USDA Report Day July 12, 2023

Market Movers: USDA Report Day 

The July supply/demand includes changes to both old and new crop grain estimates. This one is unique as it includes a reconciliation for old crop due to the June 30 Grain Stocks report. New crop is also adjusted to include data from the June 30 Acreage report. Yields can also be adjusted.

Corn:

2022/23: Old crop US corn ending stocks were lowered this month from 1.452 billion bushels to 1.402 on this report. The trade expectation was 1.420 (ALDL 1.497). The mandatory issue for this report was for recognition of higher March – May feed/residual use as USDA reported smaller June 1 old crop stocks than expected on the recent June 30 Grain Stocks. USDA added a large 150 million bushels to their whole-year estimate. This was partially offset by lowering corn for ethanol by 25. Now at 5.225 billion, it would take remaining June – August usage to run +2.0% from the 2018/19 model year. That may be a challenge given the recent four weeks of ethanol production have averaged -2.0%. Assuming the next three months run -1% USDA will still have to remove another 41 million bushels in the coming months. A 75 million bushel reduction was reported this month for exports, now at 1.650 billion. If the recent four week sales average continues, -36% from the five year average pace, there will be another 34 million bushel reduction in the coming months.

South American production changes were minimal on this report. Argentina was lowered by 1 million tonne and Brazil was raised by 1.

2023/24: New crop ending stocks were raised on this report, 2.257 billion last month to now 2.262. That was on the trade estimate of 2.260. On this report planted acreage was raised by 2.1 million and harvested by 2.2. That was carried over from the recent June 30 Acreage report. The larger interest was on 4 bushel reduction from trend yields, now at 177.5. The net result from higher acreage and a light yield reduction was a 55 million bushel increase for production. There certainly will be further changes to yields in the coming months. Total supply, from lower old crop ending stocks but higher new crop production, increased by 5 million. It is not just a supply increase that is concerning to the trade. New crop demand is still a bit of a concern, regardless of USDA leaving all numbers unchanged. Their current 2.100 billion export estimate is a concern as it would be -2% from the five year average. Current new crop bookings are -49% from the five year average pace. Given Brazil’s price advantage, which we expect to remain, this category is 100 to 300 million bushels overstated. Corn pricing is expected to remain challenging. 1.8 – 2.3 billion bushel stocks remain significantly bearish. December corn economic value, at fall lows, would be $4.10 in the most optimistic of those scenarios. While we do expect further yield reductions more than today’s 2.2% revision, it is hard to justify any price over $4.40.

Soybeans:

2022/23: Old crop soybean ending stocks were raised from 230 million bushels last month to 255. The trade estimate was 232 (ALDL 270). Exports were lowered by 20 million on this report to now 1.980 billion. That is still not enough of a revision. If the recent sales pace, +23% vs. the five year average in the recent four weeks, continues we’ll miss USDA’s goal by another 57 million bushels. Given Brazil’s significant price discount we would not expect this recent “improved” pace to last. If remaining sales through August instead fall to -20% from average the miss will be 68. Imports were raised by 5 million. We were lightly surprised that USDA left its 2.220 billion bushel crush estimate unchanged this month. Assuming the recent pace in April and May continues, +4% from last year, this category needs to be raised by 16 in the coming months.

USDA did not touch their prior production estimates for Argentina and Brazil this month. USDA increased the Chinese import estimate by 1 million tonne to now 99.

2023/24: New crop stocks were lowered from 350 million last month to 300. Though a decline, it was not at the trade’s 199 million bushel estimate (ALDL 279). Given the 4 million acre decline in acreage implied by the recent June 30 report the lack of significant stock decline was a disappointment to the trade. USDA left yields unchanged at 52.0 trend on this report. It is not unusual for USDA to be conservative with soybean yields on this report. With lower acres and trend yields production was lowered by 210 million. Total supply, including changing old crop stocks, fell by 185. USDA was quite active with demand changes for new crop. The main interest was the sharp 125 million bushel revision lower for exports to now 1.850 billion. We hate to say it but there are further declines still ahead. Their current estimate is -8.5% from the average of the prior five years. This is a problem as our current year to date bookings are -52% from average. Given Brazil’s significant price discount, which we expect to last through December at least, further declines are likely ahead. USDA lowered new crop domestic crush by 10 million this month. The net result in today’s report is disappointment. New crop stocks did not fall to the trade’s expectation. In addition, bears could argue that any light yield declines ahead could be offset by lowered exports. The pricing side is interesting here as we have now opened the downside. If stocks are lowered to 250 then November futures fall lows would run $12.95. If they remain at the current 300 you’re at $12.20. A 350 would suggest a price of $11.65.

Wheat:

2022/23: USDA reconciled the completed old crop marketing year. The June 30 Grain Stocks report showed wheat stocks on June 1 at 580 million. On the prior monthly supply/demand report they estimated.

2023/24: While corn and soybeans still have to wait until September 1 for the start of their marketing year, wheat started its on June 1. The wheat balance sheet is now “live”. Ending stocks were raised from 562 million last month to 592. The trade expectation was 569 (ALDL 579). The surprise for today was a moderate 74 million bushel increase in production to 1.739. The trade expectation was 1.683 (ALDL 1.669). There were no changes to any new demand category. This is a concern for us as the recent four weeks of sales are 43% below the five year average. If that would continue through May 31, 2024 we’ll miss USDA’s current goal by 174 million. It is too early in the marketing year to panic on this number. However, as the US is overpriced vs. both Europe and the Black Sea we would suggest some type of revision ahead. US wheat pricing may remain limited.