March WASDE Report Holds Few Surprises
Very few changes were made to balance sheets in the March supply and demand report. The USDA now pegs US carryout at 1.84 billion bu for corn, 900 million bu on soybeans, and 1.055 billion bu on wheat. None of these were out of line with trade expectations. Global ending stocks were estimated at 309 million metric tons on corn, 106 mmt on soybeans, and 271 mmt on wheat. The global wheat number was the only one outside of trade estimates as it was 1 mmt higher than expected.
Commodity values have struggled recently with a lack of fresh news. What news there has been really has not offered much in the way of support, either. This has allowed commodity values to drift sideways, which is not uncommon at this stage of the marketing year. Hence the term, “Winter Doldrums.”
As it has been for several weeks, trade relations between the United States and China continues to dominate trade. Recently we have heard the announcement that China and the United States were nearing a finalization of the details that would again allow free trade between the two countries. China has even stepped in and booked soybeans from the US. At first this alleviated market pressure and allowed market values to rally, mainly soybeans.
Cooler heads have now prevailed with this trade dispute, and buying interest has faded. While China did book 10 million metric tons of soybeans initially, since then sales have been non-existent. Trade is now becoming worried that the immediate sales were little more than a good faith measure, and additional demand will be sparse. This is not hard to believe, and in fact, is quite likely. This is especially the case with China being offered cheaper soybeans out of South America.
One source of support for US soybean sales is the strained relations between China and Canada. Chinese officials reportedly found “hazardous pests” in canola vessels from Canada which caused them to be rejected. China has since suspended Canola imports from Canada. The real reason for this action by China is more likely in retaliation for the political issues that have arisen between the US and China in regards to trade disputes.
While it seems like a stretch, the suspension of canola imports could lead to a quicker resolution to the Chinese/US dispute.
Soybeans have taken some support from transit issues in Brazil. The much talked about BR-163 highway in Brazil has flooded, causing muddy conditions that are preventing truck movement. In recent years much of this road has been paved, with very little left that is dirt. The initial reaction to this story was that it would bring buyers to the US, but it now appears as though any disruption to Brazilian exports will be minimal.
Another story in the market recently has been US acreage intentions. The USDA is expecting US farmers to seed roughly 92 million corn and 85 million soybean acres this year. These numbers are being heavily contested, especially given recent weather conditions.
Heavy rains and flooding have taken place in the US Delta and Deep South recently. Corn planting has all but concluded in Texas, but there are now concerns that fields will need to be replanted. Rains have also prevented fields from being seeded in other regions.
A greater concern is the weather in the Corn Belt. Heavy snowpack and cold temperatures have combined to prevent any early fieldwork from taking place. This is on top of the limited fieldwork that was done last fall. Given these conditions it is not only likely we will see delayed plantings this spring, but it is also possible we will not see higher corn plantings take place. Add to this a new crop price ratio of roughly 2.4:1, which means it takes 2.4 bushels of corn to equal the value of 1 bushel of soybeans, and higher corn plantings become less of a reality.
The ongoing winter conditions have been beneficial to the interior cash market however. Producers across the Midwest currently could not move very much inventory even if they wanted to. Add in less than stellar prices and the incentive to make sales is even lower. As a result, many processors have been forced to pay significant premiums for deliveries. In some instances, this has the interior cash market at levels that are higher than the rail and export market.
This commentary is the sole opinion of Karl Setzer. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl Setzer at 800.858.3738, extension 411, or at firstname.lastname@example.org