USDA Report Day August 11, 2023

Market Movers: USDA Report Day

The August supply/demand includes changes to both old and new crop grain estimates. We are nearing the end of the old crop marketing year for corn and soybeans, August 31. For new crop August represents a change in yield estimation. August starts the monthly farmer survey that will continue ahead. For this report 14,700 producers were contacted. They also balance this with other measures such as satellite and weather data. They will begin incorporating objective in-field analysis starting in September. For winter wheat yields were determined by 10 state objective in-field analysis.

Corn:

2022/23: Old crop US corn ending stocks were raised this month from 1.402 billion last month to now 1.457. This pretty much reverses last month’s decline. The trade expected a light increase to 1.410 (ALDL 1.437). USDA added 10 million to imports from last month’s estimate, left feed/residual and corn for ethanol unchanged and lowered exports by 25. We still have a light concern with corn for ethanol. September – June confirmed usage, 4.278 billion bushels, is -4.3% from the 2018/19 model year. To hit USDA’s current 5.225 billion goal, July and August usage would have to run +4.6% from that model year. This category of usage could be inflated by up to 50 million bushels. The drop in exports may be a little more than needed. If you assume the recent four week pace for shipments, -54% from the five year average, remains in place over the last four weeks of the year USDA may need to add back 19 million here. Overall, for a net discussion we still expect a light decline in old crop usage ahead and for rising stocks.

USDA did not change their 34 million tonne production estimate for Argentina. That may need a slight decline. The trade may be a little surprised they added 2 million to the current corn harvest estimate for Brazil, now 135 mt. They are now a bit over the Brazilian government’s own newly raised estimate from yesterday, 127.7 to now 129.9. There were no changes for Chinese old crop estimates.

2023/24: New crop ending stocks were lowered on this report, 2.262 billion last month to now 2.202. That was still larger than the trade estimate of 2.168 (ALDL 2.011). As normal, there were no acreage adjustments on this report. Yields were lowered from 177.5 bpa last month to 175.1. That was next to the 175.5 trade estimate (ALDL 172.4). Production was lowered by 209 million bushels this month to 15.111. The trade estimate was 15.135 (ALDL 14.885). USDA’s current yield estimate is just fine at -3.5% from starting trend. This fits in with the prior four years that ended with light -2% to -5% deviations from trend. July rainfall was only slightly under normal. This report is a theoretical yield estimate as of August 1. Over the coming weeks the trade will monitor crop tours as well as the Allendale Nationwide Producer Yield Survey. Conducted August 21 – September 1, results will be released September 6. We would point out that this decline in production this month is not positive. Production is still set to increase by 1.381 billion over last year, total supply up by 1.450. USDA offset some of this month’s production decline by lowering feed/residual by 25 million and exports by 50. Corn for ethanol was left unchanged. We, and much of the trade, still has lingering concern for this new crop export number. It would be -4% from the average of the prior five years. That sticks out a bit considering new crop bookings are so far -41% from average. Not only are yields not declining enough to be bullish, but there is concern for lowered exports in the months ahead. One small positive is that we’ll have three month window ahead where USDA export pricing is close to Brazil’s. That will change after their fall planting. We suggest the market has not fully priced in a 2.2 billion stock. $5.00 December corn futures are about a 1.6. Corn pricing is expected to remain challenging. 1.8 – 2.2 billion bushel stocks remain significantly bearish. December corn economic value, at fall lows, would be $4.10 in the most optimistic of those scenarios.

Soybeans:

2022/23: Old crop soybean ending stocks were raised by 5 million bushels on this report, now 260. The trade estimate was 251 (ALDL 262). The only change from last month was a minor increase in imports. We would suggest their current 1.980 billion export estimate is just a little high. If the recent shipping pace, -53% from average over the last four weeks, continues through this month the miss will total 25 million. We are okay with their 2.220 billion crush estimate. September – June domestic use was +0.6% from last year. It would take a minimal increase to +1.5% for July and August.

USDA did not touch their prior production estimates for Argentina and Brazil this month. USDA did not touch Chinese old crop numbers, nor their 99 million tonne import estimate.

2023/24: New crop stocks were lowered from 300 million last month to 245. This was under the decline the trade expected, 267 (ALDL 260). There were no changes to acreage. Yields were lowered from 52.0 bpa starting trend to now 50.9. This was just under the 51.3 trade estimate (ALDL 51.0). It is now -2.1% from starting trend. Production was lowered by 210 million to now 4.300 billion. Total supply, now at 4.575 billion, is almost unchanged from last year. The question for soybean is not just with further yield changes. Demand is still front and center in the discussion. Today’s lowered production was lightly offset by a 10 million bushel reduction in expected crush and a 75 million bushel decrease in exports. The new crush number is not out of line. It still implies a 3.6% increase over old crop. The export decline is quite relevant. Remember, they took off 75 million also in July. We are quite happy to see a more realistic estimate presented. It may still be a little large though. Their estimate is -7% from the five year average. Current new crop bookings are -25% from average. While we do expect a few more weeks ahead of moderate new sales, as US pricing is slightly better than Brazil right now, it won’t last. Brazil goes right back to a significant pricing advantage in two months’ time. There may be another 50 million bushel revision ahead. For pricing, stocks of 250 imply November futures at $12.95. The market is correctly priced at this specific moment. If they increase to 300 you’re at $12.20. A 350 would suggest a price of $11.65.

Wheat:

2023/24: The new crop marketing year started back on June 1. The wheat balance sheet is now live. Ending stocks were raised from 592 million last month to 615. The trade expectation was 598 (ALDL 635). USDA re-surveyed small grain acreage. For all-wheat the change was minimal at +180,000 from last month. Harvested saw a small +150,000 increase. That was slightly more than offset with a 0.3 bpa drop in yields. Production, now at 1.734 billion, was minimally lowered by 5. The trade expectation was for no change (ALDL 1.755). Exports were lowered by 25 million and food use by 3. The recent drop in US dollar value has made the US pricing, quite overvalued vs. competitors, to now moderately overvalued. To meet USDA’s newly lowered goal remaining year sales need to run -17% from the five year average. Much of this year’s sales were a problem at -35% from average. The last two weeks were positive at +7% and +24% from normal. On the world balance sheet there was a net 3 million decline in production. Declines were noted for Canada, EU and China. That was moderately offset by increases for Ukraine and Kazakhstan. USDA did not touch India’s import estimate on this report. US wheat pricing may remain limited.