Pro Farmer Evening Report: Dec. 23, 2021

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Corn producers: Increase 2021- and 2022-crop sales… Old-crop corn futures hit our sales objective of $6.00. While there could be more near-term upside potential if South American weather continues to trend drier, we doubt the market can sustain a strong push above current levels. We advise corn hedgers and cash-only marketers to sell another 20% of 2021-crop to get to 70% sold in the cash market. We also advise hedgers and cash-only marketers to sell another 10% of expected 2022-crop production for harvest delivery next year to get to 20% forward-priced.

Soybean producers: Increase 2021- and 2022-crop sales… Old-crop soybean futures have rallied to their highest level since late August. While there could be more near-term upside potential if South American weather continues to trend drier, the strong rally deserves to be rewarded. We advise soybean hedgers to sell another 10% of 2021-crop to get to 85% priced in the cash market and for cash-only marketers to sell 15% to get to 75% priced. We also advise hedgers and cash-only marketers to sell another 10% of expected 2022-crop for harvest delivery next year to get to 20% forward-priced.

Hogs & Pigs Report: Herd contraction greater than expected... USDA estimates the U.S. hog herd at 74.201 million head as of Dec. 1, down 3.111 million head (4.0%) from last year. The market hog inventory at 68.021 million head declined 3.115 million head (4.4%) from last year. The breeding herd at 6.18 million head was nearly unchanged.

USDA showed producers farrowed 4.8% fewer sows this fall than last year, but the number of pigs saved per litter was a record high for the quarter at 11.19 head. That resulted in the fall pig crop declining 3.6% from last year’s record to 33.712 million head.

Based on market hog inventories, slaughter will run about 6% under year-ago levels through mid-winter. From there through spring, slaughter should be about 2.5% to 3.5% under year-ago.

Looking forward, producers indicated they intend to increase farrowings by a modest 0.5% this winter. But farrowings next spring are expected to drop 0.8% from last year. With the breeding herd down 0.1%, the winter and spring pig crops won’t likely be any larger than year-ago, even if a record number of pigs per litter are saved.

USDA noted the following revisions to past data: “All inventory and pig crop estimates for December 2019 through September 2021 were reviewed using final pig crop, official slaughter, death loss, and updated import and export data. The revision made to the September 2021 all hogs and pigs inventory was 1.0%. The net revision made to the June 2021 all hogs and pigs inventory was 3.3%. A net revision of 1.0%was made to the March-May 2021 pig crop. The net revision made to the March 2021 all hogs and pigs inventory was 1.1%. A net revision of 3.6% was made to the December 2020-February 2021 pig crop. The net revision made to the December 2020 all hogs and pigs inventory was 0.2%. A net revision slightly upward was made to the September-November 2020 pig crop. The net revision made to the September 2020 all hogs and pigs inventory was 1.3%. The net revision made to the June 2020 all hogs and pigs inventory was 2.5%. A net revision of 0.9% was made to the March-May 2020 pig crop. The net revision made to the March 2020 all hogs and pigs inventory was 3.2%. A net revision of 0.8% was made to the December 2019-February 2020 pig crop. The net revision made to the December 2019 all hogs and pigs inventory was 0.7%. A net revision of 4.3% was made to the September-November 2019 pig crop.”

With virtually all of the categories coming in on the bullish side of pre-report expectations, the data should provide price support to lean hog futures.

Cattle on Feed Report: Mostly neutral... USDA estimates there were 11.985 million head of cattle in large feedlots (1,000-plus head) as of Dec. 1, down 51,000 head (0.4%) from both year-ago and the average pre-report estimate. Placements in November rose slightly more than anticipated at 3.6% above year-ago, while marketings were also stronger than anticipated, up 5.4%.

Not surprisingly, the increase in placements was driven by the lighter weight categories. Placements rose 8.6% for lightweights (under 600 lbs.), 5.4% for 6-weights and 1.3% for 7-weights. Placements of 8-weights dropped 2.3%, while they were unchanged for 9-weights and heavyweights (1,000-plus lbs.).

While the Dec. 1 inventory was slightly lighter than anticipated, it wasn’t enough to spark much price reaction, especially with placements coming in bigger than anticipated. If anything, traders may bull spread the market initially on the report data, though focus should rather quickly turn to cash cattle expectations for next week and into early January.

Abnormal dryness/drought expands in HRW growing areas... This week’s U.S. Drought Monitor shows 58% of the U.S. winter wheat crop area is covered by drought conditions as of Dec. 21. That is five percentage points more than the previous week. USDA reported 18% of the winter wheat area is in moderate drought, 25% in severe drought, 12% in extreme drought and 3% in exceptional drought. Last week, the USDA reported 16% of winter wheat area was in moderate drought, 19% in severe drought, 13% in extreme drought and 6% in exceptional drought.

Kansas saw the largest increase, up 16 points from last week, to 68% of the state in abnormally dry/drought conditions. Nebraska, with 81% of the state facing moisture stress, increased five percentage points from the previous week.

Texas had a two-point increase to 84% of the state considered abnormally dry/drought. The Drought Monitor noted no measurable precipitation has been recorded at Amarillo, Texas, for 70 consecutive days, the fourth longest streak on record. Month-to-date temperatures (Dec 1-20) have also averaged six to 10 degrees F above normal throughout Texas.

Colorado and Montana remained 100% covered by abnormally dry/drought conditions. However, there was more than a 10-point decline in the area considered to be in exceptional drought in Montana. The area of extreme drought in Colorado increased three points over the past week.

Oklahoma reduced the amount of area covered by abnormal dry/drought conditions by six points to 90%, primarily due to improved conditions in eastern Oklahoma. However, severe conditions increased in the panhandle of Oklahoma.

SRW states of Missouri and Illinois saw slightly less area facing abnormally dry/drought conditions.

Record Argentine wheat crop estimate raised another 500,000 MT... Citing better-than-expected yields, the Buenos Aires Grain Exchange raised its Argentine wheat production estimate to a record 21.5 MMT, up 500,000 MT from its prior forecast.

As more of the crop is harvested, yields have increased, the exchange said. Currently, 78.3% of wheat is harvested with a national average yield of 3.28 MT per hectare. The wheat harvest is expected to be done by the end of January.

The exchanges forecasts for Argentina’s corn and soybean production at 57 MMT and 44 MMT, respectively, were unchanged. German Heinzenknecht, a meteorologist at consultancy Applied Climatology, says rainfall will be short of needed levels the rest of this month. But he is “optimistic that moving forward over January, we will once again have favorable wet windows over the eastern fringe of the country – the region that most needs water.”

White House: Administration is making progress on effort to unblock supply chains... The White House on Wednesday released an information sheet to discuss progress made by the administration’s effort to unsnarl supply chains. President Joe Biden on Wednesday convened members of his Cabinet and private sector CEOs for an update. Some updates:

• Moving record amounts of goods to keep shelves stocked: “Due to record demand, our nation’s ports are moving more goods than ever before. The Ports of Los Angeles and Long Beach — which handle 40% of the nation’s containerized imports — moved 15% more containers between January and November this year than 2018, the previous record. That’s why the President convened our largest ports and retailers to move towards 24/7 operations to help alleviate bottlenecks in our global supply chain and ensure the smooth delivery of goods for businesses large and small. Retailers are confirming shelves are stocked and they are prepared for a robust holiday season.”
• Omicron impact: The administration is closely watching how the Omicron variant could compound global supply chain disruptions at Asian or U.S. ports and is “working with ports around the world to prioritize critical medical supplies and PPE.”
• Cracking down on delays and profiteering: When cargo sits on docks for extended periods, bottlenecks worsen, goods can’t make it to stores, and prices can rise for consumers. That’s why the administration said it worked with the Ports of Los Angeles and Long Beach in early November to impose a fee on ocean carriers if their cargo sits on docks for over eight days. Since then, the number of containers sitting on the docks for over eight days has fallen by nearly 50% and the average amount of time containers sit on docks has fallen by a week. The price of shipping a container between Asia and the West Coast has fallen by more than 25% since its peak in September. “Nevertheless, the price of shipping remains elevated and, as the ocean carriers report profits nine times larger than a year ago, the president looks forward to working with Congress on bipartisan legislation to strengthen the Federal Maritime Commission.”
• Launching the Port Action and Trucking Action Plans: This week, the administration announced $230 million in Port Infrastructure Development Grants — the only federal grant program wholly dedicated to investments in port infrastructure. “This is the latest step in the Port Action Plan (PAP) announced in November, which accelerates investments in our ports, waterways, and freight networks after passage of the Bipartisan Infrastructure Deal. The PAP helped the Port of Savannah launch three “pop-up” container yards to reduce congestion and includes $12.6 million for marine highway projects and over $50 billion in highway funding that can be used to modernize freight corridors. This builds on investments in port and freight infrastructure communities have made using the American Rescue Plan such as Florida’s $250 million investment in ports.”
• Trucking Action Plan: Last week, the administration announced its Trucking Action Plan (TAP) to recruit and retain more truckers by improving job quality. The TAP will help states reduce their commercial drivers’ license backlogs, kick off a 90-day challenge to expand Registered Apprenticeships with the private sector, step up the recruitment of veterans, and launch a Driving Good Jobs Initiative to address issues that hurt retention such as unpaid wait times.

• Taking action to reduce gasoline prices: Last month, Biden authorized the Strategic Petroleum Reserve to make 50 million barrels of crude oil available to increase global oil supplies. The administration also said it engaged with Japan, South Korea, India, and the United Kingdom, each of whom acted in parallel to boost supplies, as well as with OPEC+ members who maintained their schedule for increasing production levels heading into January. “These actions have helped contribute to falling prices at the pump… The average price at the pump is down 12 cents per gallon since the peak last month, and prices are continuing to fall.”

‘Containergeddon’ and California agriculture... The cargo pileup at West Coast ports had a bigger impact on farm exports from California than the China/U.S. trade war, say three economists. They estimated losses of $2.1 billion in foreign sales during a five-month period because of port congestion, comparing that to economic losses of about $500 million for California agriculture during the first year of the trade war.

“Due to exporters’ difficulty obtaining empty shipping containers, the value of California’s containerized agricultural exports fell by an estimated $2.1 billion, about 17 percent, from May to September 2021,” wrote the economists in a University of California magazine. “The lost farm exports mirror the fact that California ports are among the least efficient in the world,” they wrote. “As a result, some importers now view California as an unreliable supplier of agricultural products due to inferior port infrastructure.” California is the largest ag exporting state in the nation, with more than 40% of its production going to foreign buyers.

Biden signs bill banning goods from China’s Xinjiang region... Over concerns about forced labor, President Biden signed legislation that bans imports such as cotton, tomatoes and polysilicon used in solar-panel manufacturing from China’s Xinjiang region. The law is part of the U.S. pushback against Beijing’s treatment of China’s Uyghur Muslim minority, which Washington has labeled genocide.

The law assumes all goods from Xinjiang, where Beijing has established detention camps for Uyghurs and other Muslim groups, are made with forced labor. It bars imports unless it can be proven otherwise.

Cotton and tomatoes are designated “high priority” for enforcement action. China denies abuses in Xinjiang, a major cotton producer that also supplies much of the world’s materials for solar panels.

The law’s effectiveness depends on the Biden administration to ensure it is enforced, especially when companies seek waivers.

Another soybean crushing plant announced in North Dakota... Minnesota Soybean Processors, a farmer cooperative, and CGB Enterprises Inc. plan to build a crushing plant that will process 42.5 million bu. per year near Casselton, North Dakota. The plant construction will start next spring, with plans to be operational in 2024.

Earlier this year, Minnesota Soybean Processors and ADM announced plans to build a $350 million soybean crushing plant that could process 150,000 bu. of soybeans per day to be operational before the 2023 harvest.

Upper Mississippi ag directors lobby for lock and dam improvements... Five state directors of agriculture from Iowa, Minnesota, Missouri, Wisconsin and Illinois are pushing to use $2.5 billion in the Infrastructure Investment and Jobs Act (IIJA) for inland waterway projects, including the Lock and Dam #25, LaGrange Lock and Dam, and Lock and Dam #24 projects.

The letter to the Assistant Secretary of the Army (Civil Works) recommends that funding priority from IIJA be provided to projects included in the December 2020 Inland and Intracoastal Waterways Twenty-Year Capital Investment Strategy.