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From the Furrow – Mark Soderberg – July 09, 2024
In our weekly series From the Furrow, host Mike McGinnis and fellow grain geeks shed light on current market conditions and how grain producers can take action to manage their risk.
This week, Mike is joined by Mark Soderberg, Senior Agricultural Market Analyst with ADM Investor Services. What pushed corn prices below profitability? Is any relief ahead? What could upcoming USDA reports hold for markets? Mike and Mark discuss those topics and a whole lot more.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;13 – 00;00;16;09
VOICEOVER
Futures trading involves risk and is not suitable for all investors. Content provided in the segment is not for educational purposes and is not a solicitation to buy or sell commodities. Opinions and statements of guests not affiliated with every egg of their own, and do not reflect the views of the brand. The accuracy of their statements can not be guaranteed by Oberacker.
00;00;16;11 – 00;00;39;10
MIKE
Hello and welcome to From the Furrow, brought to you by Ever AG Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Mike McGuinness, and today we get started with the review of the markets. It’s Tuesday, July 9th, 2024, and we have lower markets to start with today. But we’re beginning to turn mixed September corn up one and $0.04 at 3.4.
00;00;39;11 – 00;01;09;09
MIKE
And yes, you did hear that right. There’s a three handle in front of the corn market there. The new crop corn market is up slightly at 408 for soybeans. The August contract is down five and three quarters cents at 1143. And here comes a $10 handle on the soybean market. The new crop is down ten and a quarter since at 1080 9th September wheat up three and a half at five 73rd August soy meal is down 450, and August soy oil is down slightly as well.
00;01;09;17 – 00;01;21;14
MIKE
So we are seeing some pressure there with a few green lights, but today we turn to our guest. It’s Mark Soderberg, ADM Investor Services Senior Agricultural Market Analyst, and we want to thank you, Mark, for joining us today.
00;01;21;15 – 00;01;26;15
MARK
Well, thank you for having me. I’m like, I’m glad to see we got a little bit higher trade, not down across the board like we’ve been all.
00;01;26;15 – 00;01;43;17
MIKE
We have a lot to talk about because the weather and this is the time of the year when it is a weather market for the most part, and the crops are out there trying to grow. Some areas of the Corn Belt are having an easier time than others. Right now though, as we just mentioned, the corn and soybean prices have hit four year lows.
00;01;43;18 – 00;01;49;27
MIKE
The question to you is, as you look at this, what may stop the fall? I mean, is it a turnaround in demand that could help?
00;01;49;28 – 00;02;16;23
MARK
Yeah, I think a turnaround in demand would certainly help. I think more immediate would be a more threatening weather forecast. Right now, the market seems to be pricing in USDA yields for both corn and soybeans at the USDA, forecasts are even higher, despite the fact that the USDA trend line yields already four bushels an acre above last year’s record in corn at 181 and in soybeans, up 52, that would match the previous record, and that was already eight years ago.
00;02;16;23 – 00;02;36;10
MARK
Now, are we established that benchmark improvement in demand, I think, would go a long way in helping carve out lows here in price. As we wind down the old crop marketing year? I think overall demand is decent. However, it’s just not enough right now, I think, to move the needle much in terms of USDA changing their usage forecast.
00;02;36;11 – 00;03;04;17
MARK
In fact, I see no changes in Friday’s USDA forecasts on both corn and soybeans on the old crop balance sheet. And then when you look at the new crop demand, I think that’s where the export numbers have been very disappointing, actually pretty woeful when you look at soybeans export commitments right now at barely over 50 million bushels as of last week’s exports, sales reports are a third of what they were a year ago, and they’re a 10th of where we were two years ago.
00;03;04;19 – 00;03;24;23
MARK
China has still not bought any new crop in U.S. soybean purchases. Yet in corn, export commitments are a little better. Not much though. We’re just a touch below where we were a year ago at this time. But that said, it’s still the lowest in five years, so we literally have some catching up to do here in order to get back on pace to hit those USDA numbers.
00;03;24;24 – 00;03;45;19
MIKE
Well, let’s talk about the soybean exports right now. I’m wondering what price it’s going to take for the US to be attractive to global buyers. Keep in mind that in Brazil, the Rii is weakening against the US dollar. The dollar is strengthening. That’s another way of saying it. But in Brazil, those farmers get paid in U.S. dollars when they export those soybeans.
00;03;45;19 – 00;03;57;05
MIKE
So as the dollar strengthens, we’re becoming less competitive on the world market. The question to you, Mark, is what do we have to do? What level do we have to get to in the soybean market to get some of those new crop soybean sales going?
00;03;57;11 – 00;04;16;24
MARK
I think right now, when you look at where we are on that basis, we are starting to become a little bit more competitive. If you look out here on the new crop, I would expect these new crop demand numbers to start to pick up significantly now, seasonally from where we’re at in November. Beans under that $11 level I think should start to draw a little bit more interest.
00;04;16;24 – 00;04;35;26
MARK
We haven’t seen the splash sales on the news wire from the USDA, but I think we will start to see those. And yeah, you mentioned the Brazilian real that has crashed here in recent weeks. Chart wise, it looks like we might have carved out a low here in the early part of July. But year to date, from where we began the year, it was down 11% versus US dollar.
00;04;35;26 – 00;04;52;29
MARK
So that has gone a long way to help cushion the South American farmer. It’s been a detriment to the US farmer in the global export market. So we’ve seen a few sales here to unknown as of late, but we still have not seen the demand pickup from China as we would have hoped for, as their overall demand has been still a bit disappointing.
00;04;53;04 – 00;05;16;00
MIKE
As we talk about these low prices, 2024 could be one of the few times since the ethanol era started that cash corn prices drop below profitability. 2017 was one of those years. There have been a few other ones. This year might be another one. USDA says $5.06 per bushel is needed to cover costs for corn. But my question to you is maybe a broader question how did we get here?
00;05;16;01 – 00;05;22;27
MIKE
How did we get to this point again, since we, you know, we haven’t really been below cash profitability for very many times?
00;05;23;04 – 00;05;48;19
MARK
Well, I think there’s a number of items that you can point to help explain the situation that we find ourselves in. I think first and foremost would be the expected big buildup of U.S. supplies leading up to Friday’s report. The average trade estimate or new crop ending stocks is right around 2.3 billion bushels, which would be above the 2 billion from the 2324 marketing year, which, if realized, that would be the highest in over three decades.
00;05;48;20 – 00;06;09;09
MARK
And when you look at it from stocks to U.S. ratio, it would be the highest in about 20 years. So clearly U.S. production has exceeded our demand. But if you look out of the global production, it’s really not the same. According to USDA numbers, global production has exceeded global demand in only eight of the last 15 years. So it’s pretty much a 5050 proposition.
00;06;09;11 – 00;06;34;04
MARK
But the biggest change here over the last 15 years has been the explosive growth in production from Brazil. With the rapid expansion of corn production following the soybean harvest. If you look back in 2010, 2011, Brazil raised 57 million bushels, 57 million metric tons of corn. Two years ago, they produced a record 137 million metric tons of nearly two and a half times what they produced just little over a decade ago.
00;06;34;04 – 00;06;55;09
MARK
And unfortunately, that trend, you know, may continue over time, as I recently seen a study that suggests they still have about 70 million acres of degraded pasture land that could be converted to either crop production or reforestation. And that compares to total corn and being acres for the 2425 marketing year at just over 170 million acres. Now it’s double counting.
00;06;55;09 – 00;07;04;07
MARK
So because of the corn planted after beans. So I think that’s been the biggest reason for where we find ourselves at, right now is a global competition, particularly from Brazil.
00;07;04;08 – 00;07;25;09
MIKE
And there’s always been a point made that, you know, as Brazil increases soybean acres, that also is probably going to increase their corn acres as well. I’ve said it before, I’ll say it again. But my favorite stat from Brazil is they have more land that they’re not using that we’re using here in the US. And so that tells you the potential that they have going forward.
00;07;25;10 – 00;07;40;08
MIKE
Now, on Friday, as you mentioned, the USDA will release its July crop production report. And this report will give updates of U.S. winter wheat production, the season’s first forecast for spring wheat, Durham oats and barley. What would USDA have to print to shake up the wheat market?
00;07;40;12 – 00;08;04;03
MARK
You know my opinion clearly from a pricing standpoint, to look at where we’re at. And wheat market has discounted a much bigger crop than what the USDA has forecast in June. They plugged it in at winter wheat at 1.295 billion bushels. My forecast for Friday is an increase to 1.345 billion. So a 50 million bushel increase, which was about 20 million bushels above the average trade.
00;08;04;03 – 00;08;24;22
MARK
Yes. So we’ve seen the USDA raise winter wheat production in the July report here each of the last three years. So I don’t think this year will be any different. I think what really might surprise the market would be if we see much of the higher production, offset by higher demand, we saw a 25 million bushel increase in wheat exports under June last year.
00;08;24;23 – 00;08;43;16
MARK
I would not be surprised to see another 25 million bushel increase here in the July. To help offset some of the higher supplies. And that would likely be a result of lower production from the Black Sea region, particularly Ukraine and Russia. I expect changes here. Russian estimates here in the private space have been really all over the place.
00;08;43;16 – 00;09;01;02
MARK
In the last couple of weeks. USDA cut at 5 million metric tons in June to 83, I think recently this week saw the Econ Bassmaster Report, their estimate down to about 79. And we turn around and raise that. Now back up above the USDA is so early yields have been encouraging. That I think is what prompted that recent move down.
00;09;01;02 – 00;09;17;20
MARK
But I still think that the jury is still out. So I think if the USDA would cut that figure down to 80 million metric tons or below, perhaps another 1 or 2 million metric tons of other Ukraine would help confirm a harvest has now been in place here in the wheat market. And then you got some other areas of world to Canada have been a little dry there.
00;09;17;26 – 00;09;27;07
MARK
Areas of the E.U. so a lot of areas across Wheat Week that I think that could impact the global production and maybe turn a little bit more of that export demand back to the U.S. now.
00;09;27;07 – 00;09;45;22
MIKE
I think it’s a little sneaky stat that might be in the was the report this Friday, but it’s the U.S. corn yield that might be estimated and the production for U.S. corn crop this year. Now there is a private firm that is out with what their yield is at 180 2.5. And the production they have at 15.2 billion bushels.
00;09;45;22 – 00;09;56;22
MIKE
Will the market pay any attention to this? Now this is going to be in the wisely report. It won’t be in the July crop production report. It will be in the wisely. But will the market pay attention to any estimate that’s in this report from the watchdog?
00;09;56;25 – 00;10;16;24
MARK
Well, pay attention to it. If it changes, yes. Will it change? I highly doubt it will change this month. USDA rarely changes their yield forecasts in the month of July. In the past decade, they’ve only changed it once. That was last year where they cut it for bushels an acre. I was told that in the last 20 years, USDA raised it only once.
00;10;16;24 – 00;10;33;03
MARK
I took their word for that I did not go back and look. So no, I don’t think they will change it this month. I think it will stay at the 181, just incorporating the new acreage figures from the end of June. It’s going to take you to production, you know, just over 15 billion bushels and beans. Similar story.
00;10;33;03 – 00;10;52;29
MARK
They’ve only changed the yield forecast in July once in the last decade. And that was in 2019 where they cut it a bushel an acre. Yeah. They will care if it changes. But I think it’s very unlikely that it will. More likely it will go down if conditions to date were disappointing. But right now with ratings, the highest rated crop in four years is what I’m showing.
00;10;52;29 – 00;11;07;03
MARK
I don’t think you’ll see a change this month. I think more importantly is what they do on some of the foreign production figures and what impact that could have on the balance sheet. More likely the new crop balance sheet. I don’t think you’re going to see it swaying much from current projections here on the old ground.
00;11;07;06 – 00;11;11;10
MIKE
And that was my next question. What will you be watching on Friday in the report?
00;11;11;13 – 00;11;34;09
MARK
Yeah, we’ve talked a lot of the moving parts going on right now domestically, but I still think we’ve got to keep an eye on what’s happening in South America, particularly with the corn production in Argentina and the soybean production out of Brazil. In Argentina. The USDA, shockingly to me, did not change their corn estimate last month. They kept it at 53 million metric tons.
00;11;34;09 – 00;11;59;00
MARK
As we get deeper and deeper into harvest there now it’s about two thirds of the way complete. The Buenos Aires Grain Exchange still has their production forecast at 46.5 million metric tons. So big gap there. Still, I think USDA will narrow that a little bit this week. I’ve got my estimate at 50 million metric tons, so it’s not a huge amount, but it does possibly open the door for better demand for us.
00;11;59;00 – 00;12;25;11
MARK
And on the beans side there too, the USDA only cut their Brazilian forecast was 1 million metric tons last month to 153. I was expecting a move to 151. I’ve got at 150 right now. Last week the US phase did lower that number out of Brazil to that 150 figure. So I think we’re going to see some production there getting a little bit closer confab there estimate is just over 147 million metric tons.
00;12;25;11 – 00;12;40;08
MARK
So a little bit of a gap there. But I think that will narrow up a touch. I think that could bode well for as we talked about how poor exports have been, I think we should start to see some signs of improvement here soon, and particularly when I see prices doing what they’re doing, getting, you know, more attractive to end users.
00;12;40;15 – 00;12;52;25
MIKE
While the bulls are looking for something and not sure if they’re going to get it this Friday in the USDA wisely reports. But we’ll wait and see. Finally, Mark, this is the so what segment. So what what should farmers and processors take away from this conversation?
00;12;53;00 – 00;13;11;19
MARK
Well, from a farmer standpoint, I would be reluctant to price a whole lot right here. If you got nothing priced. Yeah, you probably got to take advantage of any little bounce up. We get to get at least something on the books. As you mentioned, I think these prices are certainly below the cost of production for several. However, that doesn’t mean we’re going to see an improvement anytime soon.
00;13;11;19 – 00;13;35;08
MARK
And it’s what right now, you’ve got the speculative community so heavily shifted to the short side of the market that, you know, I think any little whiff of a weather problem here forward could prompt a pretty swift price increase, just as the speculative traders reposition themselves at some point, you know, the prices get low enough. I think they’re going to rethink their ability to make money staying on the short side of the market.
00;13;35;08 – 00;13;53;14
MARK
So I think you need to be quick to pull the trigger on rallies, which they probably will come. We’re going to be seeing a lot of heat now the second half of July. Maybe we’ve seen at least an interim low here recently. But the speculative traders, the CFTC did show the second largest short position ever in corn here in last night’s report.
00;13;53;14 – 00;14;11;02
MARK
And you take a look at what has happened since last Tuesday when this data was put together, probably sitting at a record short, very heavily short. And the soybeans as well. Still on the meal short, the oil. We’re seeing that those dynamics shift a little bit here today with a big sell off in the oil crush margins have improved significantly.
00;14;11;02 – 00;14;29;16
MARK
Board crush margins have perked up, kind of catching up with what you have been seeing in the cash market as well as an end user. I think you have to build in some sort of protection to guard against the what if, whether the second half of the growing season isn’t nearly as good as it’s been here at the first half of the growing season?
00;14;29;16 – 00;14;49;15
MARK
And what if just for production is just not where we think it’s at? There’s a lot of moving parts here, but prices are below the cost of production, not just here, but in South America as well. I know that really has helped insulate them a little bit more than what we’ve had here. I don’t think you’re going to see that big expansion in acres we’ve seen year over year down there this fall.
00;14;49;15 – 00;14;59;14
MARK
And either so we’re told that it’s best year for low prices as low prices and prices are clearly well, so we just need a spark something to stimulate a spike here to take some better opportunities ahead.
00;14;59;21 – 00;15;07;15
MIKE
Very good and thanks for sharing. Marc Soderberg Adam Investor Services Senior Agricultural Market Analyst Marc, thanks again for joining us.
00;15;07;22 – 00;15;09;00
MARK
Yeah, thanks for having me on, Mike.
00;15;09;00 – 00;15;20;04
MIKE
And thank you for joining us today. If you’ve enjoyed listening to From the Furrow, be sure to tell a friend or two to subscribe to us wherever you listen to your podcast. Thank you to the ever AG Insights Crew for their work on today’s show.
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In our weekly series From the Furrow, host Mike McGinnis and fellow grain geeks shed light on current market conditions and how grain producers can take action to manage their risk.
This week, Mike is joined by Mark Soderberg, Senior Agricultural Market Analyst with ADM Investor Services. What pushed corn prices below profitability? Is any relief ahead? What could upcoming USDA reports hold for markets? Mike and Mark discuss those topics and a whole lot more.
Questions or comments? Topics you’d like to hear us discuss? Contact us at [email protected].
Show Transcript
(Transcript auto-generated)
00;00;00;13 – 00;00;16;09
VOICEOVER
Futures trading involves risk and is not suitable for all investors. Content provided in the segment is not for educational purposes and is not a solicitation to buy or sell commodities. Opinions and statements of guests not affiliated with every egg of their own, and do not reflect the views of the brand. The accuracy of their statements can not be guaranteed by Oberacker.
00;00;16;11 – 00;00;39;10
MIKE
Hello and welcome to From the Furrow, brought to you by Ever AG Insights. Each week we talk with subject matter experts on news and topics affecting the grain markets. I’m your host, Mike McGuinness, and today we get started with the review of the markets. It’s Tuesday, July 9th, 2024, and we have lower markets to start with today. But we’re beginning to turn mixed September corn up one and $0.04 at 3.4.
00;00;39;11 – 00;01;09;09
MIKE
And yes, you did hear that right. There’s a three handle in front of the corn market there. The new crop corn market is up slightly at 408 for soybeans. The August contract is down five and three quarters cents at 1143. And here comes a $10 handle on the soybean market. The new crop is down ten and a quarter since at 1080 9th September wheat up three and a half at five 73rd August soy meal is down 450, and August soy oil is down slightly as well.
00;01;09;17 – 00;01;21;14
MIKE
So we are seeing some pressure there with a few green lights, but today we turn to our guest. It’s Mark Soderberg, ADM Investor Services Senior Agricultural Market Analyst, and we want to thank you, Mark, for joining us today.
00;01;21;15 – 00;01;26;15
MARK
Well, thank you for having me. I’m like, I’m glad to see we got a little bit higher trade, not down across the board like we’ve been all.
00;01;26;15 – 00;01;43;17
MIKE
We have a lot to talk about because the weather and this is the time of the year when it is a weather market for the most part, and the crops are out there trying to grow. Some areas of the Corn Belt are having an easier time than others. Right now though, as we just mentioned, the corn and soybean prices have hit four year lows.
00;01;43;18 – 00;01;49;27
MIKE
The question to you is, as you look at this, what may stop the fall? I mean, is it a turnaround in demand that could help?
00;01;49;28 – 00;02;16;23
MARK
Yeah, I think a turnaround in demand would certainly help. I think more immediate would be a more threatening weather forecast. Right now, the market seems to be pricing in USDA yields for both corn and soybeans at the USDA, forecasts are even higher, despite the fact that the USDA trend line yields already four bushels an acre above last year’s record in corn at 181 and in soybeans, up 52, that would match the previous record, and that was already eight years ago.
00;02;16;23 – 00;02;36;10
MARK
Now, are we established that benchmark improvement in demand, I think, would go a long way in helping carve out lows here in price. As we wind down the old crop marketing year? I think overall demand is decent. However, it’s just not enough right now, I think, to move the needle much in terms of USDA changing their usage forecast.
00;02;36;11 – 00;03;04;17
MARK
In fact, I see no changes in Friday’s USDA forecasts on both corn and soybeans on the old crop balance sheet. And then when you look at the new crop demand, I think that’s where the export numbers have been very disappointing, actually pretty woeful when you look at soybeans export commitments right now at barely over 50 million bushels as of last week’s exports, sales reports are a third of what they were a year ago, and they’re a 10th of where we were two years ago.
00;03;04;19 – 00;03;24;23
MARK
China has still not bought any new crop in U.S. soybean purchases. Yet in corn, export commitments are a little better. Not much though. We’re just a touch below where we were a year ago at this time. But that said, it’s still the lowest in five years, so we literally have some catching up to do here in order to get back on pace to hit those USDA numbers.
00;03;24;24 – 00;03;45;19
MIKE
Well, let’s talk about the soybean exports right now. I’m wondering what price it’s going to take for the US to be attractive to global buyers. Keep in mind that in Brazil, the Rii is weakening against the US dollar. The dollar is strengthening. That’s another way of saying it. But in Brazil, those farmers get paid in U.S. dollars when they export those soybeans.
00;03;45;19 – 00;03;57;05
MIKE
So as the dollar strengthens, we’re becoming less competitive on the world market. The question to you, Mark, is what do we have to do? What level do we have to get to in the soybean market to get some of those new crop soybean sales going?
00;03;57;11 – 00;04;16;24
MARK
I think right now, when you look at where we are on that basis, we are starting to become a little bit more competitive. If you look out here on the new crop, I would expect these new crop demand numbers to start to pick up significantly now, seasonally from where we’re at in November. Beans under that $11 level I think should start to draw a little bit more interest.
00;04;16;24 – 00;04;35;26
MARK
We haven’t seen the splash sales on the news wire from the USDA, but I think we will start to see those. And yeah, you mentioned the Brazilian real that has crashed here in recent weeks. Chart wise, it looks like we might have carved out a low here in the early part of July. But year to date, from where we began the year, it was down 11% versus US dollar.
00;04;35;26 – 00;04;52;29
MARK
So that has gone a long way to help cushion the South American farmer. It’s been a detriment to the US farmer in the global export market. So we’ve seen a few sales here to unknown as of late, but we still have not seen the demand pickup from China as we would have hoped for, as their overall demand has been still a bit disappointing.
00;04;53;04 – 00;05;16;00
MIKE
As we talk about these low prices, 2024 could be one of the few times since the ethanol era started that cash corn prices drop below profitability. 2017 was one of those years. There have been a few other ones. This year might be another one. USDA says $5.06 per bushel is needed to cover costs for corn. But my question to you is maybe a broader question how did we get here?
00;05;16;01 – 00;05;22;27
MIKE
How did we get to this point again, since we, you know, we haven’t really been below cash profitability for very many times?
00;05;23;04 – 00;05;48;19
MARK
Well, I think there’s a number of items that you can point to help explain the situation that we find ourselves in. I think first and foremost would be the expected big buildup of U.S. supplies leading up to Friday’s report. The average trade estimate or new crop ending stocks is right around 2.3 billion bushels, which would be above the 2 billion from the 2324 marketing year, which, if realized, that would be the highest in over three decades.
00;05;48;20 – 00;06;09;09
MARK
And when you look at it from stocks to U.S. ratio, it would be the highest in about 20 years. So clearly U.S. production has exceeded our demand. But if you look out of the global production, it’s really not the same. According to USDA numbers, global production has exceeded global demand in only eight of the last 15 years. So it’s pretty much a 5050 proposition.
00;06;09;11 – 00;06;34;04
MARK
But the biggest change here over the last 15 years has been the explosive growth in production from Brazil. With the rapid expansion of corn production following the soybean harvest. If you look back in 2010, 2011, Brazil raised 57 million bushels, 57 million metric tons of corn. Two years ago, they produced a record 137 million metric tons of nearly two and a half times what they produced just little over a decade ago.
00;06;34;04 – 00;06;55;09
MARK
And unfortunately, that trend, you know, may continue over time, as I recently seen a study that suggests they still have about 70 million acres of degraded pasture land that could be converted to either crop production or reforestation. And that compares to total corn and being acres for the 2425 marketing year at just over 170 million acres. Now it’s double counting.
00;06;55;09 – 00;07;04;07
MARK
So because of the corn planted after beans. So I think that’s been the biggest reason for where we find ourselves at, right now is a global competition, particularly from Brazil.
00;07;04;08 – 00;07;25;09
MIKE
And there’s always been a point made that, you know, as Brazil increases soybean acres, that also is probably going to increase their corn acres as well. I’ve said it before, I’ll say it again. But my favorite stat from Brazil is they have more land that they’re not using that we’re using here in the US. And so that tells you the potential that they have going forward.
00;07;25;10 – 00;07;40;08
MIKE
Now, on Friday, as you mentioned, the USDA will release its July crop production report. And this report will give updates of U.S. winter wheat production, the season’s first forecast for spring wheat, Durham oats and barley. What would USDA have to print to shake up the wheat market?
00;07;40;12 – 00;08;04;03
MARK
You know my opinion clearly from a pricing standpoint, to look at where we’re at. And wheat market has discounted a much bigger crop than what the USDA has forecast in June. They plugged it in at winter wheat at 1.295 billion bushels. My forecast for Friday is an increase to 1.345 billion. So a 50 million bushel increase, which was about 20 million bushels above the average trade.
00;08;04;03 – 00;08;24;22
MARK
Yes. So we’ve seen the USDA raise winter wheat production in the July report here each of the last three years. So I don’t think this year will be any different. I think what really might surprise the market would be if we see much of the higher production, offset by higher demand, we saw a 25 million bushel increase in wheat exports under June last year.
00;08;24;23 – 00;08;43;16
MARK
I would not be surprised to see another 25 million bushel increase here in the July. To help offset some of the higher supplies. And that would likely be a result of lower production from the Black Sea region, particularly Ukraine and Russia. I expect changes here. Russian estimates here in the private space have been really all over the place.
00;08;43;16 – 00;09;01;02
MARK
In the last couple of weeks. USDA cut at 5 million metric tons in June to 83, I think recently this week saw the Econ Bassmaster Report, their estimate down to about 79. And we turn around and raise that. Now back up above the USDA is so early yields have been encouraging. That I think is what prompted that recent move down.
00;09;01;02 – 00;09;17;20
MARK
But I still think that the jury is still out. So I think if the USDA would cut that figure down to 80 million metric tons or below, perhaps another 1 or 2 million metric tons of other Ukraine would help confirm a harvest has now been in place here in the wheat market. And then you got some other areas of world to Canada have been a little dry there.
00;09;17;26 – 00;09;27;07
MARK
Areas of the E.U. so a lot of areas across Wheat Week that I think that could impact the global production and maybe turn a little bit more of that export demand back to the U.S. now.
00;09;27;07 – 00;09;45;22
MIKE
I think it’s a little sneaky stat that might be in the was the report this Friday, but it’s the U.S. corn yield that might be estimated and the production for U.S. corn crop this year. Now there is a private firm that is out with what their yield is at 180 2.5. And the production they have at 15.2 billion bushels.
00;09;45;22 – 00;09;56;22
MIKE
Will the market pay any attention to this? Now this is going to be in the wisely report. It won’t be in the July crop production report. It will be in the wisely. But will the market pay attention to any estimate that’s in this report from the watchdog?
00;09;56;25 – 00;10;16;24
MARK
Well, pay attention to it. If it changes, yes. Will it change? I highly doubt it will change this month. USDA rarely changes their yield forecasts in the month of July. In the past decade, they’ve only changed it once. That was last year where they cut it for bushels an acre. I was told that in the last 20 years, USDA raised it only once.
00;10;16;24 – 00;10;33;03
MARK
I took their word for that I did not go back and look. So no, I don’t think they will change it this month. I think it will stay at the 181, just incorporating the new acreage figures from the end of June. It’s going to take you to production, you know, just over 15 billion bushels and beans. Similar story.
00;10;33;03 – 00;10;52;29
MARK
They’ve only changed the yield forecast in July once in the last decade. And that was in 2019 where they cut it a bushel an acre. Yeah. They will care if it changes. But I think it’s very unlikely that it will. More likely it will go down if conditions to date were disappointing. But right now with ratings, the highest rated crop in four years is what I’m showing.
00;10;52;29 – 00;11;07;03
MARK
I don’t think you’ll see a change this month. I think more importantly is what they do on some of the foreign production figures and what impact that could have on the balance sheet. More likely the new crop balance sheet. I don’t think you’re going to see it swaying much from current projections here on the old ground.
00;11;07;06 – 00;11;11;10
MIKE
And that was my next question. What will you be watching on Friday in the report?
00;11;11;13 – 00;11;34;09
MARK
Yeah, we’ve talked a lot of the moving parts going on right now domestically, but I still think we’ve got to keep an eye on what’s happening in South America, particularly with the corn production in Argentina and the soybean production out of Brazil. In Argentina. The USDA, shockingly to me, did not change their corn estimate last month. They kept it at 53 million metric tons.
00;11;34;09 – 00;11;59;00
MARK
As we get deeper and deeper into harvest there now it’s about two thirds of the way complete. The Buenos Aires Grain Exchange still has their production forecast at 46.5 million metric tons. So big gap there. Still, I think USDA will narrow that a little bit this week. I’ve got my estimate at 50 million metric tons, so it’s not a huge amount, but it does possibly open the door for better demand for us.
00;11;59;00 – 00;12;25;11
MARK
And on the beans side there too, the USDA only cut their Brazilian forecast was 1 million metric tons last month to 153. I was expecting a move to 151. I’ve got at 150 right now. Last week the US phase did lower that number out of Brazil to that 150 figure. So I think we’re going to see some production there getting a little bit closer confab there estimate is just over 147 million metric tons.
00;12;25;11 – 00;12;40;08
MARK
So a little bit of a gap there. But I think that will narrow up a touch. I think that could bode well for as we talked about how poor exports have been, I think we should start to see some signs of improvement here soon, and particularly when I see prices doing what they’re doing, getting, you know, more attractive to end users.
00;12;40;15 – 00;12;52;25
MIKE
While the bulls are looking for something and not sure if they’re going to get it this Friday in the USDA wisely reports. But we’ll wait and see. Finally, Mark, this is the so what segment. So what what should farmers and processors take away from this conversation?
00;12;53;00 – 00;13;11;19
MARK
Well, from a farmer standpoint, I would be reluctant to price a whole lot right here. If you got nothing priced. Yeah, you probably got to take advantage of any little bounce up. We get to get at least something on the books. As you mentioned, I think these prices are certainly below the cost of production for several. However, that doesn’t mean we’re going to see an improvement anytime soon.
00;13;11;19 – 00;13;35;08
MARK
And it’s what right now, you’ve got the speculative community so heavily shifted to the short side of the market that, you know, I think any little whiff of a weather problem here forward could prompt a pretty swift price increase, just as the speculative traders reposition themselves at some point, you know, the prices get low enough. I think they’re going to rethink their ability to make money staying on the short side of the market.
00;13;35;08 – 00;13;53;14
MARK
So I think you need to be quick to pull the trigger on rallies, which they probably will come. We’re going to be seeing a lot of heat now the second half of July. Maybe we’ve seen at least an interim low here recently. But the speculative traders, the CFTC did show the second largest short position ever in corn here in last night’s report.
00;13;53;14 – 00;14;11;02
MARK
And you take a look at what has happened since last Tuesday when this data was put together, probably sitting at a record short, very heavily short. And the soybeans as well. Still on the meal short, the oil. We’re seeing that those dynamics shift a little bit here today with a big sell off in the oil crush margins have improved significantly.
00;14;11;02 – 00;14;29;16
MARK
Board crush margins have perked up, kind of catching up with what you have been seeing in the cash market as well as an end user. I think you have to build in some sort of protection to guard against the what if, whether the second half of the growing season isn’t nearly as good as it’s been here at the first half of the growing season?
00;14;29;16 – 00;14;49;15
MARK
And what if just for production is just not where we think it’s at? There’s a lot of moving parts here, but prices are below the cost of production, not just here, but in South America as well. I know that really has helped insulate them a little bit more than what we’ve had here. I don’t think you’re going to see that big expansion in acres we’ve seen year over year down there this fall.
00;14;49;15 – 00;14;59;14
MARK
And either so we’re told that it’s best year for low prices as low prices and prices are clearly well, so we just need a spark something to stimulate a spike here to take some better opportunities ahead.
00;14;59;21 – 00;15;07;15
MIKE
Very good and thanks for sharing. Marc Soderberg Adam Investor Services Senior Agricultural Market Analyst Marc, thanks again for joining us.
00;15;07;22 – 00;15;09;00
MARK
Yeah, thanks for having me on, Mike.
00;15;09;00 – 00;15;20;04
MIKE
And thank you for joining us today. If you’ve enjoyed listening to From the Furrow, be sure to tell a friend or two to subscribe to us wherever you listen to your podcast. Thank you to the ever AG Insights Crew for their work on today’s show.
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