The May WASDE report will come out next week, allowing the trade to get USDA's first viewpoint of the new crop balance sheet. We would tell bulls to be a little cautious as we are not anticipating a bullish initial balance sheet. The department tends to be conservative with their first official balance sheet projection and we think they will do the same this year.
We anticipate the agency will take the surveyed planted acreage of 89.5 million acres, adjust for the statistical harvested adjustment and end up with a harvested acreage of 81.58 million acres. USDA will then multiply this number by a trend yield of 181, projecting total production at 14,767 billion bushels. When we add in the carry in stocks of 1,440 billion bushels and imports of 25 million bushels, total supply should come in at 16,232 million bushels.
Little demand deviation
On the demand side of the equation, we do not anticipate USDA deviating much from its Agricultural Outlook Forum estimates when it projected a slight increase in demand compared to the 21-22 season. We believe the agency will put the Food, Seed, and Industrial use at 6.840 billion bushels and corn used for ethanol at 5.400 billion, which is a 50 million bushel increase from its current 21-22 estimate. Feed and residual use would be up 25 million bushels from the current year at 5.650 billion bushels. We anticipate USDA will project exports at 2.350 billion bushels
As for ending stocks, our team projects USDA will come in at 1.392 billion bushels, down slightly from the current USDA 21-22 estimate of 1,440 billion bushels.
With the funds carrying an estimated long position of 346,000 contracts, the lack of a "bullish" surprise could cause a temporary selloff if the planting pace has picked up speed by the time the report is released. As of Monday, only 14% of the crop had been planted compared to 33% on average. One good week of weather could go a long way to getting the U.S. back to an average pace.
If a selloff happened due to a non-bullish report, we would anticipate buyers to step in on the break. It doesn't take many adjustments to turn what looks like a neutral to bearish balance sheet into a very bullish one.
As stated above, USDA will use the March 31 acreage survey for planted acres, but with the wet spring in the Northern Plains, you could argue we could see anywhere from 100,000 to 1 million acres end up in a prevent plant. The odds of the U.S. hitting the mathematical trend yield of 181 bushels per acre seems suspect as well. The crop is off to a late start. Historically, we tend to see a yield drag the later the crop gets planted.
The other real fear is a wet spring could turn into a hot and dry summer. If the long-term weather maps are correct, there is a real possibility this could happen. If so, you could assume yields will fall dramatically.
If we lower the planted acres to 89 million acres and lower the national yield to 167.5 b/a (equal to the 2019 national yield), total production would fall to 13,665 billion bushels. This would be 1.183 billion bushels below the current estimated use, which would drop ending stocks to 290 million bushels—putting stocks-to-use at only 2%.
The demand portion of the balance sheet could change dramatically between now and the end of the marketing year. We would not be surprised to see the feed and residual category increase due to the drought in the West which could force more cattle on feed earlier than usual. Ethanol production may be understated due to the expanded use of E85.
Exports could be the real wild card. With the safrinha corn crop getting smaller by the day due to hot and dry weather in Brazil, traditional South American buyers may be forced to buy from the U.S. to make up for the export shortfall.
Ukraine impacts
The situation in Ukraine continues to cause havoc in the world export market. Remember, Ukraine is the world's fourth-largest exporter of corn. The country is currently having an almost impossible time getting its old crop shipped out, but they are making progress and getting a good portion of the new crop planted. Some estimates are corn plantings will be down about 25-30% from a year ago.
The question remains: If Ukrainian farmers can get this crop planted and harvested, where will they store it? The country’s farmers continue to store old-crop corn and wheat which could not be exported due to the war. Let’s say Russia were to take control of all the port cities. In that case, it could be next to impossible to export any of this year's production, let alone last year's output. That alone will put the world food situation in an even higher crisis mode than it already is currently.
We anticipate if this were to happen, it would drive even more demand to the United States. This would then push higher prices higher, because the market goal would be to encourage more production for the upcoming South American crop but, more importantly, try to ration the supplies we have on hand. Rationing food demand is easier said than done as food demand is inelastic. You may choose not to purchase that new TV due to the high cost, but you can't go without food.
With daily trading limits now set at $0.50, we are setting up a very volatile trading summer. We encourage producers to continue to look for ways to lock their margins and manage risk. These current prices provide the potential for generational wealth if you manage the risk and come up with the right game plan.
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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