By Jon Scheve, Superior Feed Ingredients, LLC
Usually, the April USDA supply and demand report is one of the least interesting reports of the year, and this month’s report was no exception. From a few minutes before the March 31 report, until last Friday’s close after the USDA report on April 8:
• July corn is up 40 cents
• December corn is up 57 cents
• November soybeans are up 25 cents
• July wheat is up 28 cents.
Due to dry January conditions in Southern Brazil, it seems likely Brazil will produce 700 million fewer bushels (20 million metric tons) than was anticipated by the market last October. Now the market is trying to figure out what demand will do with such a large supply shortage and much higher prices.
Originally, the U.S. was expected to carry over 350 million to 400 million bushels from this marketing year to next year. Typically, the U.S. doesn’t export a lot of beans this time of year, but there has been an uptick in export demand which means if that continues, it will be supportive of prices moving forward. U.S. export pace from now until next February will be watched very carefully.
While the recent acreage report showed 2.5 million more acres than originally anticipated, if we assume an average 50 bushels per acre, that only means an additional 125 million bushels to the supply side of the market than was anticipated. If Brazil is substantially short on production as is expected, the U.S. may need those additional acres this year.
The question will now be if the world is willing to consume less beans at these higher prices. The USDA raised export demand by 25 million bushels this month. If they continue to increase at this pace each month for the rest of the marketing year, there could be a tight balance sheet through next year, even if we have normal weather here in this country this summer. Any hint of dryness during summer could send the market even higher.
There has been limited but timely precipitation in Brazil’s second corn crop areas up to now. As a large percent of Brazil’s second crop enters the tasseling stage these next few weeks, dryness will be monitored closely. If it turns dry in Brazil over the next four weeks, then higher prices will be warranted, especially considering the fewer U.S. corn acres forecasted to be planted this year. U.S. weather has been cool recently, but planting should be starting throughout much of the Midwest this coming week.
If planting pace is quick, it is reasonable to assume some bean acres will be switched to corn. However, with higher fertilizer prices the switch may not be all that much. We’ll know more when the June 30 report is released.
There continues to be concern around the 500 million corn bushels still trapped in Ukraine for the foreseeable future. The war there looks to drag on for quite some time which could keep the product in limbo and would likely keep prices elevated.
Please email firstname.lastname@example.org with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.
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