Market has minimal reaction to latest crop balance sheets

KANSAS CITY, Mo. — Following a relatively quiet crop supply and demand estimates report, the trade has turned its attention to the drought monitor and the June 30 acreage report.

While there were few changes in the U.S. Department of Agriculture’s crop balance sheets released June 9, there were several figures of note that caught the eye of Arlan Suderman, StoneX chief commodity economist, in his monthly webinar.

It looked like fairly minimal changes to the balance sheet. What did you see in the report and in the market reaction after the report’s release?

Suderman: There were very few changes and very little reaction by the market overall. USDA did cut Argentine corn and soybean production by 2 million metric tons each — no big surprise there.

Brazilian corn was bumped up by 2 million metric tons, offsetting that, while bumping up soybean production by 1 million metric tons. So, in both cases, they’re getting closer to where our estimate have been at, moving in that direction.

Looking at U.S. new crop ending stock, there were no big adjustments there across the board. It was mostly due to reduced corn and soybean exports and a little bit of a bump in U.S. wheat production.

On the U.S. balance sheet, USDA cut corn exports by 50 million bushels and imports were down 15 million, increasing 2022-2023 ending stocks to 1.452 billion bushels.

That carries over to beginning stocks for the new marketing year in Sept. 1. That was probably one of the more significant changes, but was also largely anticipated.

The new crop feed estimate for corn is up 7.1% from this year in a year that beef production is expected to be down 8%. Pork production is expected to be flat next year. Now, granted, when you have a big crop, residual use tends to rise.

Residual use is just a catchall from errors in USDA’s production estimates. If they overstate the size of the crop, then residual use is going to be bigger. If USDA understates the size of the crop, residual use is going to be smaller.

I can’t estimate how much they’re going to understate for overstate the crop. All I can estimate is feed usage based on animal units and based on that, I’m 200 million lower on feed usage than USDA.

What changes were made on the U.S. soybean balance sheet?

Suderman: USDA cut soybean exports by 15 million bushels, getting it closer to where my estimate is at. USDA is still 160 million bushels higher than my estimates. It’s a little bit early to kind of assess the export situation.

We got a bump this morning from the sale of a little over 7 million bushels of soybeans to unknown destinations. That really surprise the market.

My crush number is 85 million bushels higher than USDA. USDA is now up to 7.9% stocks-to-use ratio. I’m at 9.1% with my estimate.

What is your take on the moves being made in the soybean crush department?

Suderman: We saw a run in soy oil this morning. Crushers kind of talk of rumors that the demand in oil has picked up.

Nobody is sure where that demand is coming from. It doesn’t seem to be on the export market, but as they spread that word some of the renewable diesel people are saying maybe they better buy up supplies. So, it’s kind of emotion creating a little bit of a buying spree here as the charts are turning.

I think bottom line that’s probably the biggest thing as we’ve been in such a downtrend in soy oil for so long that we kind of turn the charts and now the bottom pickers are coming in to buy oil before we get up there any higher and that’s causing some short covering among the funds, as well. That’s giving a boost to soybean prices.

Outside of that, the overall trend toward weaker prices really continues for these markets with the eyes going into the weekend now on the weather forecast and whether this pivot in the dry weather pattern for the Midwest that’s expected this weekend actually unfolds.

Will the current smoke conditions from fires in Canada impact the corn and soybean yield?

Suderman: That’s going to vary from one part of the Midwest to the other. Think of it as cloud cover — anything that interrupts the sun. That corn plant is a factory, a factory that takes sunshine, water and nutrients and turns them into carbohydrates and protein in the grain structure.

If you limit any of those factors, you start limiting yield. If we have, for example, a really cloudy summer, it will negatively impact yield. That same thing can happen from the smoke, as well.

So, it comes down to an intensity equations, as well as a durational equation — how long and how intense. That is what’s going to be the factor here in determining yield impact.

So, yes, it does have some impact. Is it major? No, drought is still the most feared factor, but it does have some effect on yields overall.

What is your take-home message from this latest supply and demand report and looking ahead?

Suderman: Domestic global wheat supplies are tight, but they’re adequate and the market is not too concerned about it as long as Russia is dumping cheap wheat on the world market.

El Niño is here for the northern hemisphere summer. That argues for a very mild Midwest summer. The question mark is rainfall. Will it be enough with this year’s evapotranspiration rates being down or will it not be?

And we need to ease the stress over the next several weeks as the maximum ear size is being determined by the corn crop.

Overall, we’re watching the northwest 30% of the Corn Belt that I think is most at risk of seeing a shortfall.

The geopolitical risks continue to rise. These markets will remain subject to headline risk. The next 10 days will be pivotal for this year’s corn and soybean crops to set the tone for the rest of the growing season.