The third quarter of 2023 saw losses across the board in corn, soybeans and especially wheat, the biggest loser of the group.
December corn ended September down 18 cents for the quarter, while down just 1.5 cents for the month. November soybeans ended September down 68.25 cents for the quarter and 93.75 cents for the month. Finally, Chicago (SRW) and KC (HRW) wheat ended September down $1.4775 and $1.365 for the quarter and 60.5 and 63.5 cents for the month, respectively.
A significant portion of the monthly losses occurred on the last day of the month following the release of the September Quarterly Stock Report. These quarterly inventory numbers for corn and soybeans are the numbers the USDA will use going forward for carry-in for last year’s crop, while the September WASDE report is essentially the USDA’s final carry-in “estimate.” -In and the WASDE report from October is the first report that will show these figures as old fruit entries.
That is, if the government doesn’t do this switch off and we have a report at all.
Corn stocks fell year-over-year from 1.377 billion bushels (bb) to 1.361 billion; The estimate in the September WASDE report was 1.452 bb. When we have a WASDE report for October, the new crop balance will be 91 million bushels (mb) tighter at least due to the initial carry-in reduction.
The USDA will then attempt to adjust yield and demand from there to match the current estimate of the new crop.
The trading sentiment of the last few months is likely to continue, meaning if the USDA cuts yields, demand will also have to be sharply reduced to make up for production losses. For example, the current export commitments for corn from the new crop are exactly at the level of the previous year, but the USDA uses around 400 million MB more export demand in the balance sheet. We could see the USDA reduce yields further, but if exports don’t pick up and we end up exporting the same amount of corn for 2023/24 as we did for the 2022/23 crop, carryover could actually increase as long as yield doesn’t increases Not decreased below 168 bushels per acre (bpa).
Soybean transportation is growing
Unfortunately, the quarterly soybean inventory estimate was higher than September’s WASDE report, meaning throughput will grow by 18 million before USDA takes into account the yield and demand portions of the balance sheet. The USDA reduced demand for new-crop soybeans in its September report as production declined. With the additional 18 MB of carry-in, the October WASDE report yields a meager 0.1 bpa worth of production. If soybean yield is reduced by more than 0.1 bpa, additional demand reductions are required to keep export volumes stable.
Although the September 29 report was slightly pessimistic and the market responded with heavy losses, it is still possible that a minor yield adjustment in October could result in a carryover of under 200 mb for new crop soybeans.
Wheat problems
Wheat easily claims the title of worst performer of the month and quarter. Total wheat production was 83 mb above average analyst estimates, with much of that driven by a strong rebound in spring wheat production in recent months. While domestic wheat inventories are up only $2 million from year-ago levels, December 2022 SRW and HRW futures are trading $3.80 and $3.2775, respectively, below their 2022 counterparts at the end of September 2022, suggesting that a significant portion of the Black Sea risk premium was absorbed during the year as Ukraine continued to transport grain out of the country despite the collapse of the agreement Grain Corridor and continue to carry out attacks on ports.
No matter how you feel about grains and whether you feel that the grain harvest is at or near “crop lows,” we must admit that markets are trending downward and price action is closer to a bear market than a bull market equals. December corn hit new lows for the move this month, November soybeans closed below their August low and ended the month of September, and SRW and HRW wheat hit new contract lows, 53.5 and 51.5 cents below, respectively were at their lows in August.
Markets can fall much deeper than many think, and there are many ways to protect yourself from losses while still allowing yourself the flexibility to benefit from upswings. For assistance, please feel free to contact me directly at 815-665-0463 or someone on the AgMarket.Net team at 844-4AGMRKT. We are here to help.
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