9 March 2022

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  • HEADLINES: USDA March report slightly bearish; Chicago breaks with crude oil; Look at new crop corn/soybeans/wheat for value.
  • The USDA March Report was neutral to slightly bearish as WASDE cut Brazilian and Argentine soy/corn crops, and edged US 2021/22 US corn/soybean end stocks lower, but not to the degree that private analysts were hoping for. The USDA did not adjust US export demand amid the Russian war against Ukraine as evidenced with the 10 million bu cut in US wheat exports to 800 million bu. With the Russian war against Ukraine only 2 weeks old, making such an adjustment will wait until April/May/June Reports.
  • Chicago had prepared for a bearish report and traders were on point. The focus going forward will be on the Russian war on Ukraine and the switching of ag trade to the America’s, Europe, Australia, and Canada. Combined 2021/22 US major crop stocks declined a collective 140 million bu to 2,378 million.
  • USDA estimated 2021/22 corn end stocks at 1,440 million bu, down 100 million with the cash farmgate price raised to $5.65/bu. WASDE raised 2021/22 US corn ethanol use by 25 million bu to 5,350 million and exports by 75 million to 2,500 million bu. We would argue that WASDE is too low by 275-300 million bu on US 2021/22 corn exports with US corn end stocks forecast to slip to 1,070 million bu. Such stocks are nearing pipeline and would support May corn futures at $7.80-8.25.
  • Globally, WASDE lowered the Argentine corn crop by 1 million mt to 53.0 million while Brazil’s corn crop held steady at 113 million mt. We would argue that both estimates are too high with risk being a deeper downward crop drop in April.
  • USDA dropped its 2021/22 soybean end stock estimate to 285 million bu, down 40 million with a farmgate price of $13.25/bu, up $0.25/bu from February. WASDE raised 2021/22 soybean exports to 2,090 million bu (up 40 million) which fell right to the bottom line. WASDE cut world soybean production 9.5 million mt with the Brazilian crop at 127 million mt (down 7 million), Argentina at 43.5 million mt (down 1.5 million) and Paraguay at 5.30 million mt (down 1 million). This was the third month of sharp crop declines with additional crop falls forecast.
  • We see 2021/22 US soybean exports at 2,160 million bu, up another 70 million that would drop 2021/22 US soybean end stocks to 215 million bu. If China keeps securing US old crop soybeans, a further gain in exports is anticipated. The downside price risk below $16.20 appears limited amid tightening global supplies.
  • The USDA’s adjustments to world wheat supply/demand were as expected, measured. It is difficult to accurately predict global trade flows through the remainder of the marketing year, though focus on WASDE wheat data will be short-lived. Generally speaking, USDA updates were bearish as USDA hiked Aussie production to a record 36.3 million mt. Combined Australian and Indian exports were raised 3.5 million mt. This partially offset a reduction in Ukrainian/Russian exports of 7 million mt. Additionally, total world wheat trade in 2021/22 was lowered 3.6 million to 203 million mt. US wheat end stocks were lifted 5 million bu to 653 million as reduced exports more than offset reduced imports. USDA’s US wheat export forecast of 800 million bu is 20-30 million too low in our opinion.
  • And based on trade date through February, Russian wheat exports are 24 million mt, with Ukrainian shipments to be capped at 18 million mt. This implies that Black Sea exports must be reduced another 9-11 million mt, and this demand cannot be filled by Australia, India and Europe. We maintain that supply rationing is needed, and the task of wheat pricing in the long run is to maximise 2022 winter wheat seeding across the Northern Hemisphere. December KC wheat is a buy under $10.
  • Future USDA reports will confirm smaller US corn, soybean, and wheat 2021/22 end stocks on larger US export demand. The need for demand rationing is acute and all those who bought Black Sea wheat/corn/sunoil have yet to secure their import needs elsewhere. Market volatility will be extreme. We would see a dip in Dec corn to $6.20 and Nov soybeans to $14.25 or less as a longer-term buy. Wheat trades limit back and forth each day.
To download our USDA Recap as a PDF file please click on the link below: