This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Grain and oilseed markets found some strength on Friday and some follow through on Monday during the day session. Beans could not hold the strength and closed lower while corn and wheat closed up but still off the highs. There is a palpable lack of directional conviction and we are still seeing lower volumes than normal. There was some positioning for today’s USDA report but the December Supply and Demand update is usually a big yawner. USDA does not make any adjustments to the US crop sizes on this report, electing to wait until Jan when they have the benefit of more data and also the actual count of US stocks we get on the Quarterly Stocks report released at the same time. They may make some changes to the demand side since we are ahead of their projected pace on all aspects of demand that we have regular measures of. Anyone hoping for big changes to those estimates may be left disappointed though. There is always a good deal of uncertainty this early in the marketing year with the South American crop still not known for sure. But this year there is even more uncertainty with the incoming administration. There have been a lot of threats made and talk about the looming trade war. Is it all positioning and a negotiating tactic or are we going to see the tariffs take effect? Are the target countries going to roll over and submit to the demands or cause some pain in retaliation? The only pain many of them will be able to cause the US will be on agricultural trade so we are right in the crosshairs. Are the huge export commitments we are seeing now just a hedge against South American production or a hedge against the tariff threat? USDA is fairly conservative in making changes in a normal year and this is far from a normal year.
It is also early in the South American growing season to make big changes to production. February in Brazil is similar to August in the Midwest. That is when bean yield is made. There is still a lot of growing season ahead but we are seeing weather premium come out of the market. Many private estimates now have Brazilian bean production above USDA but suspect USDA will once again take a conservative approach to changes.
Market expectations for the report are for USDA to make a very small reduction to US corn carryout, a small increase to US bean carryout and leave wheat carryout unchanged. For South American production, the market is expecting very small increases to Brazilian corn and bean production. For Argentina, market expectations are for a small decrease to corn production and small increase to bean production.
Similarly to domestic carryout, market expects world corn carryout to see a very small decrease and a very small increase in bean carryout and wheat almost unchanged. If we are looking to save the government money, the USDA December supply and demand report may be something to look at.