Progressive Ag Marketing Report with Lilja
Headlines are so often misleading. I was reading a report from Reuters stating, “US drillers cut the most oil and gas rigs in a month since June of 2020.” My oh my you should have seen all the social media fury over that headline. If people would have read the article through its entirety, they would have been able to comprehend that the US lost 9 rigs in the month of February 2023 but that total rig counts are up 103 over February of last year before the invasion. I wasn’t very good at algebra, but I can still count. That’s a net gain of 103 rigs, or 15.8% from a year ago as market price dictated more drilling post invasion. Not surprisingly, weekly EIA data showed US crude oil production for the week ending February 17th at a 2-3/4 year high and inventories +9.1% above the seasonal 5-year average. We are in the winter months with lower demand and 103 more rigs than last year and US crude oil stocks are building. We are not entirely out of the woods as refining capacity is showing gasoline inventories -5.4% below the seasonal 5-year average and distillate inventories -12.4% below the seasonal 5-year average.
If government numbers are correct and the Russians resume a westward push in the spring, we have a lot more capacity to absorb another supply shock than we did 12 months ago. A number of analysts think we are going back to $100 per barrel crude oil this summer. I’m not sold on this strictly based on government data. But if they are right, the net result will be more active rigs by this time next year further adding to supply. Deferred crude oil contracts into 2025 are already anticipating this based on their discount to 2023 contract prices. If I was the ND legislature, I would rethink basing ones budget on $70.00 per barrel over the next two years.
There were also a number of baseline estimates this past week as the USDA Ag Outlook Forum met. The grains reacted poorly to these estimates. The USDA is projecting 91 million acres of corn for 2023, 2.4 million more than last year. This seems reasonable with fertilizer prices coming down and corn prices remaining strong. Average US yield is projected at 181.5 bu/acre vs 173.3 bu/acre last year. Production would be 15.085 billion bushels vs. 13.730 BB last year. This would put the stocks-to-use ratio at 13.0% vs 9.1% last year. The USDA is projecting 87.5 million acres of soybeans for 2023 which would be the same amount of acres as last year. US soybean yield is projected at 52.0 bu/acre vs 49.5 bu/acre last year. The record soybean yield was in 2016 at 51.9 bu/ acre. Production would be 4.510 billion bushels vs. 4.276 BB last year. This would put the stocks-to-use ratio at 6.5% vs 5.2% last year. The Outlook Forum thinks US wheat acres will reach a 7-year high of 49.5 million. This was one million higher than average estimates. They went with trendline yield of 49.2 bu/ acre for production of 1.890 billion bushels. Both these numbers were higher than expected leading to an ending stocks build to 608 million bushels.
The Buenos Aires Grain Exchange dropped Argentina corn ratings again this week. Good to Excellent ratings dropped 2% this week to 9% g/e vs 11% last week and 22% last year. 51% of Argentina’s soybeans are in poor condition versus 45% last week and 26% last year. BAGE also dropped Argentina’s corn production estimate 4.5 MMT to 41 MMT. The USDA is currently at 47 MMT. Last year Argentina’s production was 43.3 MMT. Safras and Mercado report Brazil 1st crop corn harvest at 27.6% vs. 25% for the 5-year average. Second crop corn planting is at 39.0% vs. 48.7% average in the center south region. Mato Grosso is 73% complete vs. 79% average. The farmer group Imea states that 20% of Mato Grosso corn will be planted outside the ideal planting timeframe due to wet conditions.
The Buenos Aires Grain Exchange dropped Argentina soybean ratings sharply again this week. This could be a combination of more dry conditions and a frost event that hit parts of Argentina. Good to Excellent ratings dropped 6% this week to 3% g/e vs. 9% last week and 26% last year. 60% of Argentina’s soybeans are in poor condition versus 56% last week and 25% last year. BAGE also dropped Argentina’s soybean production estimate 4.5 MMT to 33.5 MMT. The USDA is currently at 39 MMT. Last year Argentina’s production was 43.3 MMT. South American crop consultant Dr. Michael Cordonnier cut his Argentine soybean crop estimate another 2.0 MMT to 34 MMT. He is quoted as saying “Everything that could go wrong with the 2022-23 soybean crop in Argentina did go wrong.”
Most of Kansas, Oklahoma, northeast Texas and the soft red belt received beneficial rainfall last week and over the weekend. 8-14 day forecasts are generally favorable for precipitation in all three major wheat belts with colder than average temperatures. These rains put heavy pressure on the wheat complex.
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.
Tom Lilja is an employee of Progressive who writes this column for the Times-Record.