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How will markets react to next week’s USDA report?

Getty/iStockphoto Price chart with large question mark
Look for a breakout move – either up or down – that is ‘fierce, fast, and ferocious’

A few weeks ago, I discussed the likelihood for corn, wheat, and soybean futures to trade in a sideways consolidation pattern for the last couple weeks of April and early May due to a lack of fresh immediate bullish news to justify prices to break into new high price territory.

Wheat, corn, and soybean prices have indeed been in a consolidation pattern for the past two weeks, with prices most recently sliding lower ahead of the Fed meeting and ahead of next week’s May 12 USDA report.

This price pattern will likely continue for the remainder of this week and into early next week with most traders opting to be on the sidelines ahead of the May 12 report.

Traders will have seconds to scour the details of the report, before deciding if the recent price sell-off needs to continue, or if an about-face and price rally needs to follow instead.

I have no idea what the report will say nor how the markets will trade in response to the information, but what I can tell you is that due to the nature of the overall consolidation the grain markets have had in recent weeks, the breakout move (whichever way it goes) is going to be fierce, fast, and ferocious. Here are important factors to be aware of for that report:

2021/22 crop year demand factors

Looking at soybeans, the April USDA report pegged soybean ending stocks at 260 million bushels, down from 285 million bushels the month prior.

The April report showed an increase for soybean export demand, now marked at 2.115 billion bushels, up from 2.090 billion bushels in March.

As of last week’s weekly export sales report, cumulative soybean sales have reached 100.0% of the USDA forecast for the 2021/2022 marketing year versus a five year average of 95.7%.

This begs the question, will the USDA again notch up soybean demand for export, ultimately lower old crop carryout?

For corn, traders are going to be watching export demand also. Current exports are pegged at 2.5 billion bushels, which was unchanged from the March report.

Trade is assuming that the U.S. will pick up additional corn export business due to the continued saga of Ukraine and Russia. However, as of last week’s weekly export sales, cumulative sales have reached 90.6% of the USDA forecast for the 2021/2022 marketing year versus a five year average of 87.2%. So right now, any additional sales would potentially only keep us on track for current projections. I’ll be very curious to see what the USDA does with the old crop export number.

Speaking of exports, wheat exports on the April USDA report were reduced from 800 million bushels down to 785 million bushels which was a surprise to the market as traders back in April were assuming more export demand would be likely for U.S. wheat.

But now with news that the wheat crop in India is smaller, and they may not export, added onto the global supply woes in the aftermath of Russia/Ukraine, will the U.S. finally pick up some export business?

2022/23 supply and demand factors

Regarding new crop, first remember to look at any changes in the 2021/22 carryout out, as that number will then be used as carry-in supply for the new crop year.

Next, remember the USDA will use the March 31 planted acres data for the balance sheet, and will likely use the February 2022 Outlook forum yield information to configure total production supply information.

Corn planted acres for the 2022/23 crop year is pegged at 89.5 million acres. This is the number the USDA will use until the June 30 Planted Acres report. The yield projection of 181.0 bushels per acre is based on a weather-adjusted trend assuming normal planting progress and summer growing season weather.

Soybean planted acres for 2022/23 crop year is estimated at a record 91.0 million acres, up 4 percent from last year. This is the planted acre number that will be used until the June 30th report is released. The yield forecast of 51.5 bushels per acre is based on a weather-adjusted trend assuming normal growing season weather.

The question will be how the USDA figures demand will be for the 2022/23 crop year considering the smaller global supplies of grain around the world. Will the United States continue to show stronger exports? How will the USDA show the Ukraine situation on paper?

Slow planting

As we have been discussing for some time, due to the reality of tight ending stocks in the United States for nine grains and oilseed commodities, and now tighter balance sheets on a global scale, the world really needs to the United States to have an abundant crop this year.

There is no question that the U.S. crop is not getting planted in a timely fashion. Right now, the market is watching this, but still is betting on the U.S. farmer to be able to get the crop in the ground fast if given an open weather window.

Now, if it becomes mid-May and the corn and soybean crops are not half planted, with a wet weather outlook, then the market will have something to talk about.

Dramatic price action likely ahead

In summary, the short-term price consolidation action did occur as was discussed. For the next few trading days, traders may opt to stay on the sidelines until the May 12 USDA report is released.

Be aware that the combination of the news on that report, along with a late-planted crop (when the world needed us to have a record crop) could provide a commodity price explosion for late May.

Seasonally corn and soybean futures do have a tendency to rally from late May into early June for one final seasonal price hoorah, but will that price hoorah only take prices back up to previous high levels?

Will high prices curb demand? Or will the lower global supplies of many grain and oilseed commodities not allow for potential food or feed substitutions, and keep demand steady for now?

If you’re wanting to know if grains can make new all-time contract highs yet this year, the stars would continue to need to align; you’ll need an over the top bullish USDA report next week, continued slow planting pace, and continued weather threats for the duration of this summer.

If you thought the price volatility last May and June was something, wait till you see what is potentially in store for the summer of 2022.

 

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