Analyst: Will Spring Bring Hope Eternal?
We are through the USDA report for March, when little news is typically reported for the U.S. supply and demand tables. There were a few surprises from USDA, with a larger increase in Brazil soybean production estimates than expected (108 mmt vs. 106 mmt expected and 104 mmt last month and in January). They also hiked Brazilian corn production and Argentine corn and wheat production estimates, thereby confirming the suspicion the market had about a better-than-normal South American (SAM) crop. That pressured grains again last week and early this week, with prices drifting down to and in some cases below support areas. So now the question is whether or not prices are going to slide into downtrends this spring.
But hope springs eternal this time of year, as spring is right around the corner and a new crop year brings new possibilities in the Northern Hemisphere. We could have another record- or near-record-large crop this year (as we have the past three years in corn and soybeans), or we could have a below-normal crop – or even a drought! No one knows what 2017 will really bring, and now all the winter long-term weather forecasts will be tested to see just how wrong they are. And they will be wrong, the only question is how they are wrong.
Weather seems to still be the most unpredictable factor for spring and summer price predictions, and the weather once again will surely dictate what prices will do again this spring and summer. So far, the U.S. weather has turned cold to start March, and cold is not necessarily a good forecast to start out the year. What producers would prefer to get the best crops would be warm and dry conditions for planting early, remaining warm once planted but with intermittent rain showers to provide needed moisture for good germination. Then as we turn into June and July (if the crop is planted early), we’d prefer above-average precipitation and slightly below-average temps as we shift into July and August. That seems to be the formula for the maximum yield for corn, soybeans, and HRS wheat. Winter wheat, of course, needs spring rains to bring the best crop, and to avoid a freeze late in spring when the crop is in the boot stage or beyond.
As we start the 2017 season, we still have large carryout projections for soybeans (raised to 435 mb from 420 in February, expecting more SAM competition on exports), corn (2.32 billion — same as February), and wheat (1.129 billion bushels, down 10 mb from Feb. due to decreased imports). While USDA projects a slowdown of U.S. exports of soybeans, so far they seem to be pretty good considering SAM has begun harvesting soybeans and begun their export program for 2017.
The same question is still on most traders’ minds: Will China import virtually all the available U.S. soybean supply in 2016-17 in spite of record-shattering yields? Especially considering SAM has a good crop of soybeans as well (as opposed to last year when they had production problems). USDA seems to be making the assumption that China will scale back imports of U.S. beans as indicated by their cut in U.S. soybean exports of 25 mb in the March report. But will that actually happen? Or will reality be that USDA once again misses the mark on Chinese soybean imports (like it did the past few years)?
That’s the fun thing about starting a new year, there are lots of questions to ask, and slowly over the course of the year they will be answered. And the market will respond to the answers to those questions.
Probably the most important question on people’s minds right now is first, how many acres will be planted to wheat, corn, and soybeans in the U.S.? USDA will make its best guess based on its early March survey of farmers on March 31. Then, what will be the yield on those planted acres? The combination of the planted acres and the yield will give us total U.S. production. These are the great unknowns of 2017, and will probably move the market the most in the next three to six months. Will we plant 88 million acres of soybeans, and 90 million of corn as USDA’s Ag Outlook projected in February? Or will it be 90 million of soybeans and 88 million of corn, or somewhere in between?
Once the crop starts growing, will we get 47- to 48-bushels-per-acre soybeans, or something greater (like the 2016 yield of 52.1 bushels per acre) or a much-below trend yield? Will corn yield 170 (trend), or 175 as in 2016, or a number much lower? The uncertainty of a new crop year may bring a weather premium to grains as we move into spring, with all the potential risks for a crop now firmly in front of traders’ faces as we move through the production year.
The question is, what is your plan to sell grains in the coming year: Will you sell when the doubt about our ability to raise a crop is high (and therefore prices are high)? Or will you wait until you know what you have (and the rest of the market knows, too, which is typically when prices are low)?
Ray Grabanski is president of Progressive Ag Marketing, Inc., the top-ranked marketing firm in the country the past eight years. See http://www.progressiveag.com for rankings.
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