Bearish USDA report exacerbates grain-market rout

It has been quite a rough start to the year for grain markets, with key futures values down significantly since fireworks and fanfare welcomed in 2024 a couple of weeks ago, and that was compounded by the bearish global supply and demand update released by the United States Department of Agriculture last Friday.

At the close of trade last week, the front contract month for corn, soybeans and the three wheat bourses in the US were down between 3.3 percent and 5.8pc, with soybeans the worst performer. On MATIF, the leading futures exchange for agricultural commodities in mainland Europe, the March milling wheat contract is down 2.9pc in the first 12 days of the New Year.

On the wheat front, the USDA released its first US winter wheat seeded area for the 2024-25 harvest, with expectations across all classes down 6.2pc year on year to 13.93 million hectares (Mha). In Kansas and Texas, the two largest winter wheat-producing states, reported plantings are down 7pc and 8pc respectively. Record low planted areas are forecast for Michigan and Utah.

The Hard Red Winter wheat area is down 5pc compared to the previous season to 9.71Mha. The largest decreases in planted area are seen in Kansas and Texas, while Montana is expected to have a modest increase. The Soft Red Winter wheat area is forecast to be 13pc lower at 2.78Mha, with the largest decrease expected in Michigan and the biggest increase projected for Pennsylvania. The USDA expects the White Winter wheat area to be 5pc lower than the area planted for the 2023-24 harvest.

Internationally, the USDA increased 2023-24 season wheat production by 1.9 million tonnes (Mt) to 784.9Mt compared to its December projections. The two movers were Russia and Ukraine, where production was increased by 1Mt to 91Mt and 900,000t to 23.4Mt respectively. With the Southern Hemisphere harvests winding up, the last pieces of the 2023-24 production puzzle have been finalised. The USDA left the Australian wheat crop unchanged at 25.5Mt. The crop in Argentina appears to have stabilised with the USDA number of 15Mt largely in line with local estimates.

On the trade side of the 2023-24 ledger, global wheat exports were increased by 2.3Mt to 209.5Mt, almost 10Mt lower than the 2022-23 season. Among the major exporters, Argentina was unchanged at 10Mt, Australia was up by 500,000t to 19Mt, as was Canada to 24Mt, the EU was down 1Mt to 36.5Mt, Russia was up 1Mt to a record 51Mt, and Ukraine was increased by 1.5Mt to 14Mt following the success of the new shipping corridor.

The January World Agricultural Supply and Demand Estimates Report threw up a few surprises, not least the significant increase in US corn yield for the 2023-24 campaign. While the harvested area was trimmed slightly compared to the December report, the 2.4 bushels-per-acre increase in yield to a record 177.3 bu/ac (11.13t/ha) caught the market by surprise. That, in turn, boosted production to a record 15.342 billion bushels (389.7Mt) and pushed projected US ending stocks for the 2023-24 season to 2.162 billion bushels (54.92Mt), the highest level in five years. Corn futures sank as a result to close Friday trade at a three-year low.

Globally, the USDA forecast corn production 13.7Mt higher at 1,236.7Mt. The big movers were China, up 11.8Mt to 288.8Mt, the US, up 2.7Mt, and Brazil, down 2Mt to 127Mt. The USDA left output in Argentina, Ukraine and the European Union unchanged at 55Mt, 30.5Mt and 60.1Mt respectively. Total global trade was decreased by 500,000t month on month, with the Brazil export forecast down 1Mt to 54Mt. Expected global ending stocks are up 10Mt to 325Mt compared to 2022-23, and 25Mt higher than at the end of the 2021-22 season.

Brazil’s production remains the big unknown, with extremely hot and dry weather in October, November and December through the central and northern parts of Brazil, eroding yield potential for this season’s first corn crop. Corn and soybean production analyst Michael Cordonnier already has forecast Brazil’s corn output 10Mt lower than the USDA at 117Mt, and he has a lower bias moving forward.

While good rains have returned to the dry areas in January, moisture deficits remain in many regions, and the glaring concern is whether the climate pattern change this month will negate the crop damage done in the last quarter of 2023. The dry weather has also delayed the soybean plant in many areas which could be problematic for the safrinha corn crop as planting will also be late, pushing crop maturity well past the normal monsoon departure date.

The soybean yield in the US was also raised in last week’s report by 0.7 bu/ac to 50.6bu/ac (3.4t/ha), which lifted production 0.9pc to 4.165 billion bushels (113.4Mt), still 2pc lower than in 2022-23 due to a fall in the harvested area. The uptick in supply pushes projected 2023-24 ending stocks 14.1pc higher than last month to 280 million bushels (7.62Mt).

On the world stage, the USDA left total soybean production in 2023-24 unchanged at 399Mt, 6.3pc higher than the 375.4Mt produced in the prior season. The main change was in Brazil, where production is 4Mt lower at 157Mt but still in record territory. Even though the weather has improved in Brazil, Michael Cordonnier believes the rain has come too late for a full recovery of the earliest planted soybeans in central Brazil. Dr Cordonnier’s estimate now sits at 151Mt, having wiped 6Mt off his forecast in the past six weeks. Last month, farmers were estimating yield losses of up to 30pc in the worst affected early maturing crops, and early yields support that concern.

The main compensatory revisions were the US, 1Mt higher to 113.3Mt, and Argentina, 2Mt higher at 50Mt, with some minor upward revisions to Paraguay and China helping to balance the equation. The USDA pegged global trade slightly higher at 170.9Mt, and ending stocks were unchanged at 114.6Mt. Interestingly, China’s import projection remains at 102Mt despite rumblings from Beijing of lower demand in the second half of 2023-24.

Tags: markets, exports, supply, corn, demand, USDA, grain, soybeans, US, Production, wheat, yield, Paraguay, China