November 11, 2022
For the most part, USDA’s November WASDE report was a non-event. The department did make a slight corn yield revision to 172.3 bushels per acre from the 171.9 BPA on the October report. The average trade estimate called for an unchanged yield.
As for crop size, it was raised 43 million bushels. USDA offset a portion of the increased supply by raising feed-residual by 25 million bushels and ended up with an ending stock estimate of 1,182 million bushels, up 10 million bushels from its previous estimate. This drops the U.S. stocks-to-use levels at 8.3%, near all-time record lows.
The surprise of the report for the corn market was how USDA chose not to make any export adjustments. With weekly export sales running 47% behind last year's pace and the five-year average, it would have made sense for them to lower the sales target.
It looks as if USDA chose to “wait and see” if sales could pick up over winter into the spring (which is traditionally the time frame the U.S. ships out the biggest portion of corn exports).
When you step back, you can see U.S. exports have already been cut aggressively this year. They are down 125 million bushels from last year's totals and 597 million bushels just two years ago (which might have given USDA some pause). The amount of corn exported out of the U.S. this year will hinge on if the Ukraine grain corridor stays open and the size of the South American crop. Lost availability of corn from either area will make it almost impossible for the U.S. to lower exports. It might even force the country to increase exports in upcoming balance sheet revisions.
With the balance sheet projections this tight, producers might consider maintaining some ownership bushels via options strategy.
The key point you should remember is this: unforeseen demand or supply issues could potentially make the market move higher to ration what is already a very tight situation.
As for soybeans, the national average yield was increased from 49.8 to 50.2 versus expectations for USDA to leave the yield unchanged. Total production increased from 4,313 to 4,346. Crush was raised 10 million bushels reflecting strong demand for products. Exports were unchanged as soybean carryout was increased by 20 million bushels to 220 million bushels.
Like corn, soybean exports will be the wild card over the next few months. The current sales pace is right at last year's five-year average.
Keep an eye on China
It seems China has been getting a little more active on the buying front recently after being sidelined. My concern is whether China will take delivery of everything they are purchasing. Let's face it, China has a history of canceling purchases when it is in their economic interest to do so.
We must remember that the U.S. and China are still in a trade war which dates back to the Trump presidency. For the most part, the trade war has encompassed both countries placing tariffs on each other's imported goods. However, it could escalate rapidly again.
Remember, at the beginning of the trade war, China did everything it could to not buy U.S. beans. It caused the cash prices of U.S. soybeans to fall hard. I fear this could happen again as President Biden has ramped up the trade war by blocking the sale of computer chips and chip-making technology to the Chinese.
We have not officially heard of retaliatory actions due to this sales blockade. Still, we must be worried they could retaliate. One way they could potentially retaliate would be to shy away from U.S. soybean purchases.
The size of the Brazilian bean crop will be the determining factor for the Chinese to move aggressively away from U.S. purchases. USDA estimates the Brazilian soybean crop at 152 million metric tons, leaving China's imports unchanged at 98 million in the November WASDE report. If the crop is that big, I believe you will see cancellations of U.S. purchases and an increase in Brazilian purchases. If the Brazilian crop falters to the third year of La Nina, it will be harder for China to shy away from U.S. purchases.
For this reason, I wouldn't be surprised to see China continue to come in and buy beans as a way to hedge their bet until they know the Brazil crop is made. The risk will come once they are confident the Brazilians can fulfill their import needs and that's when the cancellations of our purchases could show up.
To mitigate this risk, if you are a producer with unsold beans in storage, consider putting protection under the market to ensure you don't let these $14.00 beans get away.
If you have questions, don't hesitate to contact me directly at 815-665-0461 or anyone on the AgMarket.Net team at 844-4AGMRKT.
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About the Author(s)
Hedging strategist, AgMarket.Net
Before joining AgMarket.Net, Jim was a senior broker with a nationally recognized firm and has 24 years of experience as a registered commodity representative, servicing both commercial and individual trading and hedging customers. He specializes in hedging and trading strategies using combinations of forward contracting, futures and options for corn and soybean farmers and livestock producers. He has a Series 3 futures brokerage license and earned a bachelor’s degree in Agribusiness Management from Purdue University.
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