By Karl Setzer

 Trade is starting to pay more attention to U.S. export demand versus USDA projections. For corn, trade does not believe the USDA is fully accounting for all export demand and this is giving us inflated ending stocks estimates. The USDA is projecting corn carryout for 1.485 billion bu (bbu) for this marketing year and 1.4 bbu for 2022/23. Cumulative Census export data shows yearly loadings are running nearly 300 million bu (mbu) above the USDA though, which puts us closer to a rationing level, especially on new crop.

We are already starting to see more concern on new crop soybean carryout as well. The USDA is currently predicting 2021/22 soybean carryout at a six year low of 205 mbu. Next year this only increases to 280 mbu. A carryout at this level is a tight 6.1 percent. The reaction to this tight ending stocks estimate on new crop is being tempered by the record South American production estimate and how it is believed that will cut into U.S. exports.

There is less concern being shown on wheat balance sheets, even though they remain historically tight as well. Old crop carryout for the 2021/22 marketing year is at 660 mbu. The USDA believes wheat ending stocks will tighten this year to 627 mbu. The uncertainty in wheat is coming from the global side. Australia is predicting another bumper crop this year and Russia claims its wheat crop will be record large. Other regions of the world are facing production issues though, mainly the EU, India, and of course Ukraine. This production uncertainty may alter global trade patterns and not bring the United States the demand that is hoped for.

Any changes to the U.S. acreage between now and harvest will have impacts on new crop production, as even slight declines to acres cannot be tolerated give the new crop stocks to use levels. If the national yield on either corn or soybeans declines even a minimal amount going forward, it will have the same market reaction. While we may see market pressure at times, these fundamental factors will continue to provide underlying support.

Trade is closely monitoring U.S. cattle weights. Cattle weights have decreased in recent weeks as feeders try to limit their exposure to high feed grain costs. This has put packers in a tough spot as they need higher weight cattle to make grade. As a result, we have started to see higher cattle values to try to entice feeders to hold their animals longer than they have been.

The United States is still seeing strong demand for its pork in the global market, but this is likely to fade as U.S. hog values continue to rally. In fact, U.S. hog values are now the highest priced in the global market. Chinese hogs are currently half the cost of those from the United States and starting to impact that country’s demand. Economists believe U.S. hogs are starting to put in a season high and Chinese hogs a seasonal low though, and as this spread narrows, demand will increase.

One of the greatest hindrances in South America is infrastructure and logistics. This is not only for exports but for imports of needed inputs. This is especially the case in Brazil, although the country has made several improvements in recent years. A main one is the building of export terminals in Northern Brazil to reduce grain flow and port congestion in the south. The paving of many of Brazil’s main roadways has also improved commodity movement in the country.

Brazil is now in the stages of building a railway to help service Southern Ports. The most notable is the line that will connect Southern Mato Grasso and Parana to the port at Paranagua. Not only will this make transportation easier, but it will also lower costs as well. This will be a great benefit for importers as it will lower Brazilian offers, but pressure U.S. markets as it does.

We are starting to see estimates released for next year’s soybean production in Brazil. According to a Reuters poll, Brazilian farmers are expected to raise a 148 mmt soybean crop this coming season. This is well above the 126 mmt the country is thought to have raised this year. A return to normal growing conditions and an increase to plantings of 3 percent are behind the elevated production. It is thought Brazil will seed 104.2 million acres of soybeans this coming year.

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