TOP FARMER WEEKLY PERSPECTIVE 03/12/2021 BY BRYAN DOHERTY

Kicking the Can, Not Necessarily a Bad Thing

This week’s USDA Supply and Demand report had virtually no change. In fact, the only noted changes among corn, soybeans, and wheat were in soybeans, and so minimal as to be nearly unnoticed. In other words, it looks like the USDA kicked the can down the road, making no commitment of change relating to South American crop production or adjustments to demand. One might argue it appeared there was not much work being accomplished by the USDA. On the other hand, it may be just the fact that this month’s analysis did not contain changes. Also, it might not be a bad thing to have a neutral report in March. A much better vision of expected crop production in South America, as well as the availability of quarterly stocks data, will be more helpful.

Weather events in both Argentina and Brazil have been significant and, in some cases, game-changers for supply. Continued dry weather in Argentina most likely will lead to further downgrades in crop production. Yet, to draw conclusions during February might be a bit premature, as dry weather conditions can be alleviated by one timely rain. Therefore, it may be better to wait another month before adjusting until more information is available. As for Brazil, many are scratching their heads, wondering why the crop has not been downgraded due to massive rain in parts of key states. Bear in mind, most of these rains came at the very end of February and the first part of March. In other words, it may have been premature to make downgrades to the crop on the March report when the April report could better reflect crop conditions.

From an observer’s view, the USDA has a history of making gradual changes. On the one hand, this frustrates some because it appears they are falling behind in their analysis and not quick enough to recognize what appears to be obvious crop production problems. On the other hand, many would argue gradual adjustments are responsible and a more pragmatic approach to defining crop sizes. Additionally, changes in the April Supply and Demand report may be influenced by the quarterly stocks. The Grain Stocks report will be released at the end of the month as well as Prospective Plantings. Prospective Plantings will have little to no bearing on current supply and demand figures yet; quarterly stocks could. The 2019 corn crop was likely a lighter than usual test weight crop. It is highly likely that feed users utilized more corn than usual due to light test weight, yet these results did not show up for 6 to 9 months later. However, we doubt the 2020 test weight is as big an issue. One never knows what the quarterly stocks will be.

By all accounts, the March Supply and Demand report was a dud. Do not expect the same in the future. Be prepared, as USDA reports tend to not always agree with what market analysts believe beforehand. Be prepared for prices to move in any direction. Be disciplined and strategic in your marketing. Manage the volatility using marketing tools and pay attention to market signals that help you implement the timing. The USDA reports likely have significant changes in the months ahead, and so will many other factors, with the most important being weather. Tighter inventories suggest higher volatility. Implement strategies that shift risk and manage opportunities.

If you have comments, questions, or suggestions, contact Bryan Doherty at Total Farm Marketing. You can reach him at 1-800-top-farm, extension 300.

Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

Author

Bryan Doherty