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Volatility historically common in summer
In the last edition of Connection , we were heading into the final stretch of harvest across the corn belt with yields coming in at far better than average and well over expectations on both corn and beans . Since then , we ’ ve had plenty of reports and market volatility with USDA ’ s Jan report finalizing the 2016 / 2017 crop for both corn and beans at close to record production . Maybe more significant is the fact that since the last edition , the U . S . voted in a new President and a number of items he had on his check list have been or are in the process of going from campaign rhetoric to implementation . Agriculture will and already has been affected by the change in administrations — such as the rally of the U . S . dollar making U . S . commodities higher in cost to some global markets , market reaction to renegotiation of NAFTA and other trade agreements .
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By Paul Dubravec Advance Trading
Today , the market is getting bombarded with numerous private crop estimates for South American corn and bean production . These estimates are all raising their projections from previous ones based on favorable weather and growing conditions , even after erratic weather patterns early in their planting season had the market on edge . Brazil ’ s Safrinha crop , its second corn crop , which had problems last year that resulted in huge export opportunities for US . corn this year , has for the most part been planted on time with a favorable moisture base to start . Some areas of Brazil had rains delay bean harvest , pushing some of the Safrinha corn planting past the most ideal planting window . Bottom line is the South American influence is bearish in the market today .
In terms of U . S . market influence , lower flat price action has dampened producers ’ excitement to sell additional old crop corn , while debate over upcoming acreage for corn and beans continues . USDA did release some preliminary ideas in its annual Outlook forum in late February , although the trade does not put much credence in these outlook forum numbers since they are guestimates generated by USDA economists rather than numbers formulated by questioning / surveys conducted of actual U . S . producers . The first of many acreage reports will be out on March 31 when USDA releases its planting intentions report . In the Ag Outlook Forum this year , USDA pegged US corn acres to drop 4 million acres from last year to 90 million , bean acres up 4.6 million acres from last year to 88 milliom , and cotton acreage to increase 1.43 million acres to 11.5 million versus last year . Note that a significant amount of the cotton acreage is expected to go into marginal ground , which led USDA to increase its abandonment rate by more than double of last year . After all the dust had settled , the estimates for all cropland acreage netted out a total U . S . planted acreage reduction of 3.6 million acres versus a year ago , leaving some to wonder what happens to those acres .
USDA report out March 9 updated its official U . S . grain carryout projections as well as global crop production estimates . As you can note in the charts below , there were little changes done to the corn balance sheet with a 50 mbu increase in ethanol usage offset by a 50 mbu reduction in the feed / residual category . The bigger piece of this recent report goes back to South American production and the big jump USDA made in raising both Brazil and
Argentine corn crop estimates . USDA went up 5 MMT on its Brazilian production estimate to 91.5 MMT , nearly 4 MMT more than the trade was expecting and boosted the Argentine estimate 1 MMT to 37.5 . USDA is essentially projecting a 6 MMT or 236 mbu increase in corn production globally that we will have to compete with mainly in the front end of the coming marketing year . ATI analysts suggest we may see 50 to 100 mbu of new crop South American corn take some old crop U . S . business off the table , though the first two quarters of the 2017 / 2018 crop year are likely to see the biggest impact . If Brazil produces the crop many are projecting , it would be possible to see a 500 mbu reduction in U . S . corn exports for new crop versus old — dropping exports down to 1.8 bbu for the 2017 / 2018 crop year .
USDA did little to the milo balance sheet , increasing feed / residual 10 mbu , lowering industrial usage ( ethanol ) 10 mbu and leaving carryout unchanged .
One of the biggest surprises of the report was in the beans . The market was generally looking for a lower carryout of around 405 mbu versus the Feb . report at 420 mbu , but USDA reported otherwise . USDA increased crush 10 mbu but lowered exports 25 mbu , which netted the balance sheet a 15 mbu larger carryout than the previous report to 435 mbu . Like corn , USDA ’ s Brazil bean production number came out well over trade expectations , up 4 MMT from the previous report to now 108 MMT , while they left Argentine beans unchanged at 55.5 MMT . Big jump for Brazil beans , but note that there are analysts today that feel we could see their final production number be as high or slightly over 109 MMT .
Last but certainly not least , USDA made