Market Movers: USDA Report Day
The May supply/demand covers the typical old crop demand revisions noted in prior months but also includes USDA’s first full new crop balance sheet. As typical for this report they used unadjusted March Prospective Plantings for acres and trend yields for corn and soybeans. Corn and soybean yields can be adjusted by planting progress. No changes were made this year as the pace is above average.
2022/23: Old crop US corn ending stocks were raised from 1.342 billion bushels to 1. The trade expectation was 1.366 (ALDL 1.402). The only change here was another revision for export sales, -75 million. This was the fifth cut to export sales out of the nine reports since September. In fact, the total drop in their export estimates since September is 500 million bushels. We agree with this month’s export sales revision but would suggest more cuts remain ahead. USDA’s current 1.775 billion estimate is -18% from the five year average. This is a problem as year to date sales are -27% from average and the recent five week pace is even worse at -67%. If sales sharply improve to -10% from average through August there will be another cut of 61 million bushels. If they run -40% through August the miss still ahead is 111. Though Brazil’s export price advantage has narrowed, now $21 per tonne or 53 cents per bushel, it is still enough to suggest we are moderately uncompetitive. USDA left feed/residual and corn for ethanol unchanged on this report. We are a little behind USDA’s current corn for ethanol hope. It would take remaining April – August usage to run +0.1% vs. the 2018/19 model year to hit that hope. The prior three weeks of use were -0.7% to -1.0% from that model year. South American production was left unchanged for Argentina at 37 million tonnes. The trade expected 34.9. The Buenos Aires Grains Exchange is at 36 and the Rosarios Grains Exchange is at 32. USDA did jump the Brazilian corn crop by a large 5 million tonnes to now 130. Brazil’s government, Conab, is at 125.5. Old crop stocks of 1.400 would suggest 585 for futures. 1.450 would suggest 540.
2023/24: USDA has only adjusted the March Prospective Planting acreage number one time on the May supply/demand report, back in 1996. USDA has been active with adjusting yields from trend on the May report but generally does so when planting is over or under a normal pace. Based on that method USDA was correct to use 181.5 bpa trend yield. Allendale does suggest there is a need for summer price risk as we are entering summer with moisture deficits in many areas and private forecasters remain concerned over moderate headwinds for Western Cornbelt moisture. As a reminder, moisture in May and first half June are not determinants of final yields. Yield hits are statistically tied specifically to weather around reproduction. A summer rally is reasonable but that is determined by dryness into reproduction. USDA’s implied 15.265 billion bushel corn crop would be 1.535 over last year’s 13.730. Total supply this year, including a larger beginning stock, is 1.560 billion over last year. They are offsetting 48% of the supply increase with a demand bump. That helped put new crop stocks at a large 2.222 billion bushels. This was over the 2.094 trade estimate (ALDL 2.090). This would be next to the 2018/19 stock of 2.221 billion and the largest in seven years, 2016/17’s 2.293. Stocks/use of 15.3% would be the largest since 2018/19’s 15.5%. Whether it is a stock of 1.8 or up to 2.2 does not matter, the implied pricing for December futures at fall lows is anywhere from 380 – 440.
2022/23: Old crop US soybean ending stocks were raised by a small 5 million bushels to now 215. That was next to the 212 trade estimate (ALDL 250). The only change today was a 5 million increase for imports. The controversial category, exports, was left unchanged at 2.015 billion. It does not appear to be a hard goal to reach at only 1% over the five year average export. But year to date sales are -3% from average and the recent 14 weeks have been quite poor at -60% from average. If remaining sale through August improve to -10% and stay there we’ll miss USDA’s goal by 78 million. If they run -40% the miss will be 115. Brazil still has a steep price advantage of $51 per tonne, $1.39 per bushel, we it will be hard to see clear improvement. On the positive side, their price advantage was once almost $3 per bushel. We would like to see USDA recognize all of the bear arguments so we can play a clean summer weather rally. In this case though, we remain concerned export sales adjustments remain ahead in the future. Perhaps in the coming months some of that could be offset by a minor 10 million increase for domestic crush. The remaining April – August period needs to see crush +2.1% from last year. The estimate for Monday’s NOPA report covering April would be +2.6%. A stock of 200 would suggest prices of 1400 for old crop futures, 250 would imply 1295. USDA left their Argentine production estimate unchanged at 27 million tonnes. The Buenos Aires Grains Exchange is currently at 22.5. The Rosario Grains Exchange has a latest estimate of 23. Brazil’s production was raised by 1 million tonne to 155. Conab is currently at 154.8.
2023/24: New crop stocks were posted at a large 335 million bushels. That was over the 293 trade estimate (ALDL 293). Keep in mind these numbers could grow if old crop stocks are adjusted higher. This starting 335 would be the largest stock, and also stocks/use, in four years. USDA has never adjusted soybean plantings on the May report from the March Prospective Plantings. They are very resistant to adjusting trend yields on this report, only one time back in 2005. Given we have the second most aggressive soybean planting in history, if anything, they could consider a slight increase over trend in the next month or two. Yield concerns based on summer weather down the road are reasonable. Production this year using this balance sheet, 4.510 billion, would be 234 million over last year. With a smaller beginning stock total supply would increase 174. The pricing side is interesting here with a 300 stock implying around 1220 for November futures fall lows. 350 would suggest a price of 1165.
2022/23: USDA chose to leave their old crop wheat ending stock unchanged on this report at 598 million bushels. The trade estimate was 603 (ALDL 622). We remain quite concerned over exports, especially with less than four weeks left of data ahead of the May 31 end of the marketing year. USDA’s current whole-year goal would run -16% from the five year average. The problem is year to date shipments are -22% and the recent five weeks are worse at -50%. If the remaining shipments ahead improve to -10% through May we’ll miss USDA’s goal by 29 million bushels. If they run -40% the miss is 48.
2023/24: New crop is where the numbers really got interesting. USDA used the planted acres from the March farmer survey, +4.1 million from last year. Their current percent harvested estimate comes to 74.4%. That is the lowest all-wheat percent harvested in over 50 years. Production of 1.659 million was much under the trade’s 1.789 estimate (ALDL 1.762). Winter was posted at 1.130 billion, under the 1.230 estimate. The key group would be hard red at 514, much under the 591 estimate. This is just under last year’s damaged 531 harvest and the smallest in modern farming history. Soft red of 406 million and white at 210 were near trade estimates. USDA does not detail other spring or durum production on this report. The total supply estimate would be -80 million from last year and the lowest since 1974. Ending stocks of 552 were under the 602 trade guess (ALDL 634). Given that current US wheat pricing is heavily determined by world trade flows, and not the US balance sheet, we would rather focus on KC/Chicago or Minneapolis/Chicago spreads. The KC/Chicago could reach a premium of up to 300.