UPDATE for April 28th 2023
The Bears are in Charge
Market bears are fully in control. China has canceled 550 MT of corn this week and will likely replace many if not all of those bushels with Brazilian grown production which is projected to be record high. The hope is that the trade will realize that the market is oversold and rebound but how much strength can be mustered up is unclear? Shipping and production issues in Ukraine remain and have become more uncertain then ever which could offer some long-term support to prices.
There have been a lot of numbers thrown around regarding the USDA estimate for the 2023 corn acreage and average yield. The fact that the USDA currently is projecting a national yield of 180 bpa + has raised a lot of questions. 2021 was an exceptional year and the average national corn yield hit 177 bushels per acre but overall, between the years of 2018 to 2022 the average yield was closer to 174 bushels per acre. The general consensus is that with modern technological advancements and improvements in farming practices yields improve roughly +2 bushels per year.
The weather has not supported early planting progress in many states. What we do know though is that when the opportunity arises U.S. farmers can plant a lot of acres during those openings. In prior years producers have been able to plant 20% (16-18 million acres) in a single week. This past week corn planting advanced by 6% to a nationwide total of 14%, which is 3% higher than the 3-year average. Precipitation has limited planting progress in the northern states of North Dakota (-1%) and South Dakota (-2%), Minnesota (-7%) and Wisconsin. As we know, in March the USDA has forecasted an increase in corn acres in these same states. Which was before the unusually cold spring temps and late season snowfall pushed back the possibility of fieldwork. If these conditions prevent the planting of an extra 1 to 2 million acres, the balance sheet will be greatly affected and if we use the USDA estimated yield of 180 bushels per acre then each 1 million acres out of production amounts to a reduction of 180 million bushels to new-crop corn totals off from the current estimate of +15 billion bushels vs last year’s total production of 13.730 billion bushels.
Brazil produced a record soybean production this last season and while those bushels are less expensive than U.S. exports, Chinese demand has not increased for their production as expected. Likely to blame is the later than normal harvest in Brazil which sent many of those buyers to U.S. exporters. Going forward for the next couple of months though, U.S. soybean exports will be weak as more buyer’s head for the abundant and cheaper Brazilian product.
New-crop soybeans prices have held together better than new-crop corn and much of that has to do with new crush plants being built to support the growing renewables market. There also is a decent interest in the soy market from the Funds and the Argentine crop disaster is also supporting demand. The CEO from ADM said this week he expects U.S. crush margins will fall during the 2nd quarter but that we should see an improvement in those margins during the 2nd half of 2023. The CFO for ADM commented on the ethanol industry which he believes will see a growth in exports and tighter inventories in the coming months.
So, what needs to happen for prices to regain better margins? What is needed to create a “raging bull market”?
1. Funds long the market. This has not been the case for a while now and in fact we have just the opposite scenario as Funds have been exiting their long positions in the market.
2. Demand needs to escalate. Right now, we just don’t have that “story” that can ignite the market and demand interest.
3. Supply issues keep the market motivated. We had a weather story in Argentina. And the ongoing Ukraine war headlines have kept the markets interest on and off for a year but “bulls need to be constantly fed”. What prices need is a widespread weather concern in the U.S. that is large enough in size and severe enough in conditions that it negatively affects production.
Unfortunately, the Funds are not interested in the corn market and there is no increase in the demand story on the horizon and right now most sources in the trade still believe that the U.S. is going to produce 15.0 billion bushels which would mean ending stocks will hit 2.0 + billion bushels.
The Black Sea grain deal may be ending. Russia said this week that they will not approve any more shipments unless the operators can guarantee they will be completed by May 18th which is unlikely as both inbound and outbound ship inspections have averaged 21 days over the past month.
This (possible) withdrawal from the grain deal does not come as a surprise. Russia has been threatening this for some time. Last weekend the deputy chair of the Russian Security Council warned that a G7 ban on exports to Russia would result in retaliation. He also noted that Russia is considering a ban on some of their own exports.
Weekend woes return again following a few days of near-normal temps and dry conditions. Farmers have been able to get in the field but temps are forecast to fall once again with chances of mixed, widespread precipitation. Most of Iowa is spared from any snowfall but eastern MN and most of WI won’t be as fortunate.
The following maps show just how much snow fell across the Upper Midwest this winter season and the second map shows just how far above-normal these totals were.
The cold approaches Saturday and by Monday the cold front will keep highs in the mid to upper 40’s in most spots, a very chilly start to the month of May. This cool down looks to be short-lived as signs indicate that by Wednesday temps will return to seasonable levels.
Precipitation looks light for much of the Corn Belt over the next 7 days.
