Chip Flory: Time For A Change In Market Attitude
January’s USDA reports are notorious for delivering a shock to the grain markets. This year’s data dump did not disappoint.
LET’S TALK SURPRISES
At the top of the surprise list was the 1.64-million-acre cut to 2022 harvested corn acres. That was partially offset by increasing the national average corn yield by 1 bu., but it still removed 200 million bushels from the supply-side of the balance sheet.
Soybean acres were cut by 295,000, and the national soybean yield was trimmed another 0.7 bu. from November. That combination was good for a 70-million-bushel cut to the 2022 soybean crop.
Dec. 1 corn stocks in all positions were 344 million bushels below trade expectations. Soybean stocks were 110 million bushels short of the average pre-report trade guess.
The tight supplies for the 2022/23 marketing year are an attitude changer. Slowing export demand for U.S. supplies had made it easier to expect carryover estimates for corn and soybeans to work higher ... and for prices to work lower. The lower supplies cleared the path for USDA to cut exports without raising carryover.
- Corn exports are now estimated at 1.925 billion bushels, down 150 million bushels from December.
- Soybean exports are now estimated at 1.99 billion bushels, down 55 million bushels from December.
As a result, corn carryover for 2022/23 fell 15 million bushels from December and soybean carryover was down 10 million bushels. That tightening of the new-crop supply for 2023/24 will limit downside price risk at least until the market believes 2023 crops will be planted in a timely fashion.
Corn use for 2022/23 is 13.195 billion bushels. A stocks-to-use ratio of 8.9% is tight even with use at a seven-year low.
The drop in demand is evidence corn prices have been high enough for long enough to ration supplies, but the stocks-to-use ratio means the corn market can’t relax efforts to limit use.
Soybean use for 2022/23 is 4.36 billion bushels. That’s down 109 million bushels from last year (even with soybean crush at a record 2.25 billion bushels). Soybean’s stocks-to-use ratio of 4.8% is the tightest in 10 years. The drop in demand means higher prices have done the work to ration supplies, but the stocks-to-use ratio means there’s more work to do.
LIMITED DOWNSIDE RISK?
USDA’s January updates limit downside price risk but do not eliminate the risk of lower prices. Eliminating risk is difficult with old-crop corn above $6.50 and soybeans above $15. This situation encourages both corn and soybean production this year.
Even with new-crop futures at elevated levels, thin supplies for 2023/24 raise odds of another strong market as spring price guarantees for crop insurance are established in February.