The much-anticipated update from the USDA was relatively bearish across the board. Corn yields came in higher than the pre-report trade estimates by 2 bushels to the acre, while soybean yields were in line with published estimates. Unfortunately, both of which felt much higher than what the trade was actually anticipating.

For wheat, production was increased as indicated in the production update provided by NASS in September, with demand left unchanged. Many had assumed the large export book seen to start the year would help to soak up some of the extra supplies projected, but the World Ag Outlook Board disagreed.

On the global front, changes were minor for corn. Soybeans saw some larger than expected changes in ending stocks but much of that was driven by a more aggressive export projection for Argentina and Brazil both. Wheat ending stocks jumped more than expected as the USDA played around with export and production figures for several of the world’s largest exporters. An increase to the Argentina crop was projected as well, with a 1 mmt bump in expected exports seen out of both them and Australia.

In addition to the WASDE figures providing a heavier outlook than many were expecting, the export flash sale release was far more subdued than anticipated as well. Corn saw the bulk of flash purchases—which are purchases greater than 100,000 metric tons in one day—with wheat and soybeans seeing limited business being done. Soybeans did have a couple different flash sales for China, confirming rumors of purchases but with less than 1 mmt combined sold to China and Unknown over the shutdown, the volume was disappointing.

The markets reacted as expected, with corn, wheat and soybeans all down double digits at the close. Corn gave back much of what it had gained this week, wheat returned back to October 30^th lows and soybeans managed to keep a nickel of what they had gained this week when the dust settled.

Now that the numbers are out, I want to take a look at what’s most likely to happen next in the three main commodities as we head into year end.

Corn

We’ll start with corn because it feels the most obvious, unless money flow trumps overall fundamentals, we are likely to remain range bound into the end of the year.

While the lack of an evident oversupply and how cash has traded post-harvest has me questioning the USDA’s current production figures, they are the numbers we must trade. With what is perceived to be more than adequate supply on paper and the idea we will have plentiful supplies coming out of South America as we head into next spring and summer, it is going to be difficult to stimulate major fund buying in the short term.

This range bound trade is going to make what was an already difficult job of originating bushels between now and the end of the year much more difficult. For many farmers, the move in futures above 4.50 on the March had started to prompt sales. Many were very active this past week getting the bushels they needed to move before year end sold, with lots starting to add in a portion of what they needed to move at the start of January as well. With the drop in futures, farmers are going to be far more hesitant to sell, likely leaving the heavy lifting to basis and spreads over the next several weeks.

Globally, this will make things interesting as it appears the US will work to remain competitively priced. Today’s WASDE did little to touch on the true global supply and demand situation, only making a minor adjustment to Ukraine’s export outlook, while lowering EU import projections. South America production may be a little light with Argentina at 53 and Brazil at 131 but it appears domestic usage projections are likely light as well.

In the end for corn, today’s numbers were less than desirable, working to reinforce the idea we have more than adequate supply. The drop in futures and likely subsequent range bound direction until the January stocks number, though, will make it clear which commercials have adequate coverage on their bushels sold and which ones do not.

Soybeans

While the soybean balance sheet update was somewhat supportive with ending stocks coming in lower than traders were expecting, the lack of evidence China is buying beans weighed heavily upon this market into the close. Some had thought the push higher in futures was being driven by China purchasing behind the scenes, with many expecting to see lots of bushels sold via the flash system after the government reopened. This was not the case and now we wait.

Soybeans have rallied in a big way these last several weeks, moving far beyond what most folks had anticipated for contract highs. This has resulted in one of the most hated rallies of all time, but also one that’s going to need some level of confirmation it is necessary, before we are able to take it any further.

Today’s balance sheet looks to have the 12 mmt of China demand baked into the export numbers, with a relatively stout rest of the world outlook. Without a further cut in yield, these sales must happen to keep the balance sheet as currently projected. We also need confirmation from the administration that their renewable fuel targets will be finalized. The lack of clarity on both exports and renewables will likely keep beans range bound as well.

In cash, the exporter is more than covered in the short term from the looks of it, with significant carry being offered at the Gulf. In the PNW, buyers are out of the market until January, where they return with a reasonable bid, but one that’s in line with where it has been for much of the last several weeks. It is the interior buyer who may find themselves uncovered, though the commercial short in beans doesn’t feel anywhere near as large in the east as what we are seeing in corn.

Soybeans have a handful of potentially supportive developments still possible with South American weather, European Deforestation Regulations and biofuel adaptation, but for the most part unless China shows up soon or the USDA revises production lower in January, we may struggle to maintain all of the recent strength.

Wheat

Today’s wheat numbers had very little in them to get excited about on the domestic side. On the global side of things, however, we saw some pretty interesting developments, some of which were well expected, others that weren’t.

Wheat overall is being driven by the idea that the farmer has a surplus of supplies still on the farm across much of the Black Sea and Europe. I struggle with this mostly because I know how hard it is to keep wheat in good condition while in storage for the long term. Today’s numbers did show more in the way of expected exports out of the Southern Hemisphere, something that tracks the recent narrative.

In the Northern Hemisphere, the USDA raised their Russian wheat estimate to 86.5 mmt, taking their export estimate down slightly on the slower start to the campaign, but keeping it above last year’s shipments at 44 mmt. Ukraine’s outlook was left unchanged, with wheat exports at 15 mmt, something that is looking more difficult to accomplish the closer to winter we get. 

How the situation in the Black Sea evolves over the next several weeks will have a huge influence on prices, with war risks seemingly rising even if export numbers remain the same on paper. With Ukraine targeting Russian railways and ports, and Russia doing the same to Ukraine, it is likely we will continue to see logistical hiccups and reduced flow continue to grow. This is something the market has been happy to ignore, pointing to adequate supply availability and growing Russian crop estimates, but it remains something that will have my attention as we work through winter.

China’s struggles to plant next year's crop and a reduction in North American planted acreage this fall may add support to this market eventually as well, though it could take weeks if not months to capture trader attention.

When it comes to wheat, I will continue to watch cash and how shipments are able to flow to world end users. We continue to adjust to life without Egyptian tenders and wait to see what happens as the USDA rolls out actual export sales as slowly as possible.

In The End

When all is said and done, today’s figures were less than desirable overall if you were hoping this market would take another leg higher soon. I don’t want to count it out because money flow and speculative interest can do some crazy things that we may not expect. However, without some type of sign China is buying more than we’re seeing now, it is likely the narrative of adequate carryout will keep a lid on things for a bit. This is both bad and good on the cash side, bad because it’s going to reduce movement and slow down farmer selling, good because a flat futures market will do more to help show actual supply and demand economics than a rising one.

As always, don’t hesitate to reach out with any questions! Have a great week.