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Many farmers will soon be faced with sell or store
Market Analysis
By Karl Setzer
The USDA’s Economic Research Service has released its 10-year baseline estimates. Basically, these numbers are for budgetary purposes, but they do shed light on what is expected for balance sheets for the next 10 years. The most interest on U.S. supply and demand data forecasts will be released in February at the Ag Outlook Forum in Washington, D.C.
The stocks to use on corn is forecast at 14.7 percent for 2023/24 and then ranges from 18-19 percent for the next decade, according to the ERS. The average farm gate price estimate on corn is at $4.95 for this marketing year, then steadily holds at $4.30. On soybeans, the stocks to use for this year is estimated at 5.2 percent, but then increases to 6.5 percent for 10 years. Soybeans are expected to be priced at $10.50 through 2033/34. On wheat, the ERS is expecting to see a stocks to use of 35 percent to 40 percent for the next 10 years. The average cash value on wheat is projected at $7.30 this year but then drops to $6 for the remainder of the period.
There are building concerns that falling water levels on the Mississippi River will bring additional draft restrictions, slowing grain deliveries to the U.S. Gulf for export. This is especially the case with the mid and upper river systems starting to ice over and close for the winter. This may push more export business to the Pacific Northwest. While this is where most buyers are sourcing coverage from, the gulf will need to see exports as well to reach yearly projections. Importers will likely start to reduce interest in U.S. offers until this corrects, and that may not be until after the South American new crop export program is underway.
Another region of the world seeing ongoing low water levels is in the Panama Canal. Low water levels have caused restrictions on passage on the canal, and we are now hearing there may be booking restrictions until water levels rise as well. If correct this is more of a factor for the U.S. export program as it limits our exports to the Asian market to the Pacific Northwest. This would basically cut the U.S. export capacity by 70 percent on corn, 55 percent on soybeans, and 26 percent on wheat. South America would see less trade loss as vessels could head east from those sources if need be.
While much of the global oilseed market interest has been on South American soybean production recently, data on palm oil is also impacting global markets. Malaysia is reporting end of October palm oil supplies of 2.45 million metric tons. This is a 5.84 percent increase from September and the highest palm oil supply in four years despite an increase in export demand. The last time Malaysia had palm oil reserves this high was in September 2019. This is the sixth consecutive month of climbing palm oil reserves and is impacting global demand for other oil products, including soy oil.
The U.S. cattle market has seen elevated volatility in recent weeks as high values are limiting any form of buying interest. Another reason for the correction in cattle is from elevated imports of beef and live cattle into the U.S. U.S. cattle imports this year are forecast to increase 12.4 percent from last year, mainly from a 36 percent rise in imports from Mexico and a 49 percent increase in Australian imports. Beef imports were projected at 3.64 billion pounds for this year and 3.69 billion pounds for 2024 in the November supply and demand report. These are both record volumes and come even as beef production for 2024 increased 540 million pounds in the November balance sheets.
The United States has now approved the resumption of beef imports from Paraguay after 25 years, which will likely increase this yearly volume even more. These beef imports are needed though as they are mostly lower grades and used to produce ground beef which is seeing elevated demand as the U.S. economy slows. The U.S. does have quotas on Paraguay beef imports though.
The harvest of the 2023 crops in the United States has now drawn to an end. The question in the market now is what will be done with these newly harvested bushels. Farmer interest in marketing inventory remains very low as most expect to see higher values later in the marketing year, especially if weather conditions in South America do not improve.
While this is possible, many farmers across the U.S. will soon be faced with a “sell or store” decision on open bushels. It is not uncommon to see elevated cash selling at this time. This will likely elevate commercial inventory enough to bridge the gap until after the first of the year when we historically see additional selling take place.
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