Market Matters Blog

Market Focus Shifts to South America, Acreage

The January report has come and gone. It brought its share of surprises, like lower corn production and lower ending stocks than the trade expected. While unexpected, it's still a record crop with a 12.4% stocks to use ratio. Soybean production in 2013 got a little boost, but so did crush and exports. The 2013-14 ending stocks picture didn't budge.

Enough recap. I'm sure you've all poured over the numbers and committed them to memory. In the current 24-hour news cycle and (almost) around the clock trading day, last week's report is old news. That leaves us with South American weather and harvest developments, export news and ethanol usage updates to guide the market in January.

DTN Senior Ag Meteorologist Bryce Anderson said the southern half of Argentina crop areas have been in a hot and dry pattern since Christmas, and it's causing the most damage to "early-pollinating corn along with some effect on double crop soybeans in southern Buenos Aires/La Pampa. Heat and dryness will be big issues in corn all season because Argentina's planting was really spaced out this year. Brazil is doing better, although there are some pockets of drier conditions in Parana, Mato Grosso do Sul and Rio Grande do Sul."

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USDA announced another large soybean sale this morning, which makes six in the last seven trading days, and the U.S. Energy Information Administration said last week's ethanol production totaled 868,000 barrels per day, down from 919,000 daily barrels last week, but still up from 784,000 a year ago.

During all of this discussion of weather and exports and other usage, farmers need to keep a close eye on moves in the basis, DTN Senior Analyst Darin Newsom said. "They may not want to be the first ones to move on cash sales, but they definitely don't want to be the last."

Come February and March, crop insurance guarantees and a revved up acreage debate will take center stage. A recent post on the Farmdoc Daily blog by Darrel Good makes an interesting point about the assumption that corn acreage will give ground to soybeans this year.

"Forming expectations about acreage, however, is more complicated than in most years," Good wrote. "First, planted acreage of corn in 2013 was two million less than reported planting intentions, due at least in part to spring weather that delayed planting in many areas. Second, the 8.3 million acres of total prevented plantings in 2013, along with the 1.6 million acre net decline in acreage in the Conservation Reserve Program and the 1.1 million acre decline in winter wheat seedings suggests that total acreage of spring planted crops will be much larger than in 2013. With prevented plantings near a more normal 1.5 million acres and some decline in double-cropped soybean acreage due to fewer acres of soft red winter wheat, total acreage of spring planted crops could be 9.2 million acres larger than in 2013. That provides opportunity for large increases in acreage of soybeans or other crops without a significant decline in corn acreage. Third, price relationships that should impact planting decisions continue to fluctuate so that producers receive changing signals about which crops the market prefers in 2014. Projected prices for crop revenue insurance that will be established in February will provide some basis for producers to solidify their planting intentions." (For the whole Farmdoc blog entry:…)

Good's point about overall acreage increasing to a point that corn acreage doesn't have to decline in order for there to be an increase in soybean acres is a good one.

While Newsom thinks most farmers have already decided what they'll plant, the market is relatively clueless. "All of the talk is of a reduction of 3 ma to 5 ma, but from what starting point? The 100 ma some still assume was set to be planted in 2013? The 97 ma that was supposedly planted? The 95 ma left after prevented plantings (some would argue this goes back to the 100ma estimate given a possible 5 ma prevent plant)?" he said.

"Yes, soybeans could see, are expected to see, an increase at a time when the world may still be trying to digest record large Brazilian production. If Mother Nature plays nice in 2014 -- it's always possible -- we could see another record crop for both corn and soybeans."

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