Update for October 13th, 2022
Thoughts Regarding the USDA Report & Renewed Railway Strike Concerns
The October USDA Crop Production report was released October 12th which revealed U.S. corn and soybean crops are getting smaller. Current estimates expect the average corn yield at 171.9 bushels per harvested acre, a 0.6 decrease from the September report and 4.8 bushels per acre lower than 2021. Harvested acres remained constant from the September estimate of 80.8 million acres which results in an 8% reduction in corn production from last year or 13.9 billion bushels.
Expected soybean yields fell by 0.7 bushels from the September report to 49.8 bushels per acre, this is 1.9 bushels lower than 2021. Harvested acres remained unchanged from September at 86.6 million acres, slightly more than last year but soybean production is expected to only reach 4.31 billion bushels, a 3% decline from 2021 production totals.
Jon Scheve, president of grain for Superior Feed Ingredients sees this October reports as “not bearish”. He said, “Historically speaking, when USDA has dropped the yield estimate in September and October there is better than a 60% chance they will drop the yield again in the January report.” And in essence having “put a floor” under prices for the rest of the year.
AgMarket.Net co-founder Bill Biedermann explained that most analysts had expected a reduction in corn yield prior to the report, they were not anticipating a lower soybean yield. “That was a surprise that created a supply drop by 65 million bushels. However, it did offset the more soybean stocks USDA found in the last quarterly grain stocks report. So, it was a net loss of 30 million bushels.” The USDA reduced demand but left soybean ending stocks unchanged, “That means we don’t have a plentiful supply. That’s only a 4.5 stocks-to-use ratio which is only 16 days’ worth of supply. So even though it was a bearish demand revision, it’s still a very tight situation." Jon Scheve noted that this is the tightest stocks-to-use ratio for soybeans since 2013. “Following the harvest in 2013, beans saw a dramatic rally in futures in the winter.”
According to Biedermann the established 2022 pipeline requirement for corn is 1.2 billion bushels so the fact ending stocks are lower than that is “quite a statement”. He explained, “We’re down to an 8.2% stocks-to-use ratio which is only a 30-day supply of corn on hand. So, if we don’t see further cuts in demand, or revision upward in yield, this market is going to be extremely buoyant if there’s any kind of a problem in South America.” Jon Scheve pointed out that the current stocks-to-use ratio for corn is the same as the 2020 crop year. “That was when the market had one of the best post-harvest rallies of all time.”
Biedermann says that the next 30 days are important for grain prices. “I think USDA is trying to figure out how to balance the books and not cause fear and panic in the marketplace and on either side of it. They’re shooting right down the middle, which they should do until they see more statistics on how we come out. We need more yield data coming in, and we need to see how this economic macro picture and how the river system picture looks 30 days from now.”
The threat of a U.S. Rail Strike has returned as the union of railroad track maintenance workers voted to reject the tentative agreement. The results of the vote held by the Brotherhood of Maintenance of Way were announced Monday with 43% in favor of the proposed contract and 57% opposed to the 5-year contract offered. The BMWE is the 3rd largest of the major freight railroad unions. The two largest unions represent more than 50,000 engineers and conductors and both will be holding a vote-by-mail, votes will be counted Nov 17th. If the new deal does not pass a strike could not start until at least November 19th. If the new deal were to pass but the BMWE union votes to strike, members of 2 larger unions would support them by not returning to work.
Drought continues to impede barge traffic along the Mississippi River. The extremely low water level has led to at least 8 barges running aground so far in October. The crucial waterway has seen a steady decline in water flow for several months. Yesterday a river gauge located in Osceola, Arkansas, which is about 35 miles north of Memphis, TN reported the river was 8.8 feet below the “low stage”. This is the 4th lowest water level reading from that location since river levels began being tracked in 1927. Every passing day increases the risk that the goods that rely on the river for transportation may see even larger wait times. Keep in mind the current reduction in ship and barge traffic is already 39% lower than the 5-year average. 92% of U.S. ag exports, 78% of feed grains, soybeans and livestock exports and 60% of all grain exports depend upon the Mississippi River. From September 12th to October 12th the Mississippi watershed received a small fraction of the average rainfall expected. For example, Memphis, TN received less than 1/100th of an inch of rain during that 30-day period.
A shortage of seasonal snowfall across the Mississippi River Basin last winter raised drought concerns. “A lot of the water that you see on the lower Mississippi River, it originally starts as a snowflake in Montana. It just continued to compound and of course summer we didn’t get much rainfall, so now we’re in the situation we’re in today.” Current outlooks for the remainder of this fall and into winter call for a continuation of the La Niña weather system that has been driving weather around the world for, what will be, the 3rd consecutive year.
Pastelock says that that the long-range forecast doesn’t show any improvement. “This could go on through the winter and into the start of spring. The only hope is some relief from the Ohio and Tennessee tributaries which drain into the Mississippi River. There is a chance by mid to late winter east of the Mississippi River can be wetter as a winter storm track evolves. But farther west, the precipitation forecast is drier at this time.”
Conditions on the Mississippi River could get worse before they improve. As Pastelok reported, the AccuWeather long-range forecast does not look very wet for the region. "This could go on through the winter and into the start of spring," Pastelok explained. "The only hope is some relief from the Ohio and Tennessee tributaries which drain into the Mississippi River. There is a chance by mid to late winter, east of the Mississippi River can be wetter as a winter storm track evolves. But farther west, the precipitation forecast is drier at this time."
Temps across the Midwest have drastically dropped off, putting an end to our Indian Summer at least for now. A deep cut off low has made it’s way into the upper Midwest and is expected to keep temps well below normal through early next week.
The seasonal increase in temperature swings is underway and is affecting the strength of the jet stream and storm systems within it. Temps October 14th through the 19th are expected to range 10-12 degrees below normal but by Monday and Tuesday temps could fall as much as 20-24 degrees below normal.
Looking at the 6-to-10 day period and beyond a change in the pattern is expected and illustrated in the MJO (Madden Julien Oscillation) maps below. Currently we are in phase 5 which in October favors cooler than normal temps.
Midweek we are expected to move into phase 6 which in October typically means warmer temps. The MJO maps and Weather Bell map are included below and indicate the possible return of Indian Summer temps.