Weekly Market Update With Lilja, Progressive Ag
So much for stability as we enter 2021. In August of 2019 the USDA released one of the most shockingly bearish reports in history regarding corn supplies. This week in January of 2021 the USDA released one of the most shockingly bullish reports regarding corn supplies ever. The January report is one of the more important reports as it finalizes the yields from the prior growing season. USDA cut production a full 3.8 bushels per acre to 172.0 final yield. This was a 325 million bushel reduction from the December report estimate.
In August of 2020 we were staring an 18.6% stocks to use ratio in the face and now the US is closer to 10.6%. This is a shocking change in market conditions in 5 short months. The USDA tried to cover their tracks by reducing exports and ethanol demand. The other problem was that despite troubling growing conditions in South
America, they only reduced Argentina and Brazil by roughly 1.0 MMT each. The trade didn’t buy into either of these numbers as our export pace remains robust and cuts of 4.0 MMT each or more for Argentina and Brazil would have been more realistic. This sent corn futures locked limit up shortly after the report with solid gains the rest of the week.
The USDA also acknowledged a cut to soybean production but played the same game by attempting to add to our IMPORT number. They currently have US carryout at 140 million bushels when in reality it is likely lower than 100 million. This means there are no soybeans left in the US. But the surprising thing was that they did not cut Brazil production while acknowledging a 2.0 MMT cut for Argentina. As is the case with corn the trade viewed that it is likely there will be further cuts in future reports. Soybeans were up over 50 cents per bushel shortly after the report and exceeded $14.00 per bushel for the first time since 2014.
The wheat numbers were mixed, but there is a recognition that we may lose too many spring wheat acres this year with profitable corn and soybean prices. Overall wheat stocks have been trending lower the past few years on reduced acreage. This was largely expected in the outlook forums last winter but the market wasn’t too concerned with stocks to use ratios on wheat that are historically adequate. The concern now is that more winter wheat acres maybe ripped out this spring and planted to corn or soybeans. There were also rumors this week that Russia may increase its export tax on wheat to keep more of their supplies internal. Russian wheat prices were up $14.00/MT the previous week at Black Sea Region ports and Egypt passed on a tender at the higher price. This sent both US and French Matif wheat futures higher. Matif futures are now at the highest levels since 2013. The weekly US Drought Monitor showed improvement in the southern Kansas to Texas corridor after recent rain/snow but showed no improvement in the northern plains.
Forecasts suggest better weather in the next week with Brazil looking at moderate temperatures and normal precipitation. Argentina looks to be the same although 8-14 day forecasts are calling for above normal temperatures. Overall, the market remains nervous and it will take an overall change in weather pattern vs. changes in one to two week forecasts to settle down the bullish mob mentality of the grains.
Progressive Ag Marketing, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Progressive Ag Marketing’s Research Department.