November crop report continues to hit grain commodities

UkrAgroConsult

The second week of November had a decent start, but once USDA’s November Crop Production report was released the grains collapsed, and it was not entirely due to the report.

The grains put in a strong performance on Nov. 7 with soybeans leading the grains to end higher for the fifth straight session. The strength in the soybeans spilled over to help corn trade with gains for most of the session (corn faded to close with minor changes by the close). Even wheat was able to trade with gains that day.

Soybeans were supported by adverse weather in South America, primarily Brazil. The northern region continues to see hot and dry conditions which is slowing planting progress and could result in producers lowering their second corn crop planting intentions. The later the soybeans are planted, the tighter the window to plant the second corn crop. The southern regions of Brazil are also seeing adverse weather conditions as heavy rains continued to slow planting down in the region. Reports have this season’s planting progress for Brazil the slowest since 2020-21.

Both corn and soybeans had an export sale reported Nov. 7 as well. China was in and bought soybeans while Mexico was in and bought corn.

Technically no damage was done but there certainly are some concerns as soybeans went from trading at two-month highs to closing lower, with no change in its fundamental picture. Corn’s selling pressure was enough to push corn back to contract lows. All three of the wheat exchanges were under pressure as well, but most were able to remain above contract lows.

Most of the pressure was tied to technical selling. Soybeans were testing two-month highs and had closed with gains for five straight sessions, so a little test was in order. The fact that the selling pressure was indiscriminate (grains, meats, energies) made us think that the selling would be short lived.

USDA released their long-term baseline projection recently, and although the numbers from the projections are not really useful for anything other than figuring budget needs for government, they did bring a glimpse into what 2024 supply and demand numbers could look like, anything further out is just plain guessing.

For 2024, USDA is projecting wheat planted acreage to decline 1.6 million acres, but harvested acres are expected to increase 1.9 million from the previous year. Also, for wheat, USDA is looking at exports increasing 100 million bushels. Wheat stocks are expected to increase 112 million bushels to 782 million bushels. The national average price for wheat is expected to drop 50 cents to $6.80.

For corn, planted acreage is expected to drop 3.9 million acres but yield is expected to increase 8 bushels to 181 bushels. Stocks are expected to increase to 2.6 billion bushels from 2.1 billion bushels in 2023. The national average price is expected to drop to $4.50, a drop of 45 cents from 2023.

For soybeans, planted acreage for 2024 is expected to increase 3.4 million acres, putting production at 4.48 billion bushels versus 4.1 billion bushels in 2023. Exports are expected to increase 170 million bushels. Ending stocks are expected to decrease to 244 million bushels and the national average price is estimated to decline $1.60 to $11.30.

The Nov. 9 session had a little bit of something for everyone. The session started off mixed, but the grains managed to shake off early pressure and by the start of the day session were trading with solid gains across the board. Corn and soybeans were supported by export sales as China and an unknown destination teamed up to buy over 900,000 metric tons of U.S. soybeans and Mexico was in and bought 270,000 metric tons of corn. Reports that China has agreed to buy another 600,000 metric tons of U.S. soybeans added to the strength.

The Nov. 9 USDA November Crop Production report was not friendly to the grains and did result in the grains to selloff harder than expected, even in the face of friendly fundamental news. The biggest reason that the export sale of 1.6 million metric tons of soybeans to China and an unknown destination did not move the market was the market was already anticipating the news of the sale the day before so it was likely the export sales was well worked into the market on Wednesday. Same with Brazil weather. It remains friendly but it is old news. The new news from the report was such that the market had to retrace to adjust for the increase in U.S. production and stocks.

For wheat, USDA made no changes to the U.S. 2022 balance sheet estimates. For 2023, USDA’s only change in supply came from a 10 million bushel increase in imports. On the demand side USDA lower food demand 4 million bushels. The increase in imports came from USDA increasing imports of hard red winter wheat, hard red spring wheat, and soft red winter wheat by 5 million bushels each and offsetting that with a decrease in durum imports of 5 million bushels.

The report was bearish corn. USDA made rounding error adjustments to 2022. The bearish part of the report came in the adjustments to the 2023 numbers. USDA increased corn’s yield 1.9 bushels to 174.9 bushels, which was 1.5 bushels above expectations. Production increased 170 million bushels to 15.234 billion bushels, 145 million bushels above expectations, and a new record. On the demand side, USDA increased feed demand 50 million bushels, ethanol demand 25 million bushels, and exports 50 million bushels. The net change was a 45 million bushel increase in ending stocks, putting stocks at 2.156 billion bushels, 12 million bushels above expectations. The national average price dropped 10 cents to $4.85.

The report was neutral to negative soybeans. U.S. numbers came in close to expectations as yield was raised 0.3 bushels to 49.9 bushels (as expected) and production increased 25 million bushels to 4.129 billion bushels (just 4 million bushels higher than expected). Aside from the production increase, the only change made to soybean’s balance sheet was a 1 million bushel cut in residual, putting ending stocks at 245 million bushels, 25 million bushels more than last month and 20 million bushels more than expected.

CONAB increased their estimate of Brazil’s production by 400,000 metric tons to 162.4 million metric tons (USDA is currently at 163.0 million metric tons and did not update that number in the November report). If realized, that would be a new record for Brazil, beating this past year’s 154.6 million metric ton production. CONAB’s corn production estimate for Brazil came in at 119.07 million metric tons, 338,000 metric tons below their previous estimate.

Cattle continue to be disappointing. The collapse in the market the second week of November was much larger than expected. Part of the selling pressure was due to increased production estimates in USDA’s Crop Production report. A slowdown in demand added pressure.

Technically both cattle markets have more downside potential until they reach major support. The December live cattle put in an all-time contract high on Sept. 19 at $192.05. That contract closed at $174.125 Nov. 9, a decline of $17.925. January feeder cattle put in all time contract high on Sept. 15 at $268.50. Nov. 9 the January feeder cattle closed at $224.525, a decline of $43.975. Both cattle markets are extremely oversold, but any sizable recovery has been tough as traders are now in the sell rally mode. Look for cattle to recover some of the recent losses, but don’t expect the market to recover all of these losses.

Tags: soybeans, Grains, Mexico, cattle, crop, U.S., gains, China, live cattle, corn, feeder cattle, USDA, winter wheat