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In our monthly newsletter, we strive to bring you the key insights from the latest WDSE report. We summarize the most notable events and analyze their potential impact on the markets, providing you with valuable information that can be beneficial for your decision-making. We hope you find this content helpful!
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USDA Report Shocks Grain Markets with Record-Breaking Corn Yield and Surplus of Soybeans
and Wheat
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Friday’s World Agricultural Supply and Demand Estimates report sent grain markets tumbling. Despite weather challenges last summer, the USDA reported that the 2023 US corn harvest was the largest on record at 15.342 billion bushels. And while soybeans and wheat didn’t beat any records, both crops came in bigger than anyone expected. | |
Corn Market Plummets as USDA Report Reveals Record-High Yield and Stocks | |
The eye-popping corn yield estimate of 177.3 bushels per acre sent ripples through the market. The yield estimate exceeded all expectations and increased markedly from December’s 174.9 bushels per acre. In addition to final production estimates, the Grain Stocks report marked the December 1 inventory at 12.168 billion bushels, up 12% from last year. This elevated projected US ending stocks to 2.162 billion bushels, up 31 million bushels from December, and sent nearby futures pricing below $4.50 per bushel. | |
Soybean Market Drops as USDA Report Shows Higher Yield and Stocks than Expected | |
Soybeans also came in near the top of expectations with total production at 4.165 billion bushes, up 36 million bushels from December. Like corn, the USDA’s big adjustment was yield, increasing to 50.6 bushels per acre from December’s 49.9 estimate. The production increase boosted US ending stocks, now projected at 280 million bushels, gaining 35 million from last month’s report, and providing a buffer to what has been fairly limited supplies. Although soybean supplies are significantly tighter than corn, this buffer helped push nearby futures pricing down towards $12.00 per bushel. | |
Cash Market Trends: Stable Basis, Low Futures, and Reluctant Sellers | |
In the cash markets, basis has been relatively stable, with futures providing much of the legwork on driving flat prices lower. Elevators and terminals have been hoping to pry grain from the Midwestern farmer with delayed pricing programs, but despite elevated storage costs, farmers have remained somewhat reluctant to sell. The break in futures, along with the inventories noted in the Grain Stocks report, did not do the US grain farmer any favors.
Corn basis is near historical average and should remain there or soften barring a catastrophic change in Brazil over the course of the next 90 days. Protein meal basis follows a similar trend, though the downward opportunity is more limited as balance sheets are not bulky enough to drive a break below average without significant demand destruction. As futures revisit contract lows, demand should begin to support price again.
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South America's Record Grain Exports and Production Challenge US Market | In the global picture, South America continues to bear watching. Brazil’s corn and soybean exports in 2023 were the highest ever, surpassing 56 million metric tons and 101 million metric tons, respectively. With much improved weather in the last few weeks, the USDA was reluctant to make meaningful reductions in Brazilian production estimates. And with Argentine crop recorded as 95% good/excellent condition, production forecasts actually increased. Formidable competition for grain exports will continue into 2024, maintaining a lid on futures pricing through the spring. | |
Crude Oil Prices Rebound as Global Conflicts and Supply Constraints Boost Energy Markets | |
On the energy front, crude oil prices are showing technical signs of rounding a bottom, potentially ending the bearish downtrend. As global tensions escalate in the Middle East, and major ocean passageways (Black Sea, Suez, and Panama canals) are increasingly limited, fundamental factors are providing price support. This may spill over into ethanol and soybean oil markets, providing inherent price support for corn and soybeans. | |
Fertilizer Prices and Deliveries May Rise Due to Freight and Energy Issues | |
Speaking of freight and energy tensions, this may result in risks to fertilizer prices and deliveries later this spring. While notable amounts of fertilizer were applied in the Midwest this fall, it might be time to consider purchasing spring nitrogen, diesel, and other input needs with prices at near-term lows. | |
Cheese Surplus Hurts Class III Milk, Nonfat Dry Milk and Butter Boost Class IV Milk | |
On the milk side, dairy producers have seen Class III pricing at a discount to Class IV milk in recent months. With the cheese plant expansions already completed and more yet to come in the next year or so, cheese supplies are expected to remain heavy, pressuring the Class III milk price lower. Class IV markets, however, remain snug with November nonfat dry milk production down 17% from the previous year and butter prices still flirting over $2.50 per pound. The wide, inverted spread may continue for months or even years into the future. Deferred Class III pricing has provided risk management opportunities at better prices than nearby, so locking up some revenue in the future might be wise. | |
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Jordan Miller: 419-692-3206
ext. 1043
Pat Kahle: 517-260-8295 or P[email protected]
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Given current market conditions, the Ever.Ag Feed Foundations Team recommends putting strategies in place to protect your downside. If you’re locking in high prices, consider buying inexpensive puts underneath. Please contact Jordan Miller or Pat Kahle who can direct your questions to the appropriate advisor to discuss specific strategies.
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This monthly report is brought to you by Ever.Ag’s Feed Foundations Team. The risk of loss trading commodity futures and options can be substantial. Investors should carefully consider the inherent risks in light of their financial condition. The information contained herein has been obtained from sources to be reliable, however, no independent verification has been made. By law we must state the information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended to be a solicitation. Past performance is not indicative of future results. | | | | |
