Porto Alegre, July 18, 2023 – USDA adjusted its US supply and demand framework this July. Basically, the report updated the planted area released on June 30 and cut the expected yield based on June weather conditions. This translated into a projected record crop and completely bearish final stocks, a fact that led the September/23 contract on the CBOT to test a new low. The crop is now entering its critical production phase, and the definition of production will come with the August and September reports.
The USDA July report would have some situations already pre-calculated. First, the planted area was updated to 94.1 mln acres, up 5.5 mln from 2022 and the third-largest planted area in history. Second, the adjustment in the area to be reaped. At this point, we were expecting some cuts due to the planting situation in North Dakota and Minnesota. However, USDA chose to disclose the potential area to be reaped to perhaps correct it later, that is, 86.3 mln acres.
The point of discussion, however, was the adjustment of expected yield. As always, consulting firms, brokerage houses, and now agtech companies are projecting higher yield losses, some well below 170 bushels/acre. This also serves to create a speculative environment and price volatility on the CBOT. However, USDA does not have the same focus and criteria. Initially, the yield projection was 181.5 bushels/acre, which was really a very high initial projection and depended on perfect weather. Well, the weather is not perfect, with below-normal rainfall in June and crops at 55% in good to excellent conditions. So, a cut in this excessive projection of yield was necessary. USDA cut the average yield to 177.5 bushels/acre from the last record of 177 bushels/acre. With that, we have a projected record output of 389 mln tons.
This update put stocks at 57 mln tons for the new crop, against the current 37 mln. Even with the weather-based yield cut in June, stocks are sky-high. Without the weather problems registered so far, the production projection would be even higher.
However, nothing is set. We will still have 45 days of weather ahead to define this 2023 crop, and now crops are advancing into the pollination and silking phase, that is, from now on, either the crops will advance in good production or we will have losses. In this first half of July, the rains were back almost throughout the US Midwest. This has helped to improve the psychological environment of the market and prepares crops for this crucial early stage of production. The rains only eased a critical situation, now they need to continue to maintain good conditions for production. Basically, rains until the end of August will lead to good production, but a decrease for the next thirty days could bring surprises to the market.
This tense environment about the 2023 crop is generating intense volatility on the CBOT. The planted area figures and projected stocks made the September 23 maturity reach its lows. We continue to focus on a target price of USD 4.30/bushel for the December expiration during the US harvest, even with a slight situation of reduced rainfall until the end of August. August will be an important month for prices. Besides the pod-filling stage, we will have an update on the yield projection by USDA based on the field survey and, at the end of the month, the traditional ProFarmer crop tour. Three pieces of information that could still generate plenty of volatility on the CBOT.
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