- HEADLINES: Chicago rallies on row crop yield cuts; More attention paid to abnormal S American weather.
- Chicago grain futures rallied following the USDA October Crop report as US 2023 corn/soybean yields came in slightly below average trade estimates. The US corn yield was 173.0 bushels/acre, down 0.5 bushels/acre from trade expectations and down 0.8 bushels/acre from August. And the US soybean yield at 49.6 bushels/acre, was down 0.3 bushels/acre from the average trade estimate and down 0.5 bushels/acre from September. Historically, when the US crop yields decline from August through October, they tend to drop even more in November. We would currently maintain a final US corn yield of 171-172 bushels/acre with soybeans at 49-49.3 bushels/acre. There will be further cuts to the 2023 US corn and soybean crops, but they will be modest.
- WASDE estimated 2023/24 corn end stocks forecast to 2,111 million bu based on a 70 million bu cut to the US 2023 corn crop to 15,064 million. WASDE dropped carry in supplies by nearly 90 million to 1,361 million bu.
- 2023/24 US corn demand dropped 75 million with a 25 million bu cut in 2023/24 feed/residual to 5,600 million bu and a 50 million cut in exports to 2,025 million bu. Traders argue that WASDE is still too high with its corn export forecast.
- US 2023/24 corn export demand is a work in progress depending on S American production. The average US cash corn price was left unchanged from September at $4.95. Adverse weather is required across S America if corn is to enter a lasting more bullish price trend.
- US 2023/24 soybean end stocks were forecast at pipeline levels of 220 million bu. NASS lowered the US soybean crop by 42 million to 4,104 million bu with a yield of 49.6 bushels/acre. WASDE left S American soy crops unchanged with the Brazilian harvest forecast at a record large 163 million mt and Chinese 2023/24 imports at 100 million mt. US 2023/24 soybean exports were cut by 35 million to 1,755 million bu with crush raised by 10 million to 2,300 million bu. We would argue that the US 2023/24 crush rate is too small by 60 million bu which requires an additional cut in US export trade. The point being is that US 2023/24 soybean end stocks will stay historically tight with S American weather growing in market importance with each passing week. WASDE estimated the average farmgate price of US soybeans at $12.90/bu, the same as September.
- If there was a surprise it was that WASDE raised their biofuel use of soyoil to a record 12,800 million pounds recognising that demand for fuel now outstrips food use. WASDE also cut 2022/23 oil carry in by 100 million pounds to 1,761 million pounds. 2023/24 soyoil end stocks were forecast at 1,736 million pounds with the average cash price being $0.63/pound. The US soyoil balance sheet is bullish.
- USDA Wheat data leaned supportive. USDA’s’ 78 million bu hike in US production was known, while 2022/24 US wheat feed/residual use was increased by 30 million bu, more than expected by the trade. US end stocks are now forecast at 670 million bu, vs. 615 million previously, with the bulk of the stocks gain centred on the US HRS balance sheet. US 2023/24 HRS end stocks are raised 35 million bu to 173 million, vs. 158 million a year ago. The year on year increase in stocks has weighed on protein spreads in recent weeks, but spring wheat supplies still aren’t overly abundant. US HRW stocks increased 23 million bu to 256 million in Sep and vs. 234 million a year ago. SRW stocks were lowered 1 million bu to 137 million as larger projected exports more than offset slightly higher final production. Wheat market focus now shifts to the potential for changes in world trade flows.
- USDA raised 2023/24 Russian exports to 50 million bu amid competitive prices. Otherwise, even global data leans positive. Combined exporter production was trimmed another 1.4 million mt amid lower projected crop sizes in Australia and Kazakhstan. Argentine production was left alone at 16.5 million mt, but there is concern USDA will lower its Argentine production estimate by 1.5-2.0 million mt amid ongoing drought and following recent exchange estimates. We also note that assuming Russian exports of 50 million mt in 2023/24, finally the Russian balance sheet normalises with stocks dropping to 8.9 million mt, vs. 14.6 in 2022/23.
- Lower corn and soy yields relative to expectations allow positive seasonal trends to kick in. More attention will now be paid to abnormal S American weather. We estimate funds were short of soybeans this morning. Short covering lies ahead as harvest lows are carved out and concern over S American weather grows.