Morning Comments May 13, 2022

Sillouette Sunset Location Rail

The USDA gave traders and farmers a few surprises in what is normally a pretty mundane May update yesterday, cutting wheat and corn production more than expected and sending prices higher for both. On the day we saw Minneapolis wheat close up its limit with Kansas City and Chicago wheat 65 or so higher. July corn closed 3 higher with December up 17 as traders roll out into new crop. Soybeans were up 8.

Ahead of yesterday's report there was a lot of chatter regarding trendline yields for corn and whether or not the USDA's current trendline projection of 181 would prove to be too high. Many pointed to delayed plantings and slow planting pace, though few thought the USDA would do anything with yield as historically any type of major yield adjustment would come in June or July at the earliest and most typically not seen until August or September.

However, in 2013 the USDA took slow planting into consideration, cutting their yield estimate to below trendline projections early that year. With this year's current pace running the slowest since 2013, the cut of 4 bushel per acre from trendline to 177 remains surprising, though perhaps should not have been unexpected. Interesting to note, yields in 2013 actually increased 0.8 bushel per acre from their initial May projections thanks to relatively benign summer weather.

The surprise cut in production was offset entirely by projected reductions in new crop demand, most notably with a 275 million bushel cut in feed demand projections, and a 100 million bushel drop in export expectations. With old crop carryout left unchanged and all other adjustments factored in, the USDA put new crop carryout at 1.36 billion bushels, slightly above trade expectations, but lower year over year.

Globally the USDA is still working to adjust their outlook as the world continues to struggle with how to move Ukrainian grain currently stranded in silos and unable to be shipped. In essence, the USDA removed much of Ukraine's old crop supply and reduced new crop expectations from the global pipeline, pointing to reduced demand and a larger crop from South America to bridge much of the world gap.

Soybeans saw a much-anticipated increase in old crop export expectations, up 25 million bushels from last month. The increase in demand took old crop carryout down to 235 million bushels, slightly higher than pre-report expectations but well within the range. 

The USDA believes new crop production will be stout of course, using March acreage and a trendline yield of 51.5. More available production will be offset partially by increases in demand with the USDA projecting exports and crush will be higher next year. When all is said and done, the USDA projects new crop ending stocks to come in at 310 million bushels, slightly below pre-report expectations of 317 million bushels.

Global ending stocks came in slightly below expectations for old crop but above expectations for new. The USDA pegged Brazilian bean production for next year at 149 million metric tons, a phenomenal 5.5 billion bushels of production versus the US' expected 4.6 billion bushels of production and up 882 million bushels from this year's crop.

Wheat seemed to be where most traders were caught off guard as the USDA made a pretty major cut to winter wheat production, coming in over 60 million bushels lower than the pre-report estimate, with the Hard Red Winter Wheat crop expected to be the smallest since the 60's. The reduction in production combined with increases in food and export demand pushed carryout lower again year over year.

New crop carryout for wheat came in 40 million bushels lower than pre-report estimates, with global ending stocks coming in 5 mmt lower than traders were expecting as well.

Outside of USDA and outlooks from other ag agencies around the world, we got updated export sales on the week with marketing year lows seen across the board on sales totals. Many are crediting the slow pace to the fact much of the world was on holiday last week, expecting to see an increase in sales pace return next week. 

A flash sale of corn to China reported yesterday morning helped reaffirm that belief, with just over 550,000 metric tons sold for new crop and a dab sold for old. With the Chinese currency having lost over 8.5% versus the dollar over the last 6 weeks, seeing the sale yesterday helped bring some comfort to market bulls pointing towards continued strong Chinese demand.

Looking ahead, we are wrapping up another week with little in the way of clarity regarding outside market direction and what's going to happen next. Buyers were active overnight on talk China has a plan to reopen all locked down sectors by the end of June, with talk some will be allowed out more in the coming weeks in Shanghai after 6 weeks of lockdowns. Officials were also quick overnight to deny rumors Beijing will be the next to shut down. 

The Senate confirmed Jerome Powell for his second four-year term as Fed Chair yesterday, with Powell clearly stating that fighting inflation is his number one task and doing so may "include some pain." President Biden applauded the confirmation, also adding that tackling inflation has become his number one domestic priority.

Weather-wise, rains are expected to continue to fall in the Northern Plains, with talk much of the Dakotas and Minnesota won't really see much in the way of a wide-open planting window until the end of the month. Elsewhere planting windows are open, though many may find themselves dodging raindrops again by the middle of next week.

Models are moderating Brazilian temperature outlooks a bit, removing some of the frost risk, though according to Eric Snodgrass, a well-followed meteorologist, upwards of 13% of Southern Brazil's Safrinha corn could see temperatures fall into the mid-30s next week. Rain is expected to fall over much of France's wheat belt next week as well, likely stabilizing production prospects, but absolutely vital to see after the recent stretch of heat.

We are back up to old highs for new crop on corn and working our way towards new highs in wheat. Beans remain supported, though well off contract highs.

Corn up 2 to 3

Beans up 5 to 10