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Commodities Report: Domestic Crop Strength With Chance of Subpar Growing Season



We’ve entered the dull days of winter for the commodity markets, with domestic wheat in dormancy, the major corn and soybean harvests finished in the U.S., and protein and dairy production chugging along. But that didn’t stop the USDA from making some noteworthy changes to its final 2016-17 corn and soybean crop estimates last month. The bad news is that the USDA made lower adjustments to the supply. The good news: Both corn and soybean supplies domestically are projected to be the biggest in 11 years. Argentina, the world’s largest soybean oil and soybean meal exporter, has had some noteworthy challenges with its crops, but this is being offset by nearly ideal conditions in Brazil. The USDA is forecasting the total Brazil and Argentine soybean output this year to rise 4 percent. Not to be outdone, the USDA corn output forecast for the two countries is an increase of 28.1 percent. So it appears that the global feed supply should remain adequate. Back home, winter wheat crop conditions have deteriorated with acreage at a 50-year-plus low. But the National Weather Service is calling for improved weather for winter wheat country in the coming months.  Further, global wheat supplies remain ample. Trade is starting to debate 2017-18 U.S. corn and soybean planting numbers. The fact that winter wheat acreage is so low opens the door for a sizeable increase in soybean plantings. Corn acreage should be more than adequate as well. But we’d caution that we are overdue for a subpar growing season in the U.S. We’ve have four straight years of at- or above-trend corn yields. The odds of having a decline in yields from trend at least one time in five years is 85 percent. The better news is that we have historically large supplies to carry in to the next crops, which widens the margin of error with the harvests. Protein and dairy output have been excelling with stronger gains anticipated in the coming months. The USDA is forecasting spring pork and beef output to both be at least 6 percent better than 2016. Milk production this year is projected to rise by the largest by volume since 2006. This should temper the upside in the dairy markets for the better part of 2017.   

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