Market Thoughts 1.15.2023

• March corn clawed back 21’0 cents this week, finishing at 675’0. That close was within a couple ticks of Friday’s daily high as corn rallied steadily following Thursday’s USDA report. March soybeans gained 35’2 to end at 1527’6, a higher close than two weeks ago (as we suggested would happen last week) and as a result now the highest weekly close since June 6th. March spring wheat settled at 912’2, managing to tally 10'4 cents of gains on the week but not before placing a double bottom at December’s 890 low just ahead of the USDA report.

• Recapping an eventful January WASDE Report:

• 22/23 All winter wheat plantings came in nearly 2.5 mln acres above the average trade guess and 750k acres above the high end of estimates. On the surface this adds another substantially bearish factor to a wheat market that has been under pressure recently from domestic and global fundamentals. But this huge acres number certainly appears to be a case of producers in extreme drought areas taking advantage of attractive crop insurance prices and it is quite probable actual harvest acres will be much lower.

• Easily the biggest shocker of this report and perhaps of any USDA report, 22/23 harvested corn acres were reduced an incredible 1.644 million acres. Again nothing quite like that has ever occurred in the Jan report. Acres came in 1.3 mln below the lowest of pre-report estimates. The majority of the acres change appears attributable to drought-related abandonment in the SW Corn Belt and with it there was a slight increase in national yield across remaining acres. All told, corn production was decreased 200 million bushels. Ending stocks were only down 15 million bushels, arriving there after a steep cut in exports. But nonetheless, an objectively bullish corn.

• Beans featured a similar tune as corn. Acres were down though not as drastic but yield was also reduced and the combination resulted in a 70 million bushel decrease in production. Percentage-wise, this was an even more extreme production loss than corn and similar to corn the result was below even the low end of pre-report estimates. Also similar to corn, carryout was only decreased 10 mln bushels to 210 million after cuts to exports. Unlike corn though, the bean export cut is a little tougher to take at face value and seems instead like a “solve for minimum carryout on paper” move. On the other hand, Brazilian bean production was increased 1 million metric tonnes and world bean carryout increased despite decreases to U.S. and Arg crops. Brazil is close to harvest now and seems near certain to bring to market a bean crop that is nearly 1 billion bushels larger than a year ago.

• We’ve spent a couple months talking about the idea that grains trade sideways through the winter and have a low probability of a major rally later in 2023 absent an extreme U.S. weather issue. We predicted the Dec lows when they occurred and expected them not be taken out this winter. We viewed the top of the winter range for corn at 685-700 and expected it unlikely that corn would trade much higher. How does this report reshape our stance going forward? Just one week ago we registered concern that the Large Spec/Managed Money crowd would need a major catalyst to be interested in owning grains again. Well, the corn numbers on Thursday certainly were that type of catalyst. This definitely raises the floor on grains over the next few months as both Commercial and Managed Money will be interested now in owning any corrections. That’s helpful as it buys us quite a bit of time before we have to make further new crop marketing decisions and should also mean incredibly attractive crop insurance prices. It also increases the probability that corn tests the 700 level and beans take out their Dec highs, something we should see as soon as early next week. That said, we’re still skeptical of a major breakout beyond those levels this winter. As we noted above the Brazilian crop appears to be huge and going home Friday there was a noticeably pattern shift for Arg/southern Brazil weather toward much wetter. If this holds true it should stop further crop losses. And grains still have macro-economic headwinds to contend with.

• Looking once again at the seasonal comparison between New Crop 2023 and 2013 corn as these two have tracked incredibly similar since last September. Worth noting that quarterly stocks this year are the lowest they’ve been since 2013 and that 2013 stands out as the only year this century where new crop corn made a marketing year high before May.