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The USDA does it again with November reports

The grains started to see a little light at the end of the tunnel once the Nov. 8 Crop Progress report was released. The report was friendly to the grains once again.

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(Erin Ehnle Brown / Grand Vale Creative LLC)

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 grains ended the first week of November by posting some ugly numbers. Minneapolis wheat and soybeans led the losers as profit taking and technical selling dominated the Minneapolis wheat market while poor export demand combined forces with position squaring ahead of what was expected to be a bearish November Crop Production report to pressure the soybean complex. Adding to the selling pressure was improving weather conditions for both the U.S. and South America. Warmer and drier weather is expected to dominate the U.S. for the first 10 days of the November, which will help wrap up harvest activity. Good rains continue to bless Brazil and there are even forecasts for general soaking rains for Argentina.

By the end of week, the market was even more confused on what to expect in the U.S. Department of Agriculture’s November Crop Production report. StoneX released their estimates that showed expectations for increased yield for both corn and soybeans. HIS Markit released their estimates later in the week. They were looking for the corn yield to jump 2.2 bushels over last month and the soybean yield to remain unchanged.

By the close of the first week of November, Minneapolis wheat was posting 42.75 cent losses, corn was down 15.25 cents, and soybeans were off 41 cents and close to lows not seen since March 2021.

By the start of report week, the grains were trading mixed with wheat higher on bargain hunter buying as traders felt wheat had retraced enough to clean up their overbought market condition. Corn was stuck between the higher wheat and lower soybeans. Poor export inspections added to the pressure. With the larger than expected shipments pace for soybeans, little room was left to load out corn. Harvest pressure added to the selling in corn, as well as for soybeans. Soybeans struggled due to poor exports and the lack of China buying. Rumors have China booking Brazilian soybeans for December/January/February, which is usually reserved for the U.S. Disappointing crush margins added to the pressure.

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The grains started to see a little light at the end of the tunnel once the Nov. 8 Crop Progress report was released. The report was friendly to the grains once again. As of Nov. 7, corn harvest progress was reported at 84% complete versus 78% average and 1% lower than expected by the trade. All states were showing progress ahead of their five-year average pace except Indiana (4% behind), Kentucky (5% behind), Ohio (3% behind), and Tennessee (4% behind). As for soybeans, harvest was estimated at 87% complete versus 88% average, which was as expected. But what is interesting in soybeans, all states are running behind their five-year average pace except for Arkansas, Iowa, Minnesota, North Carolina, North Dakota, South Dakota, and Wisconsin. Winter wheat planting continued to trail behind expectations coming in this week at 91% complete, equal to the five-year average but 2% less than expected. Winter wheat crop ratings were unchanged at 45% good/excellent as expected. That is the second lowest rating on record for this time of year. The lowest rated wheat is the white winter wheat in the drought stricken Pacific Northwest.

USDA’s November Crop Production report was expected to be a nonevent for wheat and negative corn and soybeans. Instead, the report was actually bullish soybeans as instead of seeing yield and production increases, USDA actually lowered the soybean yield 0.3 bushels which resulted in a decline in production of 23 million bushels. That put production at 4.425 billion bushels, 45 million bushels lower than expected by the trade. But the 600-pound gorilla in the room continues to be exports, or the lack of interest from China. USDA responded to the poor export performance by lowering soybean exports 40 million bushels. The only other adjustment that was made to soybean demand was a 2 million bushel decrease in seed. That put U.S. soybean ending stocks at 340 million bushels, up 20 million bushels from last month but 13 million bushels below expectations. The national average price declined 25 cents to $12.10.

World soybean ending stocks were also friendly as USDA lowered Argentina’s soybean production. The rumor that Argentine producers were going to switch acreage out of soybeans and into corn due to better return has been floating around the marketplace for a few months, but this is the first official sign of that actually occurring. World stocks are estimated at 103.8 million metric tons, 1.8 million metric tons lower than trade expectations and 800,000 metric tons lower than last month.

For wheat and corn, the report was neither bullish nor bearish. At best it was disappointing. For wheat USDA did reduce imports into the U.S. by 10 million bushels (5 million bushels for each spring wheat and durum) but made no decreases to exports for any of the major wheat exporting countries. USDA made some minor adjustments to food and seed demand but in the end wheat’s ending stocks estimate was 4 million bushels higher than expected at 583 million bushels. Not a big concern. World numbers were friendly wheat as world ending stocks were trimmed slightly in both the old crop and new crop estimates.

Corn’s numbers were also disappointing. USDA increased corn production more than expected. Yield was hiked 0.5 bushels to 177 bushels, (which is a new record and 0.3 more than expected) pushing production to 15.062 billion bushels (43 million bushels above last month and 24 million bushels above expectations). But that increase in production was more than offset by an increase in ethanol demand, which was hiked 50 million bushels. The end result was a 7 million bushel decline in ending stocks at 1.493 billion bushels, 25 million bushels above expectations.

World corn numbers were negative as stocks were estimated at 304.4 million metric tons, 3.6 million metric tons above expectations and 2.7 million metric tons above last month. The increase was due to production increases in both old and new crop corn for Argentina.

The 2021 U.S. crop production year is drawing to a close. As we approach the end of November, traders’ attentions will start to focus more on South America and less on the U.S. The one aspect that will hold traders’ attention in the U.S. will be the skyrocketing input costs. The increase in input costs will likely keep a floor in wheat and corn through at least the winter months as both need to remain firm to justify planting either crop in 2022. Neither crop can afford to lose potential 2022 acreage.

USDA did give us an economic look at where 2022 production could fall. Of course, this estimate is clearly based on economics. In their preliminary estimate for February’s Ag Outlook forum, USDA is estimating all wheat acres at 49 million versus 46.7 million last year and all wheat yield at 49.1 bushels versus 44.3 bushels this year. Wheat stocks are estimated at 636 million bushels versus 583 million bushels this year. Corn acres are estimated at 92 million versus 93.3 million last year and yield at 181 bushels versus 177 bushels this year. Corn ending stocks are estimated at 1.935 billion bushels versus 1.493 billion bushels this year. For soybeans acres are estimated at87.5 million versus 87.2 million last year and yield at 51.5 bushels versus 51.2 bushels last year. Soybean ending stocks are estimated at 300 million bushels versus 340 million bushels this year.

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Cattle put in a solid performance to close out the first week of November due to an impressive push in cash bids. Cash bids jumped $4 to $6, with activity taking place between $128 and $130. Expectations of tight supplies and strong export demand all helped to push cattle higher.

“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.”

Related Topics: MARKETSAGRICULTURECROPS
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