By Karl Setzer

There has been a gradual shift in the sentiment toward South American crops, mainly in Brazil and Argentina. The crop ratings in the countries have improved following recent rains. The Brazilian corn crop rating is up 5 percent from a week ago and the soybean crop has improved 3 percent. Ratings in Argentina have improved even more, with the corn rating up 10 percent and soybeans up 8 percent. Field scouts are quick to point out that while the crops look better, it does not mean yields will be higher.

The real concern in South American production is in Paraguay as that whole country has experienced drought this year. Corn production in Paraguay is expected to be down 23 percent from a year ago. The Paraguay soybean crop is expected to be 40 percent smaller than last year. Thoughts are these losses will create voids in the global market of 55 mbu on corn and 100 mbu on soybeans that may need to be filled by the United States.

In the United States, there is more concern being shown over the condition of the winter wheat crop. This continues to slip lower, especially from the Southern Plains into Texas. There are thoughts this may lead to some fields being plowed up and planted to an alternative crop this spring if stands do not improve considerably. Some field scouts claim these fields may be converted to corn, but it is more likely they would go to a crop such as milo where demand is increasing, and it is better suited for production in that area.

It is a well-known fact the world grain supply is going to be smaller this year than last, but the question is how long stocks may shrink. There are models that indicate world stocks of corn and wheat will continue to contract next year given the prospects for lower acreage in the United States this year and possible drought losses in South America. Other outlooks indicate global grain production will rebound next year though and point to larger crop potential in the Black Sea as the reason why. This uncertainty is likely to keep grain values elevated for the foreseeable future.

Logistic issues have plagued the global commodity market for the past several months and potentially will for the next few as well. The major issue in the United States is river movement disruptions from heavy ice accumulations and low water levels. There are now concerns over the volume of snow some parts of the Corn Belt are receiving and what it could mean as we approach spring. It is not out of the question that a rapid snow melt and heavy ice accumulations could lead to flooding this spring.

The range of estimates on the Brazilian soybean crop continues to work lower. The range is now mostly from 128 million metric tons (mmt) to 134 mmt. There are a few estimates that are below this range, but also some that are above it. Even at the low end of this range, Brazil would produce enough soybeans to satisfy immediate demand and allow buyers to extend coverage into the summer months. The question this raises is if buyers would be able to secure enough soybeans to avoid late summer purchases from the United States, and it appears this would be unlikely.

Harvest is starting to gain momentum in Brazil. Total soybean harvest in the country is reported at 12 percent complete, well ahead of the 2 percent that was harvested a year ago. This quick harvest pace is allowing for an early planting of the Safrinha crop. Sources in the state of Mato Grasso claim corn planting is already at 24 percent of intended acres. Given recent weather conditions in South America it is possible we may see elevated double cropping this year, especially if farmers try to make up for losses to the initial crops.

The financial sentiment for some farmers across the United States is starting to soften. High priced inputs and supply chain issues are the leading causes of this as farmers are showing more worry about future profitability the longer these factors linger. While some of this is being offset by sharply higher commodity values than a year ago, several farmers still claim they will need larger operating notes to cover expenses. This will especially be the case if commodity values recede, and the cost of production does not follow.

The January semi-annual cattle inventory report showed us the smallest U.S. cattle herd in the past seven years. This decline is credited to the result of the drought in the western United States and how pasture conditions have been greatly affected. This led to heavy culling of cattle herds, and these may be slow to rebuild given ongoing dry conditions and high feed costs. The U.S. beef inventory is likely to continue declining as a result. In turn the U.S. consumer should expect to see little relief from high beef costs in the near future.

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