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An absence of fresh bullish news, coupled with a bearish outlook for US crop area and production for 2023, has seen pressure mount on agricultural commodities.

The USDA’s Agricultural Outlook Forecast (AOF) printed higher sown area, production, and ending stocks for corn, beans, and wheat in light of high prices and a decrease in fertiliser costs.  The total increase in area across the three major commodities is 6.2M acres to 228m acres, well above the 8-year average of 223.1m acres.

 

The trouble with outlooks is the vagaries of mother nature.  A dry spring will upset Hard Red Winter (HRW) yields and may swing areas away from corn into beans that have a shorter growing season.   That being said, the outlook for the corn area and a presumed return to ‘trend line’ yields were enough to tip the market on its head.

 

The report for wheat was perhaps more in line with most analysts and was therefore treated as neutral to slightly bearish.  Drought-impacted areas across Kansas and the Southern Plains are going to need to see significant improvement in order for yield outlooks to be met.  It has been said before that early Spring crop conditions do not translate well into final yield, but these areas remain a flag to watch.

 

Negotiations continue for the renewal of the Black Sea grain corridor.  Ukraine has stated that it wants to renew for a minimum of 12 months.  Russia is yet to commit to anything. To my thinking, despite any Russian rhetoric of the corridor being ‘unnecessary’, I suspect the corridor will be renewed so as to keep all export avenues open.  Russian export pace will be heavily dependent on cooperation and access to, the Turkish-controlled Bosporus strait (sea channel linking the Black Sea and the Mediterranean).

 

Crop conditions in Argentina continue to fall, with soybean conditions rated only 3% (down 6) good to excellent after last weekend’s frost.  Buenos Aries Grain Exchange (BAGE) yesterday also cut production from 38mmt to 33mmt, with possibly more downside to come. Corn conditions also fell with BAGE now suggesting corn production at 41mmt compared to USDA’s 47mmt.

Next week

Long story short, the agricultural commodity markets still have a few surprises left.  As we progress through the Northern Hemisphere spring months, and with an expectation of La Niña to subside, expect production estimates (or at least speculation around production) to level out.

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Data sources: Reuters, USDA, Refinitiv, Next Level Grain, Mecardo

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