For the first time since Russia's invasion of Ukraine began, most U.S. crop prices took a bearish hit in the week that just ended Friday, April 1. Part of the timing may have been coincidence, but it does seem Thursday's planting estimates from USDA played a part in the bearish changes, getting traders to think about something other than Ukraine.
No April Fools, May corn was down 19 cents on the week and the grain sector's largest percentage loser and May Chicago wheat was down $1.17 3/4. December corn posted one of the only gains of the week, ending up 19 cents at a new contract high of $6.88 after USDA estimated 89.5 million acres of corn plantings, the lowest in five years.
November soybeans dropped 90 cents on the week to $14.96 3/4 after USDA estimated soybean plantings at a record high 91.0 million acres. If USDA is correct -- and I can't confidently say USDA is -- it will be the first time soybean acres exceeded corn since 2018 and only the third time in history.
Dow Jones' pre-report survey of 21 analysts expected farmers to choose corn over soybeans by a margin of 92.0 million to 88.8 million acres. Even after penciling in higher fertilizer and fuel costs, new-crop futures prices on Friday's close favored corn with a $360 per acre theoretical profit versus $125 per acre for soybeans.
If U.S. farmers are preferring soybeans over corn, it is probably because the demand outlook for soybeans looks more appealing than it does for corn this year.
There's certainly nothing bearish for corn out of Ukraine. As we learned after Russia's phony promise on Tuesday, Russia's assault on Ukraine is not backing off anytime soon. The prospects for corn exports out of Ukraine look bleak in 2022, once estimated at 1.32 billion bushels (bb) in 2021-22 and possibly facing a season close to zero in 2022-23.
Meanwhile, Brazil's second corn crop is off to a good start. USDA is estimating Brazil's corn production at a record high 4.49 billion bushels (bb) with exports of 1.69 bb. Private estimates are already reaching higher, helped by recent rains shortly after the corn was planted.
The demand side of corn is where potential trouble is brewing. U.S. ethanol production is doing well, running 10% higher in 2021-22 than a year ago at this time. U.S. hog inventory is declining, however, and highly pathogenic avian influenza (HPAI) is spreading throughout the Midwest as the annual migration heads north. U.S. corn exports have been active, but sales and shipments are down 18% in 2021-22 from last year's record pace.
On Wednesday, USDA said the U.S. inventory of all hogs totaled 72.2 million head, down 8% from the peak of 78.1 million head on Sept. 1, 2020. Hog inventory may actually be lower than USDA estimates as pork production is down 6.5% so far in 2022 from a year ago. New cases of HPAI are being reported every week, coming from 22 states so far and resulting in the loss of over 27 million birds, mostly egg-laying chickens in Iowa.
Soybean demand, on the other hand, continues to look promising with U.S. export sales benefiting from drought in South America and aggressive investment, expanding the nation's ability to create renewable diesel from soybean oil. USDA's latest weekly report showed total sales and shipments of soybeans at 2.033 bb in 2021-22, just 57 million bushels (mb) short of USDA's export estimate with 22 weeks left in the season. New-crop soybean sales total 300 mb, over three times last year's amount at this time.
Even more impressive is soybeans' crush demand. Friday's report from USDA showed one bushel of $15.89 soybeans in Illinois could produce $19.69 worth of meal and bean oil, a $3.81 difference that continues to give crushers strong incentive to keep buying and crushing soybeans.
Fueling the historic crush premium is a growing demand for soybean oil as a source of fuel. On Thursday, the U.S. Energy Department reported 791,000 pounds of bean oil were used for making biofuel in January, down from 937,000 pounds in December, but up 16% from a year ago. Even more important, renewable diesel plant capacity increased to 1.47 billion gallons per year in January, up an aggressive 86% from a year ago.
Even though prices in the soy complex took a hit last week, it was interesting that May soybean oil overcame a lower start Friday, held support above the 50-day average and closed up 1.26 cents on the day.
With demand for soybeans looking so good, it may seem unfair for prices to have dropped as much as they did last week. After all, 91.0 million acres of soybean plantings roughs out to a 4.64 bb crop, assuming a trendline yield of 51.5 bushels per acre. If demand stays as strong as it currently looks, the U.S. may need that big of a crop in 2022-23.
That is also an example of how Russia's assault on Ukraine has confused the current situation with an injection of extra bullishness in crop prices, beyond what fundamentals would normally support. What's more, the threat of what Russia might do continues to hang over the market and remains a dangerous source of potential volatility.
Thanks to Russia's attack and its emotional impact on markets, there is a disconnect between current prices and the fundamental reality of grain supplies. I suspect the fundamentals will eventually win out, but between now and then, price moves won't always make much sense.
If U.S. producers actually do choose to plant soybeans over corn, as USDA's survey said, they must have ignored new-crop prices and probably focused instead on this year's prospects for demand. Given the distortion of today's prices, that looks like the wiser choice.
Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be found at Todd.Hultman@dtn.com
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