Exclusive report: 2024 crop projection
On October 30, the USDA released its initial crop condition ratings for winter wheat. This rating covered the combined areas of hard red winter wheat states in the Plains, soft red winter wheat states in the Central states and east of the Mississippi River, and soft white wheat states in Michigan and the Pacific Northwest. The initial rating was 47% good-to-excellent, which was an increase from 28% the previous year and the highest since 2019. By November 27, the season’s last weekly report, conditions had somewhat improved to 50% good-to-excellent.
Erin Nazetta, an agriculture research analyst at Broadview Capital Holdings in St. Louis, stated, “The trade is feeling more comfortable with the crop than a year ago. It’s hard to say in the fall what a crop’s conditions will be in the spring.” “The crop will grow more each year, but the final yields are still primarily determined by the spring weather.”
After sowing, the soft white wheat crop was first hindered by dryness; but, after rain, crop conditions in Washington, Oregon, and Idaho returned to normal. In the meantime, good initial condition ratings, projections of less wheat acres in Ontario, and significant carryover supplies from a big harvest welcomed lackluster red winter wheat markets into the new year.
“Swedish wheat acres will lead the overall reduction in winter wheat areas, which will be between 300,000 and 400,000 acres,” explained StoneX’s Mike O’Dea, a Kansas City-based risk management expert. That’s just the outcome of the East’s delayed corn and soybean harvests, along with the drop in new crop values that we’ve seen. It is unlikely that planting will be impacted by the significant decrease in insurance prices from August and September—roughly $6.42 per bu compared to $8.45 per bu a year ago. Farmers will probably plant more full-season corn and soybeans and less double-crop wheat mixed with short-season soybeans in light of the observed yield drag.
In the upcoming year, US wheat prices will be influenced by wheat exports and yields around the world. In 2023–24, the USDA predicted that US wheat exports will reach a 52-year low of 19.05 million tonnes. However, despite lower crops elsewhere, US wheat may see an increase in international trade.
According to the December crop report released by the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), wheat production in Australia is expected to decrease by 37% in the 2023–24 marketing year compared to the record harvest of the previous year, to 25.5 million tonnes, which is 4% less than the 10-year average.
When the cycle was almost over, rain gave Argentina’s wheat crop a little respite after it had battled during development. Germany and Poland are experiencing crop problems, and according to Mr. O’Dea, 10% to 15% of France’s crop will not be planted because of the rainy season. SovEcon has reduced its projection for Russia’s 2023–24 wheat exports to 48.8 million tonnes from 49.2 million tonnes, indicating a smaller harvest is anticipated in the major wheat exporter and worldwide price setter, the Russian Federation.
Meanwhile, the global freight movement is becoming increasingly strained due to the dry conditions in Central America. Restrictions were prompted by low water surrounding the Panama Canal, which is an important maritime route for North and South American agricultural trade. These included the number of vessels per day that may pass through, according to a Rabobank analysis. The trade hasn’t given that issue enough attention, as seen by the rising rates of maritime freight, according to Mr. O’Dea.
He stated, “Someones who weren’t covered now have to come in (at much higher rates).” “It’s just prolonging scheme times, because there aren’t many grain vessels passing through the Panama Canal. It will take twice, if not three times, as long for a typical grain cargo that traverses the canal to reach Latin America in 10 to 12 days. The Suez Canal is experiencing a building backup, therefore grain shipments are being diverted there. Numerous logistical factors underpin the markets for wheat, corn, and, to a lesser extent, soybeans.
It’s possible that the decline in domestic wheat prices and Paris Matif wheat futures reached a floor in late November. Trade analysts predicted that a few minor bullish indicators would be countered by a generally neutral tone, possibly keeping futures quietly rangebound — sideways to slightly higher amid consolidation — into the new year. By the end of the month, both US wheat futures and Paris futures had rebounded. However, everyone was observing the unusually small futures positions held by funds. Mr. O’Dea stated that the trend had hit season-high levels and that if the funds went into short-covering mode, it would have consequences.
Wheat futures intermarket spreads are still something to keep an eye on. The Kansas City-Chicago July 2024 spread fell to within 20¢ a bu in late November, as opposed to the more usual 40¢ to 50¢ spread. This encouraged “some buying into the spread, though always your risk there is the fund short in Chicago,” according to Mr. O’Dea.
He declared, “The KC-Minneapolis March has already traded out to a $1 spread.” “Maybe that needs to be narrowed down a little bit because Minneapolis probably does nothing if there is a rally in Kansas City. However, it is increasing demand somewhat. As of, KC’s 13% protein basis is up 30½ (to 180½ over KC March), and Minneapolis’s 15% protein basis is up 300 (over Minneapolis March)
December 1). If you spread that out, it would increase demand for hard red winter wheat with 11.5%–12% protein, which would raise the basis and boost futures strength. For the near term, that spread is most likely overdone to the upside.
According to Ms. Nazetta, if wheat prices haven’t dropped yet, they probably will in the near future as optimistic signals are there.
“Until the Northern Hemisphere harvests of the US, European, and next Russian crops come online with a smaller supply available over the next six months, there is still a lot of risk on the global supply to get us through the winter months,” she stated. “We may be nearing the short-term bottom in terms of flat price, especially since we can afford to feed wheat and corn is currently a fairly fair value, so we’re probably nearing the lows for wheat.”
“When calendar spreads narrow up where they can go buy the back end without having to pay the big carries, extend coverage against the narrower spreads,” Mr. O’Dea advised bakers considering when to finish first- and second-quarter flour coverage. “Get some basis booked, too, since 12% proteins are cheap versus the three-year average,” they ought to do.
Corn provides values for pressure.
The USDA’s November World Agricultural Supply and Demand Estimate report essentially verified that there is an abundance of corn in the United States, as if seeing prices plummet to three-year lows wasn’t enough evidence.
The USDA increased its estimate for the carryover of maize on September 1, 2024, to 2,156 million bus in the report published on Nov. 9. This was 45 million bus more than the October projection and 58% more than the 1,361 million bus in 2023. The USDA raised its production estimate for 2023 in October to a record-breaking 15,234 million buses, an increase of 11% above the 13,715 million buses produced in 2022. The crop was predicted to average 174.9 bus per acre on Nov. 1 conditions, up 1.5 and 1.9 buses from the prior estimate.
greater maize use and exports in 2023–2024 are expected to somewhat counterbalance the impact of greater production and supplies. In October, the USDA increased its prediction for corn’s use for feed and residual purposes by 50 million bushels; also, the allocations for ethanol were increased by 25 million bushels to 5,325 million bushels. The export estimate was raised to 2,075 million buses, which represents a 50 million bus increase from the previous month’s estimate. However, other analysts questioned the utilization modifications, suggesting that the Department might be attempting to control an excessively high domestic corn supply so as to prevent further depreciation of already falling prices.
“(The USDA) had to create some demand to prevent it from being higher because it printed an ending stocks number above 2.1 billion bus,” in my opinion. viewpoint,” stated Arlan Suderman, StoneX’s chief commodities economist. The increase in ethanol use was most likely warranted. You can argue that more feed utilization is beneficial, but in my opinion, this is a pretty weak argument, and you’re pushing it too far in an attempt to boost exports.
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US corn exports hit a record $18.7 billion in 2021, mostly as a result of increased demand from China and decreased rivalry from Brazil and Ukraine. The US export value dropped to $18.57 billion in 2022 and was predicted to drop to $13.1 billion in 2023 as a result of declining Chinese demand, fierce rivalry from Brazil’s recent large-scale, cheaper crop stealing export chances, and pricing pressure from an abundance of domestic suppliers.
Corn prices have dropped to three-year lows, so it’s possible that the market is attempting to return to normal after suffering from COVID-19-related supply chain disruptions, grain export embargoes following Russia’s invasion of Ukraine in early 2022, and a host of other transportation-related issues like barge backups caused by low Mississippi River water levels and railroad strikes.
“We could get back down to that range of corn prices, which were in the $3-a-bu range prior to the COVID pandemic,” Mr. Suderman stated. “Traders with large short positions are anxious because it only takes an unexpected headline to trigger a short-covering rally, even though the path of least resistance is lower.”
The weather in South America was of particular interest to analysts keeping an eye out for those news that could move the market. El Niño circumstances were creating unfavorable conditions in Brazil, posing a threat to the country’s maize production, particularly for its winter harvest, which might be beneficial for US grain. Up to that point, US corn basis levels were increasing in an effort to encourage farmers to rejoin the market.
The unstable export environment in the Black Sea due to the ongoing conflict between Russia and Ukraine was another cause for concern. Since the two warring nations’ July dissolution of their agreement to provide the safe transit of grain exports from Black Sea ports, Ukraine has sought to locate alternate routes for the transportation of its grain.
According to Mr. Suderman, “the farmer has to be able to export in order to have a reasonable margin of profit to be able to produce the crop.” “They won’t manufacture if they can’t export, but as of right now, it appears like they will be able to maintain exports. Nearly 160 ships have passed through Ukrainian ports, and many of them They are transporting corn, which keeps Ukraine a prominent corn supplier on the global market.
Supply of soybeans to tighten
The November WASDE was pessimistic for the US soybean market, similar to corn. The USDA increased its prediction by 25 million buses from its October estimate to 245 million buses for the carryover of soybeans on September 1, 2024. The projection for 2023’s soybean production increased 0.6% from October to 4,129 million bus, which is little more than the average of trade predictions. The average yield was predicted to be 49.9 buses per acre, which was a little higher than expected and higher than a year before.
Soybean futures had a roughly 1% decline following the announcement of the November report, with the exception of the November contract that was expiring, which showed slight increases. However, the decline was fleeting, as futures shot upward to one-month highs in a few of sessions.
According to Brian Harris, executive director and owner of Global Risk Management, “the bigger picture really doesn’t change when you look at where we stand on the projected ending stocks for 2023-24.” “On soybeans, we’re still going to be really strict. With the demand for domestic crush for renewable fuel, if export business picks up again, as I anticipate it to, you’re going to trim that figure by the time everything is said and done. That ending stocks-to-use ratio for soybeans below 6% is still a historically tight level. I believe that we will be closer to 210 than 245 at this point.
Exports of soybeans seem to be rising. Since South American soybean supplies typically decline from October to January, this is the traditional export window for the United States. However, Brazil’s export season was extended this year by one month following a record-breaking 158 million tons of soybean production in 2022–2023.
Brazil’s soybean production was expected to reach 165 million tonnes in 2023–24, but months of unusually dry weather in some of the main growing regions of the nation caused the planting season to start later than usual—for the first time in eight years. The harvest is now predicted by analysts to average closer to 150 million tonnes.
However, it was becoming challenging to characterize the South American soybean market purely on meteorological projections, as predictions varied from long dry spells to periods of rain. For the US soybean market, it was all causing a series of fits and starts. January soybean futures saw multiple daily leaps and dips of about 2% from November to December.
While soybean futures saw sharp swings in price, soybean meal futures saw multiple contract highs in November, helped in part by Brazil’s unfavorable weather and increased demand from around the world to cover shortfalls following Argentina, the world’s largest soybean meal exporter, severely cutting back on production in 2022–2023 after suffering the worst drought in 60 years. The great start to this year’s planting season suggested Argentina may return to its regular production level, and the trade was taking note of the big rains that were revitalizing the country’s soil profile. This was probably what was causing the significant reversal in soybean meal futures.
Soybean meal futures gained momentum due to weakening soybean oil markets and a decline in the product share value, which dropped to 36%. However, economists were expecting soybean oil to rebound and soybean meal to correct.
Logan Kuch, head of Columbus Vegetable Oils’ bulk oils division, said, “I don’t know if soybean meal can sustain this $400-something a ton price. It’s super strong right now.” “What will soybean oil do is the big question; its share has historically been higher and it could strengthen, depending on the nature of demand.”
Some analysts were advising purchasers to take advantage of the current lows as the demand for soybean oil, particularly from the renewable diesel industry, was predicted to increase in the spring of next year.
Mr. Harris stated, “I think it will benefit you if you can get numbers put on the books below 50¢ a lb because I think by late spring and summer of 2024 we’re going to go right back into the very volatile times.” “While I don’t think the market will return to 70¢ per pound, 50¢ per pound is definitely too low.”