Demand for U.S. crops weakens in January
Conditions are expected to improve both in markets and in moisture.
Editor's note: Catch Randy Martinson every Friday after markets close on the Agweek Market Wrap at agweek.com.
The markets in the first week of January changed course from how the grains left 2022.
Wheat was hit the hardest as all three exchanges flirted with recent contract lows with Kansas City trading to a new contract low before the week was over. The issue in wheat continues to be demand as the U.S. is not competitive in the wheat export game.
And with what seems like a new crop of wheat being harvested every month, it makes it hard for the U.S. to become competitive. With that being said, U.S. wheat stocks are expected to drop to their lowest levels since 2007. That combined with production concerns in Argentina and the U.S., quality issues in Australia, and now shipping concerns in the Black Sea region, one would expect wheat to perform better.
November and December’s Drought Monitor maps showed improvement as drought conditions are encompassing less of the winter wheat region. According to Thursday’s Drought Monitor Map, 64% of the nation’s winter wheat crop is in some stage of drought, down 5% from last week.
USDA’s December Crop Progress reports showed improvement in the soft red winter wheat areas and far southern regions of the hard red winter wheat region, and declining conditions in the northern regions of the hard red winter wheat belt.
The December Crop Progress report estimated:
- Colorado’s winter wheat crop at 50% good/excellent, up 20% from the previous estimate.
- Kansas’s crop dropped 3% to 19% good/excellent.
- Oklahoma’s winter wheat crop improved 7% to 38% good/excellent.
- Montana’s winter wheat crop dropped 22% to 22% good/excellent.
- Illinois’s winter wheat crop improved 38% to 68% good/excellent.
- Texas did not report updated numbers.
Low corn and ethanol demand
Corn has also seen selling pressure. Demand continues to haunt the corn market as exports remain at half of last year’s pace and ethanol demand continues to decline.
The last week of December’s ethanol production report was not friendly at all and caused corn to fade. The report put ethanol production at the lowest level in 97 weeks and was at 10-year lows for the week. Gas demand also dropped to 97-week lows. Most of the decline was due to a winter storm, but the trend has been showing a slowdown in ethanol demand.
Feed demand is the wild card and even that was expected to decline due to the contraction in the livestock sector. The recent winter storms and cold temps should help increase or at least stabilize feed demand.
Corn needs to see some favorable news, and that could come from Brazil production concerns. The southern regions of Brazil remain dry and that could impact the second corn crop. There is still time for China demand to increase as traditionally, China does not become a major buyer of corn for another month.
Possible soybean surge
Soybeans have been the bright spot but have shown signs of trouble. The U.S. will likely continue to see flash sales of soybeans for the next month, but then we can expect most of the export business to switch to Brazil. Argentina’s production is not going to be good this year and that will help the U.S. to grab more soybean meal and soybean oil exports.
Soybeans continue to be influenced from the back-and-forth weather forecasts for Argentina. Rain continues to pop into the forecast but by the time the event is supposed to occur, the rain potential declines. The latest weather forecast is calling for chance of rain for the second weekend of January, but then hot and dry conditions will return to close out the last two weeks of the month. Early forecasts are calling for February to return to a normal weather pattern, but that forecast is holding little confidence.
Another issue for soybeans is China. The recent surge in COVID-19 cases is causing concerns that China’s increase in demand will be delayed until later spring, which also lines up with when soybeans are readily available from Brazil.
USDA data dump
(Editor's note: The deadline for this column came before the USDA's Jan. 12, 2023, reports were issued, so the author's following statements were made prior to the release of those reports. Find updated information here and here .)
The grains also look ahead to USDA’s January 12 reports. Most expected USDA’s data dump to be negative towards grains, and it appears that they are working that into the market already.
USDA planned to release four major reports on Jan 12: the final Crop Production Estimate for 2022, updated Supply and Demand numbers, December's Quarterly Grain Stocks, and Winter Wheat Seedings.
The average trade estimate has corn and soybean yields increasing slightly in this report (corn up 0.2 bushels to 172.5 bushels, soybeans up 0.1 bushels to 50.3 bushels.
The trade is also looking for harvested acreage for corn to increase slightly (up 81,000 acres) while soybeans acreage declines slightly (down 10,000 acres). Those two adjustments are expected to increase corn production 3 million bushels to 13.933 billion bushels and increase soybean production 16 million bushels to 4.362 billion bushels.
On the demand side, USDA is expecting wheat exports to decline as well as corn exports. Don’t be surprised to see USDA also lower corn’s ethanol demand and feed demand estimates. For soybeans, USDA will likely lower crush.
This puts the ending stocks estimate for the 2022 crop year for wheat at 580 million bushels, up 9 million bushels from December. Corn stocks are estimated at 1.314 billion bushels, up 84 million bushels from December. Soybean stocks are estimated at 236 million bushels, up 16 million bushels from December.
USDA will also be putting out their first estimate for winter wheat acreage. The average trade estimate has all winter wheat acreage at 34.485 million acres, up 1.2 million from 2022. The increase in acreage was due to last fall’s strong crop insurance projected prices for winter wheat.
On the world stage, USDA is expected to increase Brazil’s corn and soybean production estimates slightly (corn up 300,000 metric tons to 126.3 million metric tons and soybeans up 300,000 metric tons to 152.3 million metric tons). Argentina’s production estimates are expected to drop significantly with corn production down 3 million metric tons, to 52 million metric tons and soybean production down 2.8 million metric tons, to 46.7 million metric tons. World ending stocks are expected to drop slightly in corn and soybeans, but increase slightly in wheat.
The selling pressure the first week of January was not isolated to the grains as cattle slipped lower as well. Early selling pressure was tied to profit taking and technical selling pressure as cattle traders try to clean up an overbought market condition. Light selling was tied to expectations of increased runs as most of the Plains has not seen cattle movement for the past two to three weeks due to the holidays and recent winter storms.
The second week of January has seen a little stronger performance due to concerns of tight supplies. Cash bids were mixed with the north reporting $1 lower bids, while the south was $1 higher. Cattle continue to keep one eye on the Federal Reserve as the minutes from the last meeting are still showing the Fed’s desire to keep increasing rates to combat inflation. The biggest worry in the livestock sector is the economy and domestic demand.
Martinson Ag sees friendly cattle moving forward and expects strength to remain due to decreasing numbers (which should be verified in the January inventory report at the end of month). Producers can lock in profitable levels now and should consider putting a floor under production.
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