Afternoon report: Corn, wheat stumble on stronger dollar, rail strike worries, and export woes.
Rail strike: The U.S.’s largest rail workers union struck down a vote on a deal with railways in protest over paid sick leave terms today. The vote raises the risk that a rail workers strike could be imminent and could shutdown grain and fertilizer supplies for farmers who are already facing logistical hurdles amid low river levels and delayed shipping paces on the Mississippi River.
The deal, which was written by a board of advisors appointed by President Biden following earlier strike threats in late August 2022, was just narrowly rejected by the railway workers in the transportation division of the International Association of Sheet Metal, Air, Rail, and Transportation Workers (SMART-TD) union.
The new worry is that if the dispute between the railways and their workers continues into the new year, workers could see less favorable resolutions if Congress is forced to get involved as the U.S. House shifts to Republican control.
“I see a minimal improvement in sick pay, and huge pressure from the (Biden) administration to accept a deal,” Joe Brock, a former Teamsters local president and current principal at Reliant Labor Consultants, hypothesized in a Reuters article. Brock’s comments suggest that the rail workers may be running out of bargaining leverage after this failed vote.
For more details on the strike, I highly recommend checking out this Reuters article.
Corn
Corn prices fell $0.02-$0.08/bushel today, as nearby December 2022 futures dropped to the $6.60/bushel benchmark during today’s trading session. A stronger dollar amid growing global economic uncertainty about a surge in COVID-19 cases across China.
For Ukraine’s corn crop, the hits just keep coming – and not the good kind. Analysts at Ukrainian grain consultancy APK-Inform expect that a large volume of Ukraine’s corn crop will be left standing in the fields over the winter as farmers continue to battle fuel shortages and ongoing war activities that have slowed harvest progress.
Ukraine’s government expects that only half (50%) of the country’s corn crop had been harvested as of November 17. Plus, low domestic prices due to export limitations caused by the war are not providing enough of a price incentive to push farmers to harvest faster.
Yields have already taken a hit due to constrained fertilizer supplies and untimely planting due to the war as well as dry weather in Ukraine this summer. Any crops harvested later this winter or in the early spring will likely also face quality downgrades. Ukraine is hoping to harvest 1.083 billion – 1.098 billion bushels this year, down from last year’s record crop of 1.654 billion bushels.
Friday’s Cattle on Feed report reflected the nation’s shrinking breeding stock following its release by USDA just after market close on Friday. Cattle on feed volumes as of November 1 came in just above pre-report trade estimates at 11.706 million head, down 2% from a year ago.
But the big surprise came from cattle placement volumes in Friday’s report. Analysts had been expecting placements to range between 2.051 million – 2.168 million head with an average guess of 2.092 million head projected ahead of the report’s release.
But Friday’s report saw year-over-year placement volumes fall a staggering 6% to 2.108 million head in October 2022. It was the smallest October placement volume ever reported since USDA began keeping records of placements in 1995.
Yet consumer demand for beef remains strong even as the breeding herd begins to show dire strains of shrinking. Sales for slaughter volumes in October 2022 were just a hair (0.6%) higher than a year ago at 1.802 million head, keeping largely in line with historical trends for the season.
In recent months, USDA has increased livestock feed and residual volumes for corn, which would suggest that forecasts indicate a growing cattle herd. And while Friday’s November 1 cattle on feed readings could make the case that herd sizes could start trending higher, the rapidly shrinking placements rate is raising alarms (at least in my head) that the past year’s losses to the nation’s breeding herd could have severe consequences for corn growers as the winter season drags on.
Soybeans
After soybean prices hit a two-week low on Friday (and continued to trade within that range during the overnight session), the bargain buyers bought back into the soybean market today, lifting nearby futures prices $0.04-$0.08/bushel at market close today.
Bullish USDA export inspection data also helped prop up today’s price gains. Through the week ending November 17, federal inspectors surveyed 2.33 million bushels of U.S. soybeans destined for international markets, up from 1.96 million bushels inspected for export last week.
Cash soybean prices were largely flat at Midwestern elevators and river export terminals but strengthened $0.05-$0.10/bushel at crush facilities across the region. While basis on the river continues to trade at a wide discount to futures prices, cash offerings from processors are as high as $0.65/bushel over January 2023 futures prices.
The higher cash offerings were meant to encourage more farmer sales of soybeans to keep production schedules up with end user demand.
Soyoil prices continue to rise during today’s trading session as a weaker Malaysian currency (the ringgit) boosted global palm oil export prospects – and carried the edible oil complex along with it.
Soymeal futures prices reversed earlier losses from this morning to close up $1.10/ton. Some bargain buying was likely at play after soybean prices hit a two-week low. Soymeal prices on the cash market were mostly unchanged to slightly weaker as many livestock and poultry feeders have pre-booked their necessary supplies for the week in anticipation of the Thanksgiving holiday.
Brazilian soybean planting is now 80% complete, according to Brazilian agribusiness consultancy AgRural. While that figure represented an 11% increase in planted area from the previous week, it remains 6% behind year-ago paces.
Irregular rains have made planting season in Brazil a little dicey this season, though at this point AgRural does not believe there is significant cause for concern with regard to yield and production prospects. Brazil is expected to harvest its largest soybean crop in history early next spring and as the world’s largest soybean exporter, it will be able to offer its excess supplies at an affordable market rate, especially relative to U.S. soybeans.
However, it will likely need more rain in the coming weeks to stave off dry La Ni?a weather patterns. “Although the [recent] rains were very welcome, the volumes and distribution were not enough to bring relief to all dry areas,” AgRural said.
Planting is largely finished in Brazil’s Center West and Mato Grosso regions. However, peak sowing activity remains underway in other primary soybean producing states in Brazil’s southern regions.
Planting paces for Brazil’s first corn crop of the season are also lagging slightly behind last year’s speeds. About 82% of the crop has already been planted in Brazil’s center-south states, up 12% on the week but still 9% slower than a year ago.
Brazil’s first crop of corn typically represents 25% of its annual production. The second crop – planted directly after soybean harvest – accounts for the country’s largest haul of annual corn bushels harvested.
Strong crush margins continue to keep plentiful soymeal supplies available to the market, which was a key driver of the weaker cash offerings today.
Drama in Argentina over the weekend – Bloomberg reported that Argentina is considering devaluing its currency in December to encourage soybean growers to boost export sales. The Argentine government tried this strategy in September, and it boosted export volumes as international buyers flocked to discounted soybean supplies.
I have yet to hear official confirmation that this policy will once again be reinstated, but U.S. farmers should be prepared for U.S. soybean prices to drop if – or when – this policy is finalized.
Wheat
Wheat prices fell $0.02-$0.08/bushel today, with the Chicago SRW January 2023 futures contract dipping below the $8/bushel benchmark today as a rising dollar and growing economic unease about China’s latest uptick in COVID cases created bearish market conditions for the U.S. wheat complex.
“Talk of sales of French wheat to China and of possible sales of northern European wheat to the United States underscored how U.S. wheat remains uncompetitive globally,” Reuters reporters Tom Polansek and Gus Trompiz wrote of the current U.S. and E.U. wheat export environments.
Southern regions of the European Union continue to battle dry weather this fall, casting doubts onto production hopes for winter crops planted this fall for harvest in 2023.
“In most regions, the exceptional warm temperatures, combined with adequate topsoil moisture conditions, favored emergence and early establishment of winter crops, and allowed late sown crops to catch up in development,” MARS, the E.U.’s crop monitoring service, stated in a monthly report published this morning.
Southeastern Bulgaria, southern Spain, central and northern Italy, and eastern Romania are all experiencing abnormal dryness for this time of year and are the areas where chances for winter wheat yield damage are highest.
So far, other areas are largely enjoying favorable weather conditions for winter wheat and rapeseed crop development across the bloc which bodes more optimistically for winter wheat production in 2023. Regardless, more moisture is needed to replenish soil moisture levels across the E.U. following last summer’s catastrophic drought to ensure more dry weather issues do not disrupt 2023 yield prospects.
The European Union is the world’s second largest wheat exporter.
As market risk aversion to Russian grain and fertilizer supplies lessened following the deal extension announcement, Russian grain prices fell as its record-setting 2022 crop became more accessible to international buyers. The Russian government has helped prop up the domestic grain market following the bumper harvest, stockpiling 1.74 million metric tonnes (MMT) of grain for its state reserves until next summer’s harvest.
However, the lower prices have likely worked against any hopes for a second consecutive bumper crop for Russian growers next summer. Winter grains acreage is reported to be 4% lower than a year ago at 43.5 million acres, according to Black Sea ag consultancy SovEcon. Weather patterns have been largely conducive to favorable winter wheat crop development so far.
Inputs
Since the beginning of the Black Sea conflict, Russia has become top global fertilizer buyer India’s largest supplier during the first half of the 2022/23 fiscal year. Steep discounts on Russian fertilizers due to increased transaction costs from Western banking sanctions allowed India to buy Russia’s products at a very affordable rate.
India has imported 2.15MMT of Russian fertilizer since April 1, a staggering 371% higher than the same time a year ago. India only imported 1.26MMT of Russian fertilizer during the entire 2021/22 fiscal year.
“India was struggling to secure fertilizers at reasonable prices after conflict escalated between Russia and Ukraine. Russian supplies were timely and at reasonable prices. It helped us to avoid possible scarcity,” an Indian government official told Reuters.
“It was a win-win situation for India and Russia,” a senior fertilizer industry official in Indian told Reuters. “India sometimes got discounts of more than $70 per tonne over global prices. Russia got a big buyer who can replace European buyers.”
If you’ll recall back to my early coverage of the Black Sea conflict, I had hypothesized that India would come out as a primary beneficiary of the turmoil. And to give it credit, I can’t help but to have a bit of respect for anyone who is willing to take on that much risk for the sake of a good bargain.
But there is one dynamic I could not predict. Interestingly, India’s surge in Russian fertilizer purchases came at the expense of India’s relationship with China. Chinese fertilizer exports to Russia have been cut in half over the pat year as India turns to Russia as its preferred source of affordable fertilizer.
Weather
Happy Thanksgiving week! Mostly clear skies are forecasted for the Heartland this week, according to NOAA’s short-term forecasts. A chance of snowfall is possible in the Northern Plains overnight, though any accumulation will likely remain light.
NOAA’s 6-10-day forecasts are now trending closer to normal in terms of temperature for the Eastern Corn Belt and Upper Midwest. But temperatures are likely warm in the Central Plains during that time. Chances for rain will be below normal across the Heartland during Thanksgiving, but the Pacific Northwest will see an above average chance of moisture during that time.
Those trends will begin to shift slightly in the 8-10-day outlook. Forecasts during that time are much warmer for the Western two-thirds of the country than in the 6-10-day forecast. The chances for excessive dryness during that time will recede slightly and center over the Central Plains, with the Eastern Corn Belt expecting an above average chance of moisture during that time.
Financials
It’s a holiday week, so expect some erratic algo trading and low volumes until everyone returns to the office next week. S&P 500 futures traded 0.39% lower to $3,949.94 as Asian markets drifted lower overnight on concerns about rising COVID-19 cases in China.
What else I’m reading this morning on our website, FarmFutures.com:
Water Street Solutions’ CEO Darren Frye has three tips so that farmers can use 2022 as a springboard into 2023.
Bryce Knorr has calculated out crop budgets for the 2023 growing season and all signs point to profits as 2022 comes to a close.
Is another rail strike on the horizon? This Bloomberg article reports how farmers will be impacted by a railway shutdown.
The last Feedback from the Field column from the 2022 growing season, which features a yard update!
My latest E-corn-omics column features a recap of the top highlights from last Tuesday’s USDA Data Users’ Meeting.
Last week was a busy one at USDA. Here are all the agency’s announcements over the past week.
Get our top content delivered right to your inbox. Subscribe to our morning and afternoon newsletters!
