Morning report: Wheat mounts a comeback amid lingering concerns about the future of the Black Sea grains corridor. (Comments are updated by 7:30 a.m. Central Time.)
*Prices as of 7:00 am CST.
Good morning! USDA issued its December 2022 World Agriculture Supply and demand Estimates (WASDE) report on Friday, though the market closed with little price reaction to the updated numbers.
A quiet report was not a surprise – USDA’s National Agricultural Statistics Service (NASS), the branch of USDA that surveys farmers and fields to determine acreage and yields, did not update any production estimates for 2022 corn and soybean crops, so the lack of supply-side revisions made for one of the quieter WASDE releases of the year.
But there were still a few key revisions that have important market implications. For the full details, check out our team’s coverage here, which features key findings and analysis. In the meantime, I will sprinkle the results throughout the newsletter today.
Inputs
Turkish President Tayyip Erdogan held a phone call with Russian President Vladimir Putin yesterday. Late last week, Erdogan had told the press of the phone call, with hopes that further discussions would be had about bringing more Russian fertilizer and Ukrainian grain to the market.
However, Erdogan and Putin’s discussion yesterday centered on the two countries’ plans to expand energy trading in the future as Turkey weighs constructing a regional gas hub that would likely be supported by Russian energy supplies.
Overnight, Russia’s Deputy Foreign Minister, Sergei Vershinin, called for the Black Sea Grains Initiative to be modified to ensure that adequate grain supplies are being shipped from Ukraine to poor nations in Africa and Asia. Vershinin also accused the U.S. of not being supportive enough of the Black Sea Grains Initiative (translation – Russia is still frustrated at the West’s banking sanctions that continue to restrict economic growth in Russia).
In short, Erdogan’s call likely did not do much to move the needle on Russian relations with the West over the weekend, especially when it comes to food and fertilizer trade flows. There was no new news overnight of a deal that has allegedly been in the works for the past few weeks to resume Russian ammonia exports via a Ukrainian pipeline to the Black Sea.
In my latest E-corn-omics column, I unpack all of the recent highlights in the Ukrainian-Russian war as well as other market headlines that are influencing global fertilizer markets right now. The good news is that fertilizer prices are trending lower right now, but it remains to be seen how long that trend will last.
Corn
Corn prices rose $0.02-$0.06/bushel this morning as the markets returned their focus to Ukrainian shipping paces. Slightly higher U.S. energy prices were also bullish fodder for ethanol production this morning.
Ukraine’s Odesa port has resumed normal operations overnight following a Russian hack on the greater Odesa Oblast energy grid, according to the country’s infrastructure ministry. The agriculture ministry confirmed that the other two ports that have been actively loading trapped Ukrainian grain supplies – Chornomorsk and Pivdennyi – are only operating at partial capacity.
Odesa is Ukraine’s largest export loading facility. Full loading capacity at that port means that Ukraine can ship out more grain, which is bearish for U.S. grain prices but will significantly ease grain supply tightness and constraints around the world.
WASDE results – U.S. corn stocks rise
2022/23 U.S. corn ending stock volumes grew by 75 million bushels to 1.257 billion bushels.
It was slightly higher than the trade had been anticipating, but still within the expected range.
WAOB cut expected U.S. corn export volumes in 2022/23 by 3.5% from last month’s estimate, leaving projected shipments at 2.075 billion bushels.
That’s the lowest U.S. corn export volume in the past three years.
Analyst comments: WAOB’s cut to corn exports and larger subsequent ending stocks mean that 2022/23 stocks-to-use ratios will increase to 8.9% making the year the seventh tightest – instead of sixth – on record.
This should not have been a surprise to anyone. Corn export paces have been abysmal for corn this fall. Tuesday’s U.S. Census Bureau data release of October 2022 ag export volumes saw corn shipments for the month fall 46% below year ago volumes due to issues on the Mississippi.
Prices continued to trade slightly higher following the report’s release because….
WASDE results – USDA cuts Ukrainian corn harvest
Ukraine’s 2022/23 corn harvest was cut by over 177 million bushels to 1.063 billion bushels as farmers struggle to harvest crops amid wartime interruptions and backlogged export schedules.
Cuts were made to both yields and acreage as an historically wet fall is increasing the likelihood that many Ukrainian farmers will not finish harvesting corn until next spring.
Ukraine’s corn export volumes were increased to reflect the recent Black Sea Grains Initiative extension.
Ukraine’s smaller corn harvest offset the increases to U.S. ending stocks to shrink global corn supplies down by 93 million bushels from last month’s report to 11.748 billion bushels.
Analyst comments: We’ve seen two sets of narratives from Ukrainian grain markets over the past month. The first reflects optimism for the extension of the Black Sea Grains Initiative and the second surrounds the record-setting rains that have fallen across Ukraine this fall.
Even though the issues in Ukraine may not be as urgent as during the conflict’s onset, they are still clearly causing intense ripples in the commodity space. Russia has not proven to be the most reliable negotiating partner during this conflict and there have been several caveats to ongoing Ukrainian shipments (slower inspecting speeds by Russian officials, for example).
Also, please note that USDA follows U.S. Department of State guidance on the Ukrainian conflict and does not recognize the illegally annexed parts of Eastern Ukraine and Crimea as Russian territories. That means that any grain flows from these regions are counted towards Ukraine’s grain flows and not Russia’s.
But global corn supplies relative to usage are still tight. Usage rates were cut further in today’s report to reflect the reduced buying capacity of global purchases amid tightening market conditions. That is the most significant sentiment at play in the markets this morning, as the global supply situation keeps a floor under U.S. prices even amid lackluster export volumes.
The ongoing uncertainty in the Black Sea will continue to be a market mover through the rest of the year and likely into early next year as well.
Soybeans
Soybean prices slumped $0.13-$0.19/bushel lower this morning on worries that surging COVID rates in China are stunting food and commodity demand from the world’s largest grains buyer.
“China’s covid spread, even if it’s to get back to normal, is shutting stores and restaurants in the short term,” Michael Magdovitz, senior commodity analyst at Rabobank, told Reuters.
Drought-stressed Argentina received bountiful rains over the weekend, which could help its soybean crop to maintain adequate growing conditions to support yields. Brazil is expected to receive plentiful rains this week as well, which bodes even more favorably for production prospects in South America – and less favorably for U.S. soybean prices.
Overnight, China’s top traded hog futures contract fell a staggering 6.6% to approx. $130.36/cwt, setting a new record low for the contract, which only started trading in the last two years. Weak demand forecasts ahead of the big Lunar New Year holiday are to blame for the bearish price action, which began a downward spiral last week.
“The main reason is that pig farms expected that the price would rise in December, so there was a large backlog of fattened and secondary-fattened pigs slaughtered this month,” Yuan Song, chief analyst at trading company Juxing Agriculture Group, told Reuters.
This is not a good sign for U.S. soybean producers. It is a contractionary signal to Chinese hog producers, which will likely ease China’s appetite for U.S. soybean purchases in the coming weeks.
China also reported its 2022 crop production values overnight. After much coaxing from the Chinese government, the country’s 2022 soybean harvest rose 24% from last year’s haul to 745.8 million bushels. Yields rose in large part to heavy rains and high temperatures at the appropriate times in the growing cycle in Northeast China.
China’s soybean output sputtered last year after acreage was lost to lucrative corn prices. But a 23% annual increase in acreage this year helped bring China’s corn production back towards 2020 levels.
But even with the acreage cut, corn output still grew by 2% on the year to 10.9 billion bushels. Wheat production saw a 1% increase to 5.1 billion bushels while the rice harvest suffered amid scorching drought in Southern China.
WASDE results – No changes to South American crops
USDA left Brazil’s 2022/23 corn and soybean production unchanged at 4.961 billion and 5.584 billion bushels, respectively. Both figures are expected to be new record highs, if realized.
Brazil accounts for 11% of global corn production and 39% of global soybean production.
Argentina’s 2022/23 corn and soybean production forecasts were also left unchanged at 2.165 billion and 1.819 billion bushels.
Argentina accounts for 5% of global corn production and 13% of global soybean production.
Analyst comments: With peak planting activity winding down across South America, these estimates seemed to be prime targets for WAOB revisions in today’s reports. However, USDA erred on the conservative side of estimates here, which is not at all surprising.
USDA already cut Argentine soybean production last month as last year’s drought continues to plague the Pampas grains region. The dry weather has already taken a bite out of Argentina’s wheat crop, and we have already seen early signs of heat stress in the young soybean and corn crops in recent weeks as farmers continue to delay planting due to the drought.
Weather patterns have been more favorable in Brazil, which justifies the trade’s optimism for larger Brazilian corn and soybean crops. Planting is virtually finished for first crop corn and soybeans and spotty showers have helped offset warming temperatures.
But there is potential for drought worries as the summer sun heats up – and that prospect likely kept USDA from making any major revisions to Brazilian production in today’s report. More specifically, a USDA attach? report published early last week projects the 2022/23 Brazilian corn crop at 4.961 billion bushels, justifying USDA’s inaction today.
WASDE results – No changes to domestic soybean, wheat stocks
USDA left 2022/23 U.S. soybean ending stocks unchanged at 220 million bushels.
Wheat stocks were also unchanged this month at 571 bushels.
Analyst comments: If you read my WASDE preview article this morning, you’ll know I was a little beside myself at the prospect of larger soybean stocks, even though there was some strong evidence for usage cuts.
I took this as good news for U.S. soybean growers, even as futures prices drifted lower on higher Argentine exporting paces and slowing E.U. imports. South American weather markets (and Argentina’s foreign exchange rate finagling) will continue to power price volatility in the U.S. soy market over the coming month.
But unchanged crush and export rates offer something of a shelter against the volatility. The October 2022 soy crush topped 196.6 million bushels, making it the third largest monthly crush volume on record even though it was just a hair smaller than the October 2021 crush. Export revenues in October 2022 set new nominal price records, but marketing-year-to-date volumes still lag 6% behind year ago shipping paces.
U.S. wheat stocks miraculously escaped unscathed in today’s report, though global dynamics definitely sent prices in danger of falling to a new one-year low. Similar to the soybean market, I expect domestic markets to be a more lucrative source of farmer profits in the coming months.
U.S. wheat just can’t compete on the global stage with Russian, Ukrainian, and European Union wheat. Luckily, domestic milling rates are hot and are likely to be the best source of cash opportunities for farmers until exports begin to pick up again early in 2023 (hopefully).
Wheat
Wheat prices surged $0.05-$0.16/bushel higher this morning, posting a strong rebound following last week’s one-year low. Some uncertainty about the future of the Black Sea grains corridor helped prop up the morning’s gains.
WASDE results – Global wheat production jockeying
USDA cut 110 million bushels of 2022/23 Argentine wheat production, reducing it to 459 million bushels.
It’s Argentina’s smallest wheat crop since 2015. Argentina will be the world’s 11th largest wheat exporter in 2022/23.
USDA raised Australian wheat forecasts for 2022/23 by 77 million bushels to 1.345 billion bushels.
USDA also raised Brazil’s 2022/23 wheat harvest by 4 million bushels to 349 million bushels.
For both countries, it marks the largest wheat crop ever harvested.
Canadian wheat production was reduced 43 million bushels to 1.243 billion bushels based on last week’s Statistics Canada production updates.
It’s Canada’s third-largest wheat harvest on record.
Analyst comments: The larger Brazilian and Australian crops are no match for Argentina’s losses and smaller Canadian crops, which should have offered some bullish pricing opportunities to the U.S. wheat complex following WASDE’s release this morning.
However, even though the European Union, Russia, Ukraine, and Australia will be shipping more wheat next year, it will not be enough to account for Argentina’s shortfalls and will likely drive many international buyers from the wheat market. WAOB expects 59 million fewer bushels of wheat will be consumed around the world this year as a result of higher prices and constrained supplies.
Weather
The Heartland is bracing for a cross-country winter storm this week, according to NOAA’s short-term forecasts. The system is currently developing across the Rocky Mountain range and will send rain, ice, and snow across the Plains over the next 24 hours. But that’s good news for the drought-stressed Plains, as areas in the region could receive up to an inch of precipitation over the next 24 hours.
NOAA’s 6-10-day forecasts are trending cooler than usual for most of the continental U.S. through the weekend. Chances for precipitation during that time are leaning above average for the Plains and Upper Midwest.
The temperature trends in the 8-10-day outlook will continue even cooler across the country by late next week. Chances for moisture are likely to remain slightly above to near normal for most of the Northern and Central Plains as well as the Upper Midwest during that time while the Eastern Corn Belt could see below average chances for precipitation.
Financials
It’s going to be a wild week in the financial markets, even as trading volumes begin to wind down ahead of the holiday season. S&P 500 futures edged 0.28% higher to $3,947.25 this morning as investors shook off last week’s losses and geared up for consumer price index data that will provide key clues about inflationary pressures as well as a Federal Reserve interest rate hike.
Stock indices in China traded lower overnight as COVID cases surge after the government lifted some of its strictest lockdown and testing measures last week.
What else I’m reading this morning on our website, FarmFutures.com:
A Farm Foundation debate discussed the chances of a new Farm Bill in 2023 and what it might look like.
Our team’s coverage of Friday’s December 2022 WASDE reports.
Indiana farmer Kyle Stackhouse writes about being focused on spreading manure, dirt work, tillage, and lime before winter begins in the latest Between the Fencerows column.
Howard Buffet will be among several keynote speakers at the 2023 Farm Futures Business Summit. Check out our packed agenda to see who will be joining Buffet in Iowa City!
Naomi Blohm encourages farmers to get ready for the New Year corn rally.
Morning Ag Commodity Prices – 12/12/2022
Contract
Units
High
Low
Last
Net Change
% Change
DEC ’22 CORN
$ / BSH
6.41
6.345
6.41
0.0625
0.98%
MAR ’23 CORN
$ / BSH
6.5075
6.445
6.485
0.045
0.70%
MAY ’23 CORN
$ / BSH
6.515
6.4575
6.4925
0.04
0.62%
JUL ’23 CORN
$ / BSH
6.47
6.4075
6.45
0.0425
0.66%
SEP ’23 CORN
$ / BSH
6.1075
6.0525
6.0875
0.03
0.50%
DEC ’23 CORN
$ / BSH
5.9775
5.925
5.96
0.03
0.51%
AR2 ’24 CORN
$ / BSH
6.05
5.995
6.035
0.0275
0.46%
AY2 ’24 CORN
$ / BSH
6.07
6.03
6.07
0.03
0.50%
JUL ’24 CORN
$ / BSH
6.0675
6.0575
6.0675
0.0375
0.62%
JAN ’23 SOYBEANS
$ / BSH
14.835
14.5775
14.625
-0.2125
-1.43%
MAR ’23 SOYBEANS
$ / BSH
14.88
14.6275
14.675
-0.2075
-1.39%
MAY ’23 SOYBEANS
$ / BSH
14.9325
14.6875
14.7325
-0.2025
-1.36%
JUL ’23 SOYBEANS
$ / BSH
14.95
14.7175
14.765
-0.1975
-1.32%
AUG ’23 SOYBEANS
$ / BSH
14.705
14.5275
14.56
-0.1875
-1.27%
SEP ’23 SOYBEANS
$ / BSH
14.225
14.0775
14.0875
-0.1675
-1.18%
NOV ’23 SOYBEANS
$ / BSH
13.97
13.805
13.825
-0.16
-1.14%
AN2 ’24 SOYBEANS
$ / BSH
13.975
13.835
13.8525
-0.1575
-1.12%
AR2 ’24 SOYBEANS
$ / BSH
13.8775
13.7925
13.7925
-0.1525
-1.09%
AY2 ’24 SOYBEANS
$ / BSH
13.7875
13.7725
13.7875
-0.135
-0.97%
UL2 ’24 SOYBEANS
$ / BSH
13.895
#N/A
13.9425
0
0.00%
DEC ’22 SOYBEAN OIL
$ / LB
61.6
61.6
61.6
-0.6
-0.96%
JAN ’23 SOYBEAN OIL
$ / LB
60.33
58.94
59.55
-0.46
-0.77%
DEC ’22 SOY MEAL
$ / TON
466
465.9
466
-5.7
-1.21%
JAN ’23 SOY MEAL
$ / TON
471.9
461.5
463.5
-8.1
-1.72%
MAR ’23 SOY MEAL
$ / TON
468.8
458.7
460.8
-7.8
-1.66%
MAY ’23 SOY MEAL
$ / TON
463.7
454.8
456.4
-7.6
-1.64%
JUL ’23 SOY MEAL
$ / TON
458.1
451.5
452.7
-7.5
-1.63%
DEC ’22 Chicago SRW
$ / BSH
0
#N/A
7.1275
0
0.00%
MAR ’23 Chicago SRW
$ / BSH
7.4975
7.3825
7.4675
0.125
1.70%
MAY ’23 Chicago SRW
$ / BSH
7.595
7.4875
7.5625
0.115
1.54%
JUL ’23 Chicago SRW
$ / BSH
7.6375
7.5375
7.6075
0.115
1.53%
SEP ’23 Chicago SRW
$ / BSH
7.7
7.6225
7.685
0.12
1.59%
DEC ’23 Chicago SRW
$ / BSH
7.8025
7.7325
7.785
0.1075
1.40%
AR2 ’24 Chicago SRW
$ / BSH
7.83
7.8075
7.82
0.07
0.90%
DEC ’22 Kansas City HRW
$ / BSH
0
#N/A
8.5075
0
0.00%
MAR ’23 Kansas City HRW
$ / BSH
8.4475
8.375
8.415
0.085
1.02%
MAY ’23 Kansas City HRW
$ / BSH
8.3875
8.32
8.3575
0.085
1.03%
JUL ’23 Kansas City HRW
$ / BSH
8.3275
8.265
8.3025
0.0825
1.00%
SEP ’23 Kansas City HRW
$ / BSH
8.3275
8.3
8.32
0.08
0.97%
DEC ’23 Kansas City HRW
$ / BSH
8.365
8.335
8.365
0.0825
1.00%
AR2 ’24 Kansas City HRW
$ / BSH
8.3275
#N/A
8.2525
0
0.00%
DEC ’22 MLPS Spring Wheat
$ / BSH
0
#N/A
9.275
0
0.00%
MAR ’23 MLPS Spring Wheat
$ / BSH
9.0925
9.025
9.08
0.065
0.72%
MAY ’23 MLPS Spring Wheat
$ / BSH
9.065
9.0075
9.0525
0.0525
0.58%
JUL ’23 MLPS Spring Wheat
$ / BSH
9.045
9.005
9.045
0.055
0.61%
SEP ’23 MLPS Spring Wheat
$ / BSH
8.9025
#N/A
8.865
0
0.00%
DEC ’23 MLPS Spring Wheat
$ / BSH
8.9275
#N/A
8.89
0
0.00%
AR2 ’24 MLPS Spring Wheat
$ / BSH
0
#N/A
8.86
0
0.00%
DEC ’21 ICE Dollar Index
$
105.225
104.65
104.76
-0.039
-0.04%
JA ’21 Light Crude
$ / BBL
72.32
70.25
70.86
-0.16
-0.23%
FE ’21 Light Crude
$ / BBL
72.44
70.48
71.06
-0.15
-0.21%
JAN ’23 ULS Diesel
$ /U GAL
2.8499
2.7882
2.8147
0.021
0.75%
FEB ’23 ULS Diesel
$ /U GAL
2.8239
2.7652
2.7898
0.0118
0.42%
JAN ’23 Gasoline
$ /U GAL
2.0698
2.0204
2.0334
-0.0227
-1.10%
FEB ’23 Gasoline
$ /U GAL
2.0786
2.0321
2.0436
-0.0236
-1.14%
JAN ’23 Feeder Cattle
$ / CWT
0
#N/A
183.925
0
0.00%
MAR ’23 Feeder Cattle
$ / CWT
0
#N/A
185.1
0
0.00%
DE ’21 Live Cattle
$ / CWT
0
#N/A
153.675
0
0.00%
FE ’21 Live Cattle
$ / CWT
0
#N/A
155.55
0
0.00%
DEC ’22 Live Hogs
$ / CWT
0
#N/A
81.575
0
0.00%
FEB ’23 Live Hogs
$ / CWT
0
#N/A
84
0
0.00%
DEC ’22 Class III Milk
$ / CWT
20.39
20.39
20.39
-0.11
-0.54%
JAN ’23 Class III Milk
$ / CWT
19.37
19.25
19.37
0.13
0.68%
FEB ’23 Class III Milk
$ / CWT
19.22
#N/A
19.28
0
0.00%
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