Jon Scheve with weekly market commentary made on May 10, 2024
The first look at the 2024 balance sheet for corn and soybeans was released on Friday. There were few surprises in the supply projections. The acres estimate was the same as the March planting intentions report and the yield projection didn’t change from the February economic forum.
Corn
The biggest highlight was that old crop corn demand increased by 100 million bushels. Half of the increase was from ethanol and the other half was from exports.
That still leaves a 2-billion-bushel carryout for the old crop and 2.1 billion for the new crop. Realistically, that is too much corn to support current prices. This likely suggests there is a significant weather premium already built into the market. This past winter when the market thought there were 2.2 billion bushels of carryout, corn futures fell to $3.99, which ultimately helped increase demand. For US corn to stay competitive globally, futures can’t rally a lot more, unless there are significant planting issues.
There could be some planting issues, as the pace needs to double in the next 10 days. If it does not happen there is an increased chance the national yield will fall below the trendline. Market participants will be watching weather forecasts and planting progress over the next two weeks to see if the crop gets planted within the optimal window.
South America’s corn yields may also decrease. Reports are suggesting Argentina’s corn crop will be reduced 5 million metric tons, or 200 million bushels due to insects and disease. It is possible US corn would replace those bushels, which could be bullish. However, US farmers may be planting more corn acres than the March intentions report is estimating. If US farmers plant 1 million more acres, it would add 180 million bushels to the carryout and nearly replace all the potentially lost corn in Argentina.
Bottomline:
The report was probably neutral corn and there is already some weather premium built into the market. But historically, the market tends to rally from early May into June, which could mean 2024 is setting up to see normal seasonal marketing trends.
Soybeans
The USDA made no changes to old crop demand. So, if estimated trendline yields and planted acres happen, carryout will likely increase next year. This isn’t bullish beans.
If the estimated acres from the March report happen, and there is a 1.4 bushel decrease from trend line yields, which would equal the same yield as last year, next year’s carryout would be almost identical to this year. That seems concerning for prices over the next year.
Brazil’s next crop is also a consideration. If their acres and yields are the same or higher next year, it will be difficult for the US to achieve the USDA’s new export goal for the new crop.
Some in the trade are questioning the differences between USDA and CONAB (i.e., Brazil’s version of the USDA) yield estimates. Usually, the USDA reduces yield estimates slowly, while CONAB drops them quickly and tends to revise later in the year. While some analysts in Brazil have published numbers similar to CONAB, it doesn’t mean USDA numbers are too far off.
The reason is because estimating the expansion of planted acres in Brazil is hard each year. It seems that no one is really sure how many acres will get planted. For this year's crop the satellite imagery and using historical weather data suggest the yields are better than some fear. These comparisons are sometimes actually better indicators than subjective “boots on the ground” reports. There will be ongoing disagreements between the two for the next several months. That could keep the market from pulling back quickly.
There were some rumors circulating that the Administration will potentially ban the import of used cooking oil in the production of renewable fuels. This seems to have led to an increase in soybean oil prices at the end of the week and was attributed to helping bean prices finish higher for report day.
While this potential ban may seem like positive news for bean prices, crushing plants are already running at full capacity. So, it will be difficult for them to crush more beans until more plants come online, and that could be at least a year. Long-term renewable fuel from soy is bullish beans, but in the short-term there may be some overproduction issues.
Bottomline
The report was bearish for soybeans. It seems there is about $1 per bushel of weather risk built into the market. Old crop export pace is at similar levels to the trade war four years ago. Competition from South America is fierce and, new crop sales are not where they need to be to justify higher prices. Without an increase in exports, beans face an uphill battle. Plus, bean planting pace is not as urgent as corn. As long as most of the crop is planted by the end of May, normal yields can still be achieved.
Programing Note:
I was on US Farm Report this weekend talking about the May report. Click here to watch. What You Need to Know About USDA's May WASDE Report | AgWeb
Jon Scheve
Superior Feed Ingredients, LLC
9358 Oak Ave
Waconia, MN 55387