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USDA surprises with yield adjustments and lack of demand adjustments in November reports

The USDA had some surprising numbers this week in the Crop Production and World Agricultural Supply and Demand Estimates reports. Randy Martinson of Martinson Ag Risk Management and Don Wick of Red River Farm Network discuss that, as well as exports, what a railroad strike would mean for markets, the Black Sea grain deal, an uneventful week in livestock and more on this week's Agweek Market Wrap.

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The USDA delivered some surprises in its Crop Production and World Agricultural Supply and Demand Estimates reports this week, Don Wick of the Red River Farm Network said.

Randy Martinson, president of Martinson Ag Risk Management, said the surprises were two-fold: an increase in yield for corn and soybeans and a lack of much in the way of adjustment on the demand side.

On yield, Martinson said an increase in corn yield wasn't a huge surprise, as the Corn Belt had good returns. The upward adjustment in soybeans was more surprising. But Martinson said the trade had expected a trimming of demand for corn and wheat, and possibly even soybeans, even though demand has been stronger.

"In all, it was a neutral to a friendly report, but it still was kind of a ho-hum report because it just didn't bring a lot to the table," he said.

He anticipates a cut for corn demand outlook will come in future reports, in part because Mexico has said it is not going to import genetically modified corn. Mexico is a big customer for the U.S., and that would substantially change the demand picture.

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For soybeans, if South American planting gets underway, that likely will "take a little bit of strength off our exports" of soybeans, he said.

Wick said the possibility of a railroad strike has been pushed off to early December, and he wondered how serious that threat would be to the grains.

"It would be devastating," Martinson said, explaining that the transportation system is a vital part of grain trade. Combined with low Mississippi River levels, the movement of grain could be virtually stopped.

"It certainly would cause a pretty bad bottleneck. It would stop the movement of grain, and it would cause our basis levels to widen out tremendously," he said.

The Black Sea agreement to allow Ukraine to transport grain will expire on Nov. 19, and meetings around it are expected, Wick said. Ukraine has pushed Russia out of a key province, and he wondered how that could complicate new discussions among the UN, Turkey, Ukraine and Russia.

"I think what it complicates is it makes (Russian President Vladimir) Putin a little more furious, and I think that means he's not willing to negotiate," Martinson said.

He thinks Putin will want more concessions, including ability to move Russia's grain and fertilizer, which would not be unwelcome, and the removal of some banking concessions, which Martinson said might be the key to getting Putin on board with a new deal.

Consumer Price Index numbers out this week at least pushed back the idea of a recession, Wick and Martinson discussed. Whether the improvement will be long lasting isn't yet known, but Martinson said it's possible the Federal Reserve will impose smaller interest rate increases than the 0.75% increases that have happened in recent months.

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It was largely an uneventful week in livestock markets, Wick and Martinson said. Martinson expects cattle to continue to take a backseat in the markets right now, though they've been trading at "marketable" levels.

(The Agweek Market Wrap is sponsored by Gateway Building Systems.)

Jenny Schlecht is the director of ag content for Agweek and serves as editor of Agweek, Sugarbeet Grower and BeanGrower. She lives on a farm and ranch near Medina, North Dakota, with her husband and two daughters. You can reach her at jschlecht@agweek.com or 701-595-0425.
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