Morning Comments January 13, 2022

Cornboard Field 042221

The bean market responded favorably to yesterday's USDA numbers, trading over a dime higher, at one point pushing March beans back above $14.00 before falling off just a touch into the close. Wheat finished down over 10 cents on the day, while corn traded both sides of unchanged before settling down a couple.

The biggest surprise in yesterday's numbers would easily be the adjustments the USDA made to the South American crop outlooks. Historically, the USDA has been slow to make these types of adjustments, choosing to wait for more evidence an adjustment is needed before taking the leap. However, new World Ag Outlook Board chief Seth Meyer has indicated he feels more comfortable with weather and crop data coming out of these countries now than they were before.

After all, it was the USDA that made the largest cut of all to Russian wheat production estimates this past summer based on weather and crop conditions. Of course, this cut was proven to be a bit too aggressive, having to be adjusted 3 mmt higher after harvest data was presented.

In any event, traders were expecting bean numbers to be mundane, and while they were domestically with only a slight bump to yield and production with no other changes, the sharper-than-expected adjustment lower in global carryout caught many by surprise.

At first glance one could say the domestic corn carryout figure released yesterday would be bearish to values at these price levels. We had similar carryout numbers in last January's report, which was a bullish surprise at the time, take us to $5.50 futures on the high side of the contract. But the idea that we could see a repeat of last year will likely keep more folks engaged and a risk premium more present until we know more about what will take place in South America when it comes to Argentina and Safrinha production.

Breaking down the corn numbers from yesterday, we saw production increased slightly on a slight increase in acreage from the November report. Yield was unchanged at 177, a new record. Interesting to note, though they battled a pretty solid drought all summer, Iowa was able to produce a new state record corn crop at 205 bushels per acre, proving that timely rains trump subsoil moisture readings when it comes to crop production.

Demand-wise, we saw ethanol bumped up 75 million bushels, with exports cut 75 mbu. The cut to exports came as a bit of a surprise in the fact that it's early in the year and the USDA doesn't tend to make many adjustments to exports in January. However, it does appear somewhat evident that the large increase in Ukraine's crop year over year has allowed them to capture a portion of the market we had access to a year ago. 

Global corn carryout came in a bit lower than expected, this also due to a larger than expected adjustment to the Brazilian production outlook. 

All facets of information regarding wheat could have been viewed as slightly bearish yesterday as Winter wheat planted acreage and both domestic and global carry outs came in higher than expected.

Winter wheat planting came in slightly above the pre-report estimate and higher than last year's plantings. Much of the increase in acreage came in Soft Red Winter Wheat territory in the south, with some significant cuts in acreage seen year over year in the wetter parts of SRW country. Michigan saw the biggest drop year over year as an extremely wet fall only let farmers in the state plant 77% of 2020's plantings, dropping overall acreage by 140,000 acres versus the year prior.

With a drop in feed usage as well as an adjustment lower in exports overall, wheat carryout came in at 628 mbu, up from last month's 598 mbu and higher than the 608 mbu expected. Global carryout came in about 1.3 mmt higher than pre-report expectations and up 1.77 mmt higher than last month.

Looking ahead, direction will very much rely on South American weather and Chinese demand. With the expiration of the Phase One Trade Deal having already quietly passed, many are left to wonder what happens next. Secretary of Agriculture Vilsack has claimed this week the Chinese are in default, or at least have not lived up to their end of the bargain, pressing more purchases need to be made, while the Chinese seem to have decided to go about their business. 

Some in the industry believe we will see some sort of major ceremonial purchase announced before the end of the week as an olive branch, while others remain unconvinced.

Weather models continue to indicate a pattern shift is coming, with much needed rains expected to start in Argentina Saturday night, spreading into next week. The Euro 2-week anomaly forecast continues to point to above normal precipitation in the region as well. 

We will get updated export sales figures this morning at 8:30 a.m. ET.

Corn down 3 to 4

Beans down 14 to 16

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