March 8, 2022
The past two weeks have certainly been chaotic for grain and oilseed markets. Wednesday’s monthly World Agricultural Supply and Demand Estimates report from USDA’s World Agricultural Outlook Board will provide updated economic forecasts for grain and oilseed markets.
While the market sentiment surrounding Wednesday’s report is not near as volatile as the current market forces shifting prices due to the Russian-Ukrainian conflict, the updated USDA figures could be the inflection point needed in the current markets to scale back some of the price volatility.
It’s a very optimistic take. The pre-report trade estimates suggest that South American crop shortfalls are more likely to cause the most significant revisions in tomorrow’s report. In fact, the average analyst guess points to global wheat ending stocks increasing by 23 million bushels, indicating that market watchers do not think USDA will make significant revisions to account for the ongoing Russian “special military operation” into Ukraine.
But if USDA does issue its forecast with regards to the current conflict in the Black Sea, the markets could gyrate on the fundamental changes.
Personally, I think the ongoing Ukrainian conflict will continue to be the prevailing price driver in these markets until USDA issues its Prospective Plantings report on March 31, except for tomorrow’s potential South American crop revisions. I think the big question markets want answered is, “Will the Black Sea market be accessible to the outside world not just in the next three or four months, but for the next eighteen months and longer?”
There are other questions to consider as well. We are already seeing signs of that as the European Union is planning on scaling back its dependence on Russian gas supplies by 80% before the year ends. If Ukrainian farmers can indeed plant unhindered this spring, will they have logistical access to selling into the international markets? If Russia takes control of Ukraine’s grain, will the international banking sanctions allow for trade with Russia?
We are currently in a global holding pattern as markets desperately try to assess the short- and long-term impacts of the Ukrainian conflict. USDA’s monthly WASDE report on Wednesday might provide some short-term answers, but a lot of factors will likely remain in limbo while the fighting continues.
But there are still plenty of fundamental factors to watch in Wednesday’s report. As always, our team will provide live coverage and analysis as the report is released, so tune in to FarmFutures.com or our social feeds (@FarmFutures) at 11 a.m. CST for the most current information.
USDA will likely leave supply estimates alone this month. As March 31 Quarterly Grain Stocks reports are released, market watchers can expect those numbers to shift in the April 2022 WASDE. That leaves demand adjustments to be the sole focus in this month’s report.
Trade guesses suggest that USDA will tighten corn stocks by 60 million bushels in tomorrow’s report. As livestock producers battle $7/bushel corn, it seems unlikely that an extra usage kick will come from the livestock and residual category.
Instead, look to exports and ethanol to be the chief drivers of tighter corn stocks tomorrow. January 2022 corn consumption for ethanol drifted nearly a percentage lower than December 2021 volumes but notched the highest January usage volume since January 2018.
With the Black Sea corn market largely shuttered and South American crops not yet ready for harvest, U.S. corn is the largest and most available corn supply for the global market currently. Marketing year-to-date shipping rates are just under year-ago speeds, though that could accelerate as Black Sea corn buyers begin to flock to U.S. shores.
In the soybean market, analysts expect USDA to trim 47 million bushels from soybean stocks on strong demand, from both at home and abroad. The January 2022 soy crush came in at 194.3 million bushels. While that value was the third-lowest monthly crush rate of the 2021/22 campaign, it was also the fifth-largest monthly crush in U.S. history.
Plus, China and other global buyers have been eager to book sales of U.S. soybeans as markets continue to trim down the Brazilian harvest. As of Feb. 24, nearly 345 million bushels of outstanding soybean export sales were on U.S. shippers’ books – a 26% increase from year ago outstanding sales and increasing just as seasonal peaks in the U.S. soybean export market end.
Forecasters expect USDA to cut 20 million bushels of wheat from current U.S. 2021/22 ending stock projections in tomorrow’s WASDE. USDA hinted that global food consumers of wheat were beginning to feel the pressures of rising food costs in last month’s report.
And while September-November quarterly flour usage may have notched the largest volume in five years, $12/bushel wheat prices are likely to price many buyers out of the market. The best hope for increased U.S. wheat consumption is likely to come in the form of exports as Black Sea markets remain inaccessible during the Russian-Ukrainian conflict.
South American production
Remember just a few short weeks ago when South American crop conditions were the most significant factor driving prices in the grains and oilseeds market? Those were the days.
But I digress. Brazil is the world’s largest soybean exporter and trails the U.S. as the second-largest corn exporter. Argentina is the world’s third-largest corn and soybean exporter and the top global exporter of processed soy products.
An attaché report from the USDA post in Brasilia, Brazil issued on Valentine’s Day estimated the 2021/22 crop at 4.94 billion bushels. USDA’s February 2022 WASDE pegged that value at 4.92 billion bushels. Soybean harvest in the southern and western regions of Brazil was slowed in recent weeks due to winter rains.
CONAB’s February forecast estimated 2021/22 Brazilian soybean production at 4.61 billion bushels. The market viewed USDA’s cuts to Brazilian soy production in February 2022 as conservative, so there is a greater chance of another production reduction in Wednesday’s report.
Untimely rains in the north and persistent dryness in the south not only delayed soybean harvest in Brazil, but it could also reduce the viability of freshly planted safrinha crops. While safrinha losses are not yet as drastic as those of corn, the soy harvest delays have pushed some sowing progress outside of ideal planting windows.
Agritrend, a private consulting firm in Argentina, estimates Argentina’s soy harvest at 1.47 billion bushels. Current USDA forecasts are projected at 1.65 billion bushels, though an attaché report published last week pegs production at 1.51 billion bushels.
Argentina’s production forecasts could be a bit of a toss-up going into tomorrow’s reports. Recent rains in Argentina over the past couple weeks could help improve crop conditions, but the upward potential will likely be capped as harvest begins in a couple weeks.
Bottom line: Keep a close eye on any USDA revisions to Brazil and Argentina’s crop and export forecasts. The Black Sea may be dominating headlines, but the issues with the South American crops still represent significant fundamental challenges for the global grain and oilseed markets.
While South American crop modifications will invariably cause some global ending stock repositioning, there will be an increased focus on Russian and Ukrainian stocks and export projections for wheat and corn forecasts. To be sure, pre-report trade estimates are not expecting any significant jockeying in global grain and oilseed stocks and trade flows from tomorrow’s report.
But USDA could also scale back import volumes on the countries that rely heavily on the Black Sea grain market and any significant changes could trigger rapid price volatility. African and Middle Eastern countries rely heavily on grain shipments from Russia and Ukraine, especially after drought gripped the Middle East last year and North Africa endures dry conditions currently.
Also, be sure to watch for potential export revisions for countries with available exportable supplies as the Black Sea market remains closed and harvest for Northern Hemisphere crops is still a few months away. Brazil has already hinted at more corn and wheat exports. India and Australia are also primed to fulfill export orders in the coming months.
Remember – we are still in the early days of this conflict and are still measuring its impacts on global markets. USDA’s revisions to global figures could easily change as more market developments come to light in the coming months.
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