Markets move on weather, war and slow planting progress
Acreage projections from the USDA continue to impact the markets, as do news of the war in Ukraine, slow planting progress across the Corn Belt and the northern Plains and drought in the southern Plains.
Editor's note: Catch Randy Martinson and AgweekTV's Michelle Rook every Friday after markets close on the Agweek Market Wrap at agweek.com.
The first week of April posted strong gains, with many contracts gaining back most of the previous week’s losses. Does this mean we are continuing to trade headlines? Yes, it probably does. But this week the headlines started to increase as it was more than just the war in Ukraine that gave the market direction.
The smaller than expected acreage estimate continued to add support. The Prospective Plantings projections estimated lower than expected acreage for spring wheat, corn and canola. This has helped those markets consistently trade to new contract highs as they attempt to try to buy more acres. According to the projections, the only markets that can lose acreage are durum and soybeans.
But like Murphy’s law, if something can go wrong, it usually does. That seems to be the motto for agriculture the past few years. To add to the acreage surprise, spring does not seem to want to arrive. Wintery weather continues to dominate the northern Plains while cold, wet conditions plague the Corn Belt. To add insult, the southern Plains are being supported by expanding drought concerns.
The first week of April ended with the release of USDA’s April crop production report . Usually, the April report does not bring much attention to the grains, but it seems this is a year when all of USDA’s reports will demand attention.
- Recent grain prices drop is part of volatility to come in markets throughout the growing season
- From too wet, to too dry, weather takes control of market direction
- Planting progress strength met with eroding grain markets
- Market keeps taking hits after negative WASDE report
- Corn, soybean estimates show record yields, not quite record production
The numbers from the April report were in line with expectations and did nothing for the grains as it brought nothing new to the table. As expected, the wheat estimate was bearish, negative corn, and neutral soybeans.
The April crop production estimate was bearish wheat. USDA made no changes to 2020 but did make some adjustments to the 2021 numbers. USDA reduced feed demand 10 million bushels and cut wheat exports 15 million bushels. The 25 million bushel decrease in demand followed through to show up as an increase in ending stocks, now estimated at 678 million bushels, which was 25 million bushels above expectations. The national average price for wheat did increase 10 cents to $7.60.
On the world stage, wheat world ending stocks were estimated at 278.4 million metric tons, which was 3 million metric tons below expectations and 3 million metric tons below the previous month.
The report was negative corn as it brought nothing new to the table. The report showed no changes to the 2020 balance sheet, but some reallocations were made in 2021. For 2021 USDA reduced feed demand 25 million bushels but increased ethanol demand 25 million bushels. That left corn’s ending stocks estimate unchanged at 1.44 billion bushels, 35 million bushels above expectations. The national average price for corn was increased 15 cents to $5.80.
On the world stage, corn stocks were estimated at 305.5 million metric tons, 5.4 million metric tons above expectations and 4.5 million metric tons above the previous month. China’s imports were trimmed 3 million metric tons. Brazil’s production was increased 2 million metric tons to 116 million metric tons, 1 million metric tons above expectations. Argentina’s production was estimated at 53 million metric tons, 1.5 million metric tons above expectations but unchanged from last month. Ukraine’s export pace was trimmed 4.5 million metric tons.
The report was neutral soybeans as most numbers came in as expected. U.S. ending stocks for soybeans came in at 260 million bushels, 25 million bushels lower than last month and right at the number the trade expected (exports were increased by 25 million bushels). The average farm price was left unchanged at $13.25.
For South America, Brazil’s production was lowered by 2 million metric tons to 125 million metric tons (right in line with trade estimates) and Argentina’s production was left unchanged at 43.5 million metric tons (that was 900,000 metric tons higher than the trade expected).
World ending stocks were estimated at 89.6 million metric tons, 400,000 metric tons lower than last month but 1.4 million metric tons more than the trade expected. China’s imports were reduced by 3 million metric tons to 91 million metric tons (that is 8.8 million metric tons lower than the prior year). USDA also went back and increased Brazil’s 2020-21 production by 1.5 million metric tons to 139.5 million metric tons.
Profit taking hit the corn market early this week, but corn is on a mission to buy acreage. The smaller than expected planting intentions estimate sent a shock wave through the corn market. At this point, with the numbers that have been released, new crop corn stocks could be below 1 billion bushels, which is pipeline supplies. Part of the short crop issue in the US will be alleviated by Brazil as their second corn crop looks good. Good enough that CONAB increased their production estimate for Brazil’s corn 3.2 million metric tons to 115.6 million metric tons.
Soybeans continue to see strong demand and that will likely continue after July as in the short-term South America will start to be the favorite source for export soybeans. But the issues in Brazil are not over. With over 80% of the soybeans in Brazil harvested, CONAB took the easy road and dropped production estimates 400,000 metric tons to 122.4 million metric tons, thinking that it will be easier to just make any adjustments once the crop is in the bin.
Weather is starting to become a bit more supportive. If the forecasts are correct, it might be a while before producers in the northern Plains and Corn Belt will get into the fields. Above average precip is expected to bless the northern Plains and Corn Belt through the third week of April followed by a week of much below normal temps. The combination of rain and cold will keep fields saturated and likely delay the 2022 planting season until the first week of May.
The delays have traders concerns that we could see further reductions in spring wheat and corn acreage. This helped both September Minneapolis wheat and December corn trade to new contract highs. Winter wheat is also posting strong gains as warm and dry conditions continue to cause declining conditions in the southern Plains.
Russia has pulled their forces out of the northern regions of Ukraine and is now focusing its efforts on the southeast region. NATO is estimating that this war will likely last months, or possibly years. Putin is quoted as saying that the peace talks are dead and that the only way the war ends is with Russia in control.
The war has caused a shortage of world vegetable oil supplies. Russia and Ukraine are the largest producers of sunflowers in the world, producing 90% of the crop and supplying the world with 50% of its sunflower oil. The war has stopped the exporting of sunflower oil and has caused a significant increase in other veg oil productions. The lower production of canola in Canada and soybeans in South America added to the shortage. By the end of the first quarter of 2022, canola prices were up 72%, palm up 61%, and sunflower oil was up 44%.
In an attempt to lower the expense at the pump, the Biden administration made the announcement in Iowa that the administration will waive the restrictions on E15 allowing it to be sold between June 1 and Sept. 15. This is supportive to both ethanol and corn.
The rally in the grains continued at the start of the second week of April. The market accelerated its gains midweek with support coming from a friendly Crop Progress report. The April 11 Crop Progress report confirmed what most were expecting, which was slow progress. The report also showed something most were not expecting: a slight improvement in winter wheat conditions. Corn planting progress advanced ever so lightly last week. As of April 10, 2% of the nation’s corn was planted, unchanged from the previous week and slightly behind the average pace to 3%. Sorghum planting progress is at 14% versus 16% average. Oats planting progress is at 29% versus 32% average.
Winter wheat heading is estimated at 5% versus 4% last week and 6% average. Winter wheat crop conditions improved 2% to 32% good/excellent. Colorado improved 1%, Kansas 2%, Montana 5%, Oklahoma 7%, while Texas was unchanged. Although the crop improved slightly, the rating is still the second lowest for this time in 20 years. Spring wheat planting progress was at 6% versus 5% average and barley was 11% planted versus 8% average.
Cattle continued to lose ground the first week of April with selling tied to the higher grains complex and lack of a cash trade. Economic concerns are also weighing heavy on the cattle market as the average consumer’s disposable income gets gobbled up by higher gas and higher interest rates. Technical buying stepped in to help push the cattle market higher the second week of April. A stronger cash trade added support. Supplies remains tight and will likely get tighter as beef cow slaughter for the first three months of 2022 is running 16% above last year, which is also the highest pace since 1986.
“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.”