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Another friendly USDA report sets tone for grain markets

The grains started October trading in a mixed fashion with early activity seeing wheat and corn higher while soybeans struggled but by the time the day session started on Oct. 3, the roles reversed and soybean and corn recovered to end higher while wheat slipped lower. And that seemed to set the tone for the week.

A wide shot of dry soybeans.
Despite a bearish USDA report for soybeans to end September, the market bounced back the first week in October.
Trevor Peterson / Agweek file photo
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The grains wrapped up the month of September posting an officially mixed performance with wheat ending higher, corn steady to firm, and with soybeans ending lower.

The grains were supported by a retracement in the U.S. dollar. Light support came from concerns about the direction of the Ukraine/Russia conflict. Reports that Russia’s Nordstrom Pipeline was sabotaged added support to wheat. Reports that Russia is going to hold a vote to annex the four regions it currently controls with their military added support.

To add fuel to the fire, Argentina officials released estimates for the 2023 crop year. There are looking for 2023 soybean production to be near 48 million metric tons versus USDA’s current estimate of 51 million metric tons and versus last year’s production of 44 million metric tons. Corn production is estimated at 50 million metric tons versus USDA’s latest estimate of 55 million metric tons and versus last year’s production of 53 million metric tons. Wheat production is estimated at 17.5 million metric tons versus USDA’s current estimate of 19 million metric tons and versus 22.5 million metric tons last year. Argentina officials are also reporting a slowdown in planting activity due to dry conditions. This might result in more corn acreage shifting to soybeans.

Harvest pressure is trying to limit the gains in corn and soybeans due to weather forecast continue to show almost ideal harvest conditions for the next two weeks. Seasonally corn and soybeans bottom the second week of October, so the next two weeks could be interesting.

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The U.S. Drought Monitor Map continued to show an expanding drought in Montana, Nebraska, North Dakota, South Dakota, Kansas, Missouri and Iowa. Kansas was reporting 98.5% of the state is in some stage of drought as of the Sept. 30 map. Texas did show slight improvement.

To close out the last week of September, USDA released their Quarterly Grain Stocks estimate and Small Grains Summary report. Wheat’s Quarterly Grain Stocks estimate came in as expected at 1.776 billion bushels. This was 2 million bushels above last year. The stocks estimate was bullish corn. The report put corn stocks at 1.377 billion bushels versus expectations of 1.512 billion bushels (135 million bushels lower) and versus 1.235 billion bushels last year (142 million bushels above). This should result in an increase in demand in USDA’s October report on Oct. 12. The Sept. 1 quarterly grains stocks report was negative soybeans with stocks estimated at 274 million bushels, which was 17 million bushels more than last year and 32 million bushels more than the trade expected.

The bullish surprise for the wheat and corn came in the production estimates. The Small Grains Summary report was bullish wheat as it reduced production more than expected. The report put all wheat production at 1.65 billion bushels versus expectations of 1.778 billion bushels (128 million bushels lower) and versus 1.783 billion bushels in September’s Crop Production estimate (133 million bushels lower).

All winter wheat production was estimated at 1.104 billion bushels versus expectations of 1.191 billion bushels (87 million bushels lower) and versus 1.198 billion bushels from September (94 million bushels lower). Winter wheat production dropped due to a 735,000 acre decrease in planted acreage, a 1.543 million acre decrease in harvested acreage, and from a 0.9 bushel decrease in yield.

Other spring wheat production is estimated at 482 million bushels versus expectations of 514 million bushels (32 million bushels lower) and versus 512 million bushels in September (30 million bushels lower). Other spring wheat’s production drop was due to a 275,000 acre decline in planted acres, a 265,000 decline in harvested acres, and a 1.6 bushel drop in yield.

Corn’s revised production estimate for the 2021 crop year was bullish coming in at 15.074 billion bushels versus expectations of 15.091 billion bushels (17 million bushels lower) and versus 15.115 billion bushels in September (41 million bushels lower). The production cut was due to a decrease in planted acres of 105,000 acres, a decrease in harvested acreage of 70,000 acres and a drop of 0.3 bushel in yield.

The revised production estimate was bearish soybeans. For the 2021-22 year, USDA increased soybean production by 30 million bushels to 4.465 billion bushels, which was 28 million bushels more than the trade expected. Illinois’ yield was increased by 1 bushel, which increased production by 10.5 million bushels, and Iowa’s yield was also raised by 1 bushel which increased production by 10 million bushels. The other states seeing increased production were Arkansas (up 2.5 million bushels), Indiana (up 2.8 million bushels), Kansas (up 2.4 million bushels), and Ohio (up 2.4 million bushels) while Mississippi was the only state that saw a decrease in production, dropping 540,000 bushels.

The grains started October trading in a mixed fashion with early activity seeing wheat and corn higher while soybeans struggled but by the time the day session started on Oct. 3, the roles reversed and soybean and corn recovered to end higher while wheat slipped lower. And that seemed to set the tone for the week.

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Technical selling was evident in wheat as both Minneapolis and Kansas City are flirting with the $10 level. The exchanges were able to cross above $10 Friday, Sept. 30 (as well as in a few sessions the first week of October) but could not hold above $10 due to profit taking. This will be a tough line to cross but if Minneapolis or Kansas City can close above $10, look for follow through buying.

USDA’s Crop Progress report continues to show slower progress and mediocre conditions, which help support the grains. Corn in dent has finally reached average pace as 96% of the nation’s corn was dented as of Oct. 2 versus 97% average. Corn that was mature was at 75%, equal to average. Harvest progress was estimated at 20% versus 22% average. Harvest progress was 2% below expectations. Corn’s crop condition ratings were as expected, unchanged from the previous week at 52% good/excellent. States that saw rating’s decline were small as only Iowa (-3%), Minnesota (-1%), Nebraska (-3%), and South Dakota (-1%) saw declines. North Dakota’s corn crop improved a surprising 6% to 61% good/excellent.

Soybean’s dropping leaves were at 81% complete versus 79% average. Harvest progress was estimated at 22% versus 25% average. This was 2% below expectations. As with corn, soybeans crop rating was unchanged, as expected, at 55% good/excellent. States seeing declines were Iowa (-1%), Nebraska (-6%), and South Dakota (-2%). North Dakota’s crop improved 4% to 58% good/excellent.

Winter wheat planting has slowed down due to the adverse conditions in the southern Plains. Planting progress was estimated at 40% complete versus 44% average. Progress was 4% below expectations.

Corn and soybeans have not seen much in the way of harvest pressure. It seems more like corn and soybeans are in a trading range and content to trade the range until more in known on U.S. production and South American acreage.

On a side note, OPEC met on Oct. 5. The group decided to cut production 2 million barrels per day, double early estimates. But in a strange turn of events, the energy sector did not pay much attention to the cut as most OPEC countries are already running about 3.5 million barrels under allotments.

Cattle struggled the last week of September, following the trend of the month. Economic concerns and expectations that current supplies are more than adequate to meet consumer demand added pressure.

Cattle supplies are expected to tighten up in the fourth quarter of 2022 as well as in the first half of 2023. This should help to support cattle going into the winter. Seasonally supplies of feeder cattle increase this time of year, and at this point feedlots have been aggressive to keep lots full. The wild card will be exports. Beef exports continue to set records on the monthly basis, but traders are concerned that the strong dollar could result in a slowdown in export business.

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“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.”

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Opinion by Randy Martinson
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