Fooled by Acreage Estimates?
Grain markets ended last week mostly in the red, thanks to major selling on Friday, April 1, 2022, a day after the USDA’s quarterly stocks and Plant 2022 estimates, which surprised traders with way more soybeans, and fewer corn and wheat acres. Soybean prices pulled back, thanks to decent supplies and a new forecasted record of U.S. soybean acres, as well as Beijing announcing the release of 500,000 MT of soybeans from state reserves. As for wheat, despite a bullish Prospective Plantings report, the market saw some major selling, thanks to continued poor U.S. wheat exports and basic profit-taking.
After surveying 78,000 farmers across the country in March, the USDA estimated U.S. corn acres at 89.5M, well below the average analyst guesstimate of 92M. This would be a drop of 4.1% or nearly 4M acres below that planted a year ago. This pushed 2022 new crop December corn futures to their highest ever level on the March 31st report date, up to $6.91 USD/bushel (the previous record was $6.253, set in 2011). Many analysts are suggesting that, due to high crop input prices, American farmers are flipping fertilizer-heavy corn fields to soybeans, with the latter’s area pegged at a new record of 91M acres. That’s well above the pre-report expectation of 88.7M, and up 3.8M or 4.3% from Plant 2021’s area.
Total U.S. wheat acres are estimated at 47.4M, which, if realized, would be the fifth-smallest area for American wheat since reporting began in 1919. This year’s acreage includes 34.2 acres of winter wheat planted last fall), 10.5M acres of hard red spring wheat, 1.92M acres of durum, and 700,000 acres of other spring wheat. For spring wheat, this is the fourth consecutive year of acreage declines and helped minimize the selling on the Minneapolis HRS wheat futures board, relative to Chicago’s and Kansas City’s decline. As the monthly and quarterly performance tables below show, the situation in Ukraine has had an outsized impact on winter wheat prices, new crop HRS spring wheat values continue to try and buy more acres.
Also released on Thursday, March 31, 2022, by the USDA was the quarterly stocks report, which, compared to a year ago, showed smaller wheat and durum inventories, but slightly larger corn, and much larger soybean supplies. With 1.02B bushels (or 27.9 MMT) of total wheat available as of March 1st, 2022, that’s a drop of 22% year-over-year, despite the December – February quarterly disappearance being 10% below the same timeframe a year earlier. With the smaller durum harvest, as of the beginning of March 2022, 29.7M bushels (or 808,220 MT) of U.S. durum were still available, a 30% decline year-over-year. NOTE: If you’re wondering when we’ll get Canadian Plant 2022 acreage estimates and March 2022 quarterly stocks reports here in Canada, Statistics Canada is set to release them on Tuesday, April 26, 2022, and Friday, May 6, 2022, respectively.
With the USDA’s spring acreage and stock reports out of the way, there’s a new foundation for the market to work with, but it’s important to remember that Mother Nature will have the final say. Given that April is an important month for U.S. winter wheat development, we tend to see some premium built into wheat markets, while corn and soybeans trade on speculation of what actual acres will be. If we get any weather scares, it’ll probably support corn and wheat prices most, meaning anyone who needs to buy feedstuffs before Harvest 2022 supplies become available should consider protection against this upside potential.
Let’s not be fooled though: weather premiums almost always show up in grain markets, and this year it comes as 70% of U.S. winter wheat acres are already experiencing some level of drought. The drier conditions seem to be most in the western Corn Belt, as well as the Southern Plains, the latter of which has been mentioned many times before this column. But the NOAA’s outlook for April’s weather doesn’t look too helpful for these areas. Comparably, Environment Canada is estimating near average temperatures and moisture in April for Western Canada.
Overall, we continue to be in a tight market for wheat, be it here in Canada, the U.S., or around the world. A bumper harvest in Europe would help, but even with that accounted for, it could mean that higher values stick around until late 2023, after another harvest is in the books. As it stands today, global wheat inventories are at just 2.5 months, the tightest in 14 years, and this excludes China, which is dealing with what appears to be the worst winter wheat crop ever. Thus, expect volatility to continue, and that might will likely help the market inch higher over the next 6 – 8 weeks. In the near-term though, barring any major increased geopolitical issues in Europe (which would be bullish), U.S. moisture events (or lack thereof) are likely in the driver’s seat for wheat markets.
Founder | Combyne