Few changes in Supply and Demand

By Doug Tenney, Leist Mercantile 

This past month I had the privilege of attending the Christmas dinner as an alumnus of FarmHouse fraternity at Ohio State University. The students had included numerous professors and even department chairs from CFAES (College of Food, Agricultural, and Environmental Sciences) in attendance. It was exciting to see the relationships among students, professors, and peers, lifelong skills which will carry them far as adults beyond their college days. Maintaining, understanding, and building traditions is always a positive. What an inspiration of hope in the coming year!

The Dec. 8 USDA Supply and Demand Report was boring with few changes. U.S. corn and U.S. wheat exports were each increased 25 million bushels. Brazil’s soybean production was reduced 2 million tons to 161 million tons. That decline was slightly smaller than trade expectations. Argentina soybean production was unchanged at 48 million tons. Brazil’s corn production at 129 million tons and Argentina’s corn production at 55 million tons were both unchanged. 

The Jan. 12 USDA Supply and Demand Report will detail final U..S 2023 corn and soybean production and yields in 2023. That same day, USDA will publish the US Quarterly Grains Stocks as of Dec. 1, 2023. US corn stocks on that date could exceed those of a year ago by 1 billion to 1.2 billion bushels.  

The first week of December brought multiple sales of U.S. grains to China, including soybeans and corn exports switched away from Brazil to the U.S. and going to China. Even wheat exports to China were able to sneak into the picture, offering prospects that U.S. exports could be on the upturn. U.S. corn is the cheapest and most reliable source in the world. Since mid-November, weekly U.S. corn export sales have been above the pace needed to meet USDA export projections.

Look for corn basis in January, as well as the next four months, to be wider than normal by 10 to 20 cents. The fantastic corn yields seen by producers around Ohio are the reason for wide basis levels. In addition, the ugly threat of vomitoxin could easily continue well into the summer months. Its appearance is quickly bringing back bad memories as producers were scrambling from crop year 2020 production to find facilities to take corn. The inconsistencies of finding vomitoxin from load to load in the same bin were most puzzling and frustrating. This year, producers are pushing back on vomitoxin discounts even more than in the past. Don’t be surprised to see some legislative efforts take place in 2024. 

Crude oil prices have been on the defensive since the Nov. 30 highs for the January NYMEX reached $79.60. OPEC + announced cuts on Nov. 30 of one million barrels per day. This cut was expected as plans were announced months ago to pump less crude oil. The weekly U.S. EIA Energy Report the first week of December detailed U.S. crude oil stocks declined 4.6 million barrels from the previous week. This was a much bigger decline that the expected decline of 1.5 million barrels. Yet, January crude oil was down $2.94, closing at $69.38 on that report day. Closing sharply lower with an unexpected friendly report is a classic bullish failure when bullish news is presented. It will do some damage to those who were expecting $140 in the second quarter of 2024 when crude oil reached $90 late September. 

It is not a shock that two automobile manufacturers, Ford and Mercedes-Benz, have announced plans to reduce their production of electric vehicles (EV). There has been a huge push by the U.S. government for consumers to buy electric vehicles as subsidies were accompanying their purchases. Automobile manufacturers devoted huge capital resources to develop their stable of multiple choices for the consuming public. In addition, those same companies bombarded the consuming public with television commercials the last 18 months touting their EVs. The reason for the cutbacks? Consumers aren’t buying them in the droves which were expected. 

The recent 2023 UN Climate Change Conference at Dubai had many participants from around the world continuing to put a negative spin on coal. It appears the U.S. and Europe want to end coal mining ability forever as they desire to reduce coal powered electricity generation facilities to zero in coming years. It would seem very difficult to push that agenda when at the same time China is opening new coal mines while minting brand new coal powered electricity generation facilities. 

Thought for the day. “An optimist stays up until midnight the see the new year in. A pessimist stays up to make sure the old year leaves.” — Bill Vaughan. 

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