U.S. needs to build or maintain all crop acres to increase stocks

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

The grains wrapped up the fourth week of January posting gains. After starting the week on the defense, it turned out to be a decent performance in the market.

By the time the week ended, Minneapolis wheat was up 9 cents, Chicago wheat was up 9 cents, Kansas City wheat was up 21 cents, corn was up 6 cents, and soybeans were up 3 cents.

The last full week of January started off with the grains posting heavy losses with most of the selling tied to better than expected rains in both Argentina and the U.S. southern Plains. The fact that China was also closed for business due to the Chinese New Year celebration added to the selling pressure.

But Monday’s losses were somewhat kept in line from reports of an unknown destination buying 192,000 metric tons of U.S. soybeans. Adding support was AgRural’s latest production estimate for Brazil. Their soybean production estimate was trimmed 700,000 metric tons to 152.9 million metric tons versus 129.5 million metric tons last year.

Brazil’s corn production estimate was trimmed 400,000 metric tons to 123.9 million metric tons versus 116 million metric tons last year.

Informa is estimating Brazil’s soybean production at 152.2 million metric tons. Their estimate for Argentina has soybean production at 40 million metric tons and corn production at 49 million metric tons.

Monday afternoon, wheat received some friendly news from Texas’s Crop Progress report. The report lowered Texas’s winter wheat crop rating 10% to 11% good/excellent. Tuesday’s turn around session helped give wheat enough strength to bounce off major support lines. Wheat’s rally is primarily technical in nature as there is not much in the way of friendly fundamental news to drive wheat at this time. Exports remain lackluster at best and Kansas reported heavy snow over the weekend. Wheat just seems to be too cheap when compared to the other grains.

Corn needs to thank wheat for most of its strength. Additional support came from an export sale of 130,000 metric tons to an unknown destination. It was good seeing demand return to the corn market, especially exports, as it shows U.S. corn is still competitive in the export market. Thoughts that the rains in Argentina came too late to help the corn crop added support. Gains were kept in check from expectations for higher corn acreage in 2023.

Soybeans tried to rally higher on Tuesday, but the rain event in Argentina and forecasts calling for more rain in the one to five day forecast and then another shot of rain in the six to 10 day forecast proved to be too much for soybeans to overcome. Add to the top of that the fact that China was on holiday this week, and you have the likelihood of seeing no flash sales of soybeans this week. Brazil’s soybean harvest is advancing slowly due to rain, but so far reports are indicating a better than average crop potential.

The early week gains were also kept in check from IHS’s 2023 U.S. crop acreage estimate. The group is estimating corn acreage at 90.5 million versus 93 million earlier, soybean acreage is estimated at 88 million versus 88.5 million previously. Spring wheat acreage is estimated at 11.2 million versus 11.4 million previously.

Wheat was testing support lines early in the week and by midweek found enough strength to bounce off major support lines and stage a minor recovery.

Corn and soybeans were also to continue their rally with reports of more export demand. Overnight, an unknown destination came in and bought another 100,000 metric tons of corn plus 130,000 metric tons of soybeans.

Although it is nothing serious at this point, recent rains have delayed harvest coupled with reports of slow planting progress of Brazil’s second corn crop. Toss in the fact that the Rio Grande do Sul region has not seen rain in about 20 days and there will be questions about lowering Brazil’s production estimates.

Gains were trimmed by reports that Mexico is hoping to decrease corn imports by 30% to 40% by 2024. Mexico makes up 25% of U.S. corn exports, about 500 million bushels per year.

Mexico and the U.S. trade office are in discussion to come to some understanding on how U.S. corn exports with Mexico will look going forward. Mexico is trying to halt importing GMO corn and would like to import only non GMO corn, but that is likely an unreasonable goal.

Late week buying was due to an escalation in the war between Ukraine and Russia. Reports have Russia stepping up their attacks ahead of schedule in an attempt to inflict as much damage as possible before the U.S. and German tanks arrive. Light support was also due to a better than expected export sales report, which put last week’s sale above expectations. The fact that China was in and bought a flash purchase of U.S. soybeans added strength as no one was expecting any sales to China this week due to the Lunar New Year celebration taking place.

In an interesting side story, the WASDE Chairman (the head of USDA’s world agricultural supply and demand estimates) has all but called out Russia on their wheat production estimate of 104.4 million metric tons. WASDE does not see that production estimate has been feasible with last season’s weather and past production history. This is why WASDE will not increase Russia’s production estimate above 91 million metric tons.

This has been a good week for reflection. This time of year, the only news that the market has to go on is South American weather and exports. Both have been showing signs of improvement, but with the U.S. stocks estimates showing tight supplies, which is being backed up by extremely tight basis levels in the country, it is going to be tough for the U.S. markets to sell off and remain low. The saying “high prices cure high prices” is true in the fact that demand starts to decrease when prices are high and stocks slowly increase due to the decreasing demand. That has not been the case this year as stocks just continue to get tighter.

And we can expect the market to continue to volley back and forth until the industry and traders are more comfortable with the U.S. planted acreage mix. At this point all crops in the U.S. either have to maintain or add acreage to build stocks. That will make for an interesting February through April. Top that off with any weather issues and you could have a repeat of last spring. But unlike last year, this year’s spring rally needs to be met with pricing as if crops see normal production, the markets will see declining prices into the summer and fall.

U.S. wheat production concerns are starting to increase, and Monday afternoon’s January Crop Progress report added to that feeling. Once again crop ratings were all over the board, but it all boils down to Kansas and Kansas saw a slight improvement in January due to moisture.

For January, Colorado’s wheat crop declined 12%; Illinois’s crop improved 1%; Kansas’s crop improved 2%; Montana’s crop declined 6%; Oklahoma’s crop dropped 21%; and Texas’s crop improved 3%.

What made the last full week of trading’s recovery and higher close significant? The grains started the week lower on reports of better than expected moisture in Argentina and the U.S. southern Plains but ended the week with solid gains. That is an indication that supplies remain tight, farmers selling is at a minimum, and end users need product.

The grains are range bound and likely won’t break out of the rains until more is known on the South American crop or acreage in the U.S.

On January 31, USDA released the semi-annual Cattle Inventory report. The report was as expected, and will help support cattle going forward, but it was not as bullish as some traders anticipated. The number from the report put All cattle and calves at 97%, as expected and the lowest in 8 years. All cows and heifers that have calves was estimated at 97%. Beef cows were at 96% as expected and the lowest number in 61 years. The calf crop was estimated at 98%, 1% above expectations.

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