More of the Same: USDA Report Underwhelms

[00:00:00]Good morning everybody. It is Friday, June 12th, about 5:30 a.m. Central time as I speak here. Uh the grain markets, they are trading lower here this morning. Brian Split is joining me. Joe is off on vacation. We are going to start off with yesterday's USDA report, which featured uh no major surprises. Uh there were no meaningful revisions to US ending stocks for either new or old crop. On the demand side, old crop corn export projections were modestly increased while soybean exports were lowered and crush was raised. For wheat, the USDA lowered its all wheat yield by.5 bushels per acre, resulting in a modest reduction in new crop ending stocks. Down in South America, production estimates were raised for Argentina's soybeans and Brazil's corn, which in turn lifted global corn stocks, while soybean and wheat changes were minimal. Uh the marketplace was largely underwhelmed and will now turn its focus back to US weather and the June 30th acreage and quarterly grain stocks report. Brian, what were your overall thoughts on yesterday's report?

[00:01:08]Um I think the primary driver yesterday uh would have been the world numbers out of South America, the 2 million ton increase for uh Brazilian corn and Brazilian uh I should say uh Argentine corn and Argentine soybeans and we had a two or 3 million ton increase in Brazilian corn production. So overall and I think they increased like India's yield and their area. So, there was a a a pretty decent increase in the world stocks for corn and uh I think that'll bring into question the ability of the USDA to further raise corn for export uh in balance sheets down the road. Uh we're probably going to have a little bit more competition out of South America. Uh as far as the uh the wheat market, uh we had production decline there after May was a very large hit to production on the yield side and on abandonment. Uh and that might be something that we see a little bit further maybe in July or August is that abandonment number come up a little bit more. That was a feature three years ago when we had problems in Kansas with the wheat crop. We did see that abandonment number uh continue to to push higher late into harvest.

[00:02:21]And on to price action, how the market reacted. Uh soybean futures extended losses yesterday with the November 26 contract falling nearly 5 cents to settle at 1134 per bushel. Uh futures were pressured by weaker crude oil prices, favorable weather forecast, and a lack of supportive news. Corn uh corn futures followed suit with the December 26 contract declining roughly 7 cents to settle near 440 per bushel. Similar to soybeans, corn was pressured by favorable weather and USDA's crop report which reinforced expectations of ample domestic and global supplies and wheat futures were uh lower as well. What are your thoughts on yesterday's price action and then overall just what we've seen this whole week?

[00:03:02]>> Yeah, Mackenzie, price action yesterday was not uh what I would call good. We did have new contract lows that were scored in both old crop and new crop corn. And the new crop contract has essentially been holding this general price level for the last 22 months. We had contract lows made at 439 a bushel and this was at back in August of 2024.

[00:03:25]Uh then we reinforced support at this level uh in August of 2025 with a low of 440 and 3/4. So uh trading at 435 a half for a low overnight. These are new lows.

[00:03:38]um there's not that's not a good thing to uh to occur and hopefully we can recover into the close and and not close into new contract lows which we were able to avoid yesterday. Um on the soybean side of things, we're really still holding support uh rather nicely in the short term. November soybeans are revisiting highs that uh we had scored last November in that 1130 area. Um there's definitely a shelf of support under July soybeans at the 1110 level from June of last year and then from highs that were scored in fall of last year. So we're uh kind of pausing soybeans on these on these uh old highs.

[00:04:16]Uh I think it is likely to be inevitable that we'll we'll continue to see soybeans weaken late in the month into July and likely see some further losses there. But with crude oil, and this is another key element, um crude oil was part of that late break in the day yesterday. We were we were poised to kind of hold contract lows on corn until we saw that late break in crude oil. And crude oil has taken out some support that has been holding since about late April. Um so if we close crude oil below $86 a barrel, that would be a close a new kind of a trading range that we haven't been in for quite some time.

[00:04:50]>> And we'll get to crude here in a second.

[00:04:52]Um, what's it going to take to, this is a broad question, but what's it going to take to turn these grain markets around?

[00:04:57]Are we talking a major weather event?

[00:04:59]Are we talking China coming back into um, back into the market? It just seems like we just cannot catch our footing.

[00:05:06]>> Yeah. So, maybe we can start to slow down the selling a little bit if we do see a drop in condition ratings next week. Um there are areas that have been getting too much rain and I know it's when you have rain out there it's hard to to be bullish about rain in the Midwest uh as the crop is developing but uh there are areas that have gotten too much. Uh there are areas that have ponding um yellow uh crops. So we'll see if that's something that may creep in to at least maybe help stem the selling. Uh as far as turning the market around. Uh yeah, I mean if we could have China come in and and make some corn purchases, uh I think that would go an awfully long way. Uh if the forecast as we went, you know, transitioning from June into July and start focusing on pollination if that were to change the pattern because right now it's uh it was 60° this morning. We just had a bunch of rain yesterday. So that is not something that's get them going to get the market excited to try and price in a reduction in in yield potential. So, got to get a hot and dry type of a a market to develop. Um, and and outside of that, um, you know, maybe a resurgence in energy values, which at least for right now, that's not the case. Uh, momentum is moving more to the downside in energy values. Uh, so again, it's a kinetic event in the Middle East. Things can change rapidly, but uh, the the sentiment of the day is negative.

[00:06:31]>> Uh, on to the most recent drought monitor and as you touched on, weather.

[00:06:35]So, a large portion of the cornbt received precipitation last week. As a result, drought conditions improved across northern Illinois, eastern Iowa, northeastern, and southern Missouri and portions of Kentucky. In contrast, dry conditions worsened up in northern Minnesota. Meanwhile, rainfall was scattered across the high plains, easing drought conditions in some regions. But aside from North Dakota and eastern Kansas, most of the region uh remains plagued with widespread dryness. When we look at the percentage of US areas experiencing drought, corn country currently stands at 24%, soybeans 25%, winter wheat 63%, spring wheat 22%, and cattle country 54%. As you just stated, um, some areas of the cornbt has have received too much moisture. Um, can you elaborate a little bit a little bit more on that? And is there any uh seriousness when it comes to dryness such as up in Minnesota?

[00:07:26]>> Um, yeah. So there's uh parts of the cornbt that uh Iowa is an example where there's uh some spots that have gotten too much rain. You can go into the eastern part of the cornbt that uh there's been too much rain and u you know it's indicative when you look at the drought monitor um you know when there is no color on the map that means that there is no drought there. Now it's not like it starts to change colors in in you know a green direction uh or blue because there's too much there. This is only looking at at deficits. So, um you're not going to see any areas with with too much moisture on on any of these maps. But um I will say that when we think about uh you know the transition from June 2nd to June 9th um we are going to see as of today June 12th if we were going to look at an update of this map which it doesn't exist but uh if it did a lot of the yellow that occurs in northern Illinois and as you get into Iowa that's going to start turning into a smaller area uh potentially white there as well. So that's I I think uh an improvement that the market is is looking at as we're going to see further reduction in drought. Um but uh yeah, the area in Minnesota that uh you know they that is is also being uh cured in in some areas.

[00:08:43]So I think the important thing is to look at the big picture right now. Um, and yeah, every year there's going to be pockets that have a little too much or or uh not enough uh when we talk about rainfall, but in the aggregate uh I think the market and and we could tell by the price action does not see the current moisture situation as as something to uh feel like they need to price in the the idea that we're losing yield potential in a major way.

[00:09:10]>> On to crude oil. Uh oil prices moved lower yesterday amid hopes the war will soon end. WTI crude fell more than 2% to settle at 8771 per barrel after President Trump signaled that the US and Iran are nearing a deal, which he expects could be finalized in the coming days over in Europe. However, Iranian media pushed back on that narrative, reporting that no final decision has been made. Earlier in the day on Thursday, Trump called off planned air strikes on Iran, citing a breakthrough in talks to end the war. Trump has repeatedly suggested the conflict was nearing an end, initially projecting it would last only four to six weeks.

[00:09:49]However, as we all know, the war has now entered its fourth month, driving a sharp rise in fuel costs and adding to uh broader inflationary pressures. So, is this the time, Brian, that we really end the war, that we get a deal put together?

[00:10:02]>> You know, I don't know. Oh, I mean it's uh one of the things that we talked about I think back in in March was that you know once these wars start they last a lot longer than uh I think what is advertised and and um you know they become very sticky situations and uh I think that this war has been suggested was close to over or over numerous times um and so yet here we are. So, I I don't know. Um, you know, to your point, uh, the Iranian, uh, sentiment seems to differ from what we're seeing on on sentiment about ending the war on our side. Um, so I'm just going with history. I'm going to say no. Um, you know, the the market is pricing in based on the headlines. Uh, we're obviously seeing energy values down, but, uh, I don't know. Coming out of the weekend, I mean, we just had a helicopter that was down. Uh, how close are we really? I I I don't know. Um the crude market though continues to ride the wave of headlines.

[00:11:00]You know, Trump comes out and says it's going to end and then it goes down and then you know escalate things escalate again. When does the crude market just straight up trade the facts, the fundamentals as in the straight of whoo is still closed because you know Trump can go on and on forever just saying it's going to end and then have it not end. When like is the oil market ever going to do that? Just trade the straight up fundamentals? Well, um I think there's kind of this belief that uh you know at some point when you have a lot of the major countries dipping into the reserves uh if the traffic doesn't start back up that there's going to be kind of that breaking point where all of a sudden no one has the reserves anymore. Um you know there's been statements that uh oil is leaving the region that the US is getting it out of there. So I, you know, it's tough to, unfortunately, it's tough to believe everything the administration says, >> right? And so, um, I don't know how much >> oil has left the Middle East, uh, how much the US has been able to get out and and and, uh, we do have the situation of draining our reserves and and they were already, uh, reduced to begin with from the the Biden presidency. So, um there's definitely outside markets watching that. Uh and and if that is the case, then you could argue that maybe the energy market's being complacent right now. But, um for some reason, you know, we have traded crude oil uh to the highest price right at the beginning of the conflict up to almost $120 a barrel.

[00:12:32]Uh we spent some time, you know, jockeying back and forth over a hundred.

[00:12:36]uh but now we're starting to break down below levels that have been holding for the last uh 30 plus almost 45 days. So there you have to uh read into that a little bit that the market is sensing some things. And I I guess something else is that you know the higher energy prices do change behaviors as well. So um there is going to be reductions in consumption because of what's happening.

[00:12:59]you know, families going into summer, for example. It's awfully expensive to fly a family of four. U so I think you're going to have a lot more people drive and and do, you know, destinations that are closer to home. Um so I I I do believe that there's a change in behavior that also comes along with higher energy values that reduces demand.

[00:13:20]>> On to export sales. US corn export sales increased last week. For the week ending June 4th, net corn sales were reported at 39 million bushels. The print was up 13% from the previous week, but down 15% from the prior four-week average. Japan was the largest buyer. Net soybean sales were near the lower end of pre-report expectations at 8 million bushels. The print was down 24% from the previous week and down 18% from the prior 4-week average. Egypt was the largest buyer.

[00:13:47]And then wheat sales uh for the new marketing year that began on June 1st exceeded expectations at 24 million bushels. The print was up 4% from the prior week with Mexico as the largest buyer for the week. what are your overall thoughts on export sales and then also notably uh China has yet to buy any new crop uh soybeans, >> right? Um so old crop uh sales for corn pretty solid and actually I think the new crop sales for corn were also uh above you know we would consider trade estimates but uh the new crop uh uh export book isn't off to the best start compared to you know where we were for uh this year's export sales. Um yes, the Chinese are notably absent. Uh that's been something that uh has been talked about that China is going to purchase the additional 17 billion dollars of agricultural products. Um I think when we've discussed this over the last couple weeks after that uh was first uh announced or that that White House fact sheet was released uh for the Chinese it makes a lot of sense if there's not a a problem with domestic weather um that they would just be patient and look to procure corn wheat whatever it is sorghum uh at at what would be seasonally the best time which would likely to be maybe about 2 months from now as we progress into mid August. Guess that seems to be when the market likes to make some lows after we see that seasonal move lower through July. So, if I'm China, um unless I start to sniff a bit of a weather concern in the United States, um I am I'm going to be patient and look to to procure uh whatever I need to buy at lower levels over the next couple of months. Um so, on the wheat side of things, we actually had uh some pretty good export sales there. Um but uh again when we think about wheat there's the reduction in production but there is still uh enough wheat in the world and and we're not going to see the um you know the market get uh concerned about just one particular region of production moving forward. We already kind of priced that issue in as far as the hard red wheat crop uh and and so right now the sentiment has returned to there's enough wheat in the world.

[00:16:02]>> Uh cattle futures they were higher yesterday. Live cattle were 3 cents to a buck 85 higher and feeders saw gains ranging from 325 up to 543 with the exception of the May 27 contract which lost 27. What are your thoughts on this cattle market?

[00:16:17]>> Um when we talked about cattle earlier in the week in the uh premium program, we said that uh you know technically we were looking for some additional short-term upside. Uh I'd like the idea of the August feeders returning back to the 365ish area. So, that's going to be about another five bucks higher than where we had settled yesterday. Uh, I like the idea of the August live cattle uh returning back to maybe the 247 area.

[00:16:43]Uh, so maybe four and a half to $5 higher there. I do think if we start to revisit those price levels that producers need to really think about again implementing some type of downside coverage in in both products.

[00:16:55]>> Sounds great. Thank you for joining me here this morning, Brian. Everyone have a great day, a wonderful weekend, and we will be back on Monday.