March 29, 2024

Trade notes further production cuts in Argentina

KANSAS CITY, Mo. — South American corn and soybean production was among the trade’s primary focus when the typically quiet April estimates report was released by the U.S. Department of Agriculture.

Arlan Suderman, StoneX chief commodities economist, said in a webinar following the report’s release the balance sheets featured the quarterly stocks data from the March 31 report and acreage numbers won’t be integrated until the new crop 2023-2024 supply and demand estimates come out May 12.

Moving right into South America’s production numbers the trade has focused on, what were the highlights?

Suderman: Argentina soybeans were down 6 million metric tons from last month. I had it at 28 million and USDA went down to 27 million.

I think we’re getting close to the bottom there. We’ll continue to monitor things, but if there’s a risk, we’ll continue to see a little bit more modest erosion in those numbers. That soybean crop is getting down to close to a half of crop now.

The Argentina corn number came in right where I expected at 37 million metric tons, down 3 million from last month.

There was no change in the Brazil corn production estimate of 125 million metric tons, but it’s too early. Our StoneX Brazil team’s survey just came out with an estimate of 131.3 million metric tons and that’s basically based on the fact that acreage was more than anticipated and the growing conditions right now in Brazil are fantastic.

When you question some out there with lower Brazilian corn production estimates, they say, “the crop went in late, so since it came in late we have risk of frost in the southern belt and risk of the dry season coming in earlier in the center-west area.”

That hasn’t happened, so our StoneX Brazil team doesn’t assume you’re going to have problems until they actually happen.

On Brazil soybeans, production of 154 million metric tons is 1 bushel higher than the previous report. That’s because the drought-damaged soybeans in the south have been more that offset by really high yields in the center-west area.

U.S. corn and soybean balance sheets were basically unchanged with a few minor exceptions indicated 2022-2023 ending stocks of 1.342 billion bushels for corn, 210 million bushels for soybeans and 598 million for all wheat. Did you see anything in those reports of note?

Suderman: The quarterly stocks report on March 31 showed corn about 71 million bushels below trade expectations and soybean stocks 57 million bushels below expectations.

I said at the time I expected USDA to increase the feed usage number, but not to account for the full 71 million. Maybe feed usage would increase by 25 to 60 million bushels and the USDA would assume the rest of it was sampling error and they’d want to see the next report before they make any changes. It looks like USDA will wait to see the June 30 stocks report before making more significant changes.

I think feed usage is a little bit bigger than what USDA is saying. I don’t think that’s a big market factor at this point. Growing season weather for the new year as well as Brazil growing season weather are going to be the primary drivers.

Same thing for soybeans. I’m less surprised by the soybeans because the soybean usage is all measured. It’s crush and it’s exports. Both are measured and so if USDA is off on the stocks it’s because they were wrong in their production estimate in January (for 2022).

They don’t want to admit that now and so they’re just going to say that 57 million must have been a sample error.

They are not going to change is what USDA is indicating here. Watch in September to see if they cut the size of the 2022 crop when we’re all focused on the new crop harvest.

Were there some significant changes in the domestic wheat balance sheets among various classes?

Suderman: The trade was surprised to see a 30 million bushel increase in wheat stocks. They weren’t expecting that big of an increase. USDA cut hard red winter wheat stocks by about 11 million bushels, soft red winter wheat stocks were cut by better than 20 million bushels, but USDA had a major increase in hard red spring and a modest increase in white wheat stocks. Durum stocks increases, as well. The increases offset the decreases by about 30 million bushels.

USDA cut feed usage in wheat by 25 million, from 80 million bushels down to 55 million, for a net increase in stocks of 30 million bushels.

What are some of your expectations going forward as we enter the growing season?

Suderman: Both the global and domestic wheat supplies get tighter in 2023-2024. Corn and soybean supplies are expected to build if weather is good going forward. We don’t have to have above normal rainfall or anything like that at this point. Just normal weather condition can build corn and soybean supplies.

El Niño is expected to build in the Northern Hemisphere this summer. An early onset of El Niño would increase the odds of high U.S. yields. The production risks shift to Asia and Australia. The Bureau of Meteorology in Australia has been most aggressive calling for El Niño by May and a super El Niño by the end of the North American summer.

More weather models are starting to agree with the Australians now, not to the same extreme, but calling for a El Niño by sometime mid-May to early June. Generally, that’s going to be good for the Northern Hemisphere summer. Early onset El Niño would increase the odds of a high U.S. yield.

Productions risks really shift to Asia. Expectations are we’re going to see dry weather in Australia for wheat planting and we’re going to see times of dryness in the Australian and Asian wheat crop production areas.

Geopolitical risks will continue to rise in 2023 and these markets will remain subject to headline risk.

Tom Doran

Tom C. Doran

Field Editor