- The majority of the industry gets all in a lather over USDA's March 31 quarterly Grain Stocks and Prospective Plantings reports, ignoring the fact markets have been keeping us updated all along.
- The various cash indexes told us available stocks-to-use were looser than a month and year ago at the end of February.
- Tracking the Nov23 soybean/Dec23 corn futures spread from September through February showed us corn did its best to buy acres away from soybeans.
There is a great deal of hype surrounding USDA’s quarterly Grain Stocks and annual Prospective Plantings reports, but here’s the reality: We already know what we need to know about both March 1 stocks and expected acres, with USDA simply adding make-believe numbers to the already volatile mix. I want to make this absolutely clear: This piece is not my guess on USDA’s guesses, but rather a summation of what the markets were actually telling us at the end of February. I do not play the game of pin-the-tail-on-the-donkey everyone else does.
Let’s begin with grain stocks. At the end of February my analysis of the various cash indexes showed available stocks-to-use (as/u) had loosened considerably over the course of the month and was looser across the board from the previous March 1. A couple questions to ask ourselves: Do we need to know what the quarterly grain stocks number as of March 1 actually was? No. The reality is USDA’s number is an estimate based on surveys. With that as a backdrop, though, we can look at USDA’s estimates from last year, both on farm and off farm, and make some interesting inferences about how these stocks are spread out this year.
Corn as/u as of the end of February, or as of March 1, came in at 9.1% as compared to the previous February 28 figure of 8.6%. Additionally, national average basis at the end of February was 8.4 cents over May futures, roughly 20 cents above the previous 5-year high for that week. To this add the March-May futures spread was at a carry of 0.75 cent while the May-July spread showed an inverse of 8.0 cents. We know, then, supplies were tight in relation to demand, and demand wasn’t slowing down but rather seeing a seasonal strengthening. Reportedly, the US had a total of 7.756 bb on hand as of March 1, 2022 with 4.08 bb on farm and 3.676 off farm. The combination of our fundamental reads tells us March 1, 2023 saw decreased total US corn stocks while off farm stocks may have been a bit larger (the year-to-year increase in as/u).
US soybean as/u came in at 4.4% on February 28, as compared to last February’s 3.0%. Last year’s March 1 off farm stocks estimate was reportedly 1.181 bb, with this year’s as/u indicating a possible larger number. Through the end of February, US exports were running 2% ahead of the previous marketing year’s pace while crush demand for soybeans through January was fractionally behind a year ago. Meanwhile, national average basis finished February near 32.7 cents under May futures, roughly 8.0 cents stronger than its previous 5-year high. What I made of all this was US soybean supplies were still tighter than the previous year, though off farm stocks look to have increased. Last year’s total March 1 stocks came in at 1.931 bb.
All US wheat stocks as of March 1, 2023 were likely larger than a year ago given the increases in as/u seen across the board at the end of February. Much of this can be attributed to US SRW as the March-May spread closed February covering 80% calculated full commercial carry (cfcc), with 67% or more considered bearish. Last year saw March 1 all wheat stocks come in at 1.025 bb with 850 mb off farm. I don’t know what US stocks of wheat were as of March 1, 2023, but I do know what I like to call the Wheat Reality: One bushel of wheat left over is too many.
Turning our attention to acres, the January round of quarterly USDA reports (as of December 1) showed an estimate for all winter wheat acres increasing by 11% from the previous year. However, we have to keep in mind this number was largely irrelevant given the high percentage of HRW acres across the US Southern Plains that will be zeroed out given a lack of precipitation of any kind over the last year(s). USDA will give us its thoughts on spring wheat at the end of March, but again, new-crop futures spreads for both Kansas City (HRW) and Minneapolis (HRS) were bullish at the end of February.
The vast majority of the industry is foaming at the mouth over expected US corn and soybean expected plantings, though. Those of you who have been with me over the years know the key word in the title of this Friday’s release is “Prospective”. Additionally, we already know December corn did what it needed to do to buy area away from soybeans from the first of September through the end of February. That was the timeframe when planting decisions were made, so those who are saying November soybeans are buying acres away through March are blowing smoke and/or talking their position.
As I tracked it for the previous six months, the Nov23 soybean/Dec23 corn spread stayed well below the previous 10-year average. A simple read on this is if the spread is below average it favors more corn acres and above average means soybeans were trying to buy acres. For the 6-month period studied, the spread showed an average weekly close of 2.26 (soybeans divided by corn) as compared to the 10-year average weekly close average of 2.4. And while I don’t believe in analogous years, the previous closest fit (the past 10 years) to what we saw with the 2023 spread was 2016 at 2.24. For what it’s worth, the spring of 2016 reportedly saw the US increase its corn acres by nearly 7% while soybean planted area grew by 1%. However, that year also saw a reported decrease in wheat planted acres of 9% as compared to a rough estimate of a 10% increase this year.
For the record, if we want to go back a bit further, the 2011 spread also showed a 6-month average of 2.26. Recall that year was the midpoint of a 3-year drought, and US producers reportedly increased corn planted area by 4% while decreasing soybean acres by 3%. Because of the ongoing draught, all US wheat acres increased by a reported 19% in 2011.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
