA’s February Cattle on Feed report, released February 24. Early estimates for the report have on feed at 97%; placed at 97%; and marketed at 104%. Cattle have a lot of fundamental reasons to see strength, but economic concerns will likely keep cattle from trading to new all-time contract highs. It might be a good idea to put a floor under any cattle that will be marketed after June.

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