CBOT grain/oilseed market price action was rather subdued following the largest single USDA report day of the year. A few surprises were seen, but nothing to change the overall structure and view of the U.S. corn, soybean and wheat situations. With the U.S./China “Phase One†trade deal signing next week, the market will be extremely attentive to any demand innuendoes and their potential impact on the U.S. balance sheets now that major uncertainty of the January reports is out of the way.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file.
Corn
While market price action and the bottom line of the 2019/20 U.S. corn balance sheet saw very little change today, there was a plethora of very interesting, and welcomed, developments in all of today’s numbers for corn which we feel puts the USDA’s reflection of the overall situation in a much more realistic place than prior to today’s reports.
Starting with the 2019/20 crop, USDA surprised with a 31 million bushel increase to 13.692 billion bushels as the average trade estimate of 13.513 billion bushels reflected an expectation for a 148 million bushel decline from November. While harvested acreage was lowered 333k acres, the U.S. average yield moved 1.1 bushels/acre higher to 168.0 from the previous estimate vs average market ideas for a 0.8 bushel/acre decline. Harvested acreage reductions across the north were cited with WI down 160k, MI down 130k acres, ND down 80k, MN down 50k, but there were no shocking reductions revealed. Remember, the January estimate is purely a farmer-survey driven number, with the question posed regarding this year’s crop being the amount of acreage/bushels harvested or still intended to be harvested. Accordingly, most producers still intend to get the crop out in the spring and harvest it for grain. We would note NASS did say they will resurvey again at some point in the spring once harvest is complete and re-adjust production and/or December 1 stocks numbers if necessary. The timing of the re-survey has not been set as it will be determined by harvest progress in the spring.
Looking at yields, the productivity amid extremely difficult growing conditions is simply amazing, but notable year-over-year declines were certainly seen in the hardest hit areas. USDA raised yields in the heart of the corn belt from November with IA up 6 bu/acre to 198, IL up 2 to 181, WI up 5 to 168, IN up 4 to 169 and OH up 1 to 164. The only major state to see a considerable yield decline from November was SD by 6 bu/acre to 145. KS, MO and NE yields were unchanged. The largest yield hit relative to last year of major states was IL being down 29 bu/acre, while OH was down 23 bu/acre, IN down 20, SD down 15 and ND down 12. Higher year-over-year yields were seen in IA (2 bu/acre), KS (4) and MO (15).
With the crop coming in higher than expected, the focus shifts to December 1 stocks and this is where things get even more interesting. USDA reported December 1, 2019 U.S. corn stocks at 11.389 billion bushels, solidly below the average trade estimate of 11.511 billion, in what could have been expected to prompt a stronger market response than was seen. In combination with the higher than expected crop estimate, Dec 1 stocks were essentially 270 million bushels less than anticipated by the market (148 mil bu higher crop, 122 mil bu lower Dec 1 stocks). So what gives? USDA fixed last year’s “problems†essentially in line with our pre-report discussed thinking in lowering last year’s crop, considerably lowering last year’s feed/residual usage and solidly raising old crop (2018/19) ending stocks, providing a partially offsetting impact. Additionally, the notable cut in 2019/20 exports, discussed later, didn’t sit well either.
Specifically regarding last year’s situation, USDA lowered the 2018/19 crop by 80 million bushels to 14.340 billion with a roughly 400k acre cut in harvested area (planted down 200k), while the yield was unchanged was 176.4 bu/acre. The crop reduction effectively lowered last year’s 1st quarter feed/residual usage to 2.208 billion bushels from 2.288 billion previously. Moreover, a review of September 1 stocks (2018/19 ending stocks) reflected a considerable increase to 2.221 billion from 2.114 billion bushels, doing a decent amount of work in “fixing†last year’s 4th quarter feed/residual usage, now reflected at 914 million bushels vs 1.020 billion previously. While still up 51% from the previous year, it did come down from the previous implied 69% increase. Overall, the combination of revisions to the 2018/19 balance sheet saw old crop feed/residual usage lowered 186 million bushels to 5.432 billion, reflecting a 2.4% increase from the previous year.
With the old crop revision, 107 million bushels in stocks were added to the 2019/20 balance sheet from the start, and when combined with the 31 million bushel increase the crop, total supplies rose 137 million bushels to 15.962 billion, down “only†547 million bushels (3.3%) from last year after what, early in the spring, appeared potentially setting up for a massive supply cut given the planting issues.
With the new “starting point†in total supplies, the USDA’s December 1 corn stocks estimate of 11.389 billion bushels implied total 1st quarter usage was 4.532 billion bushels, essentially unchanged from last year’s 4.550 billion. However, with exports and corn for ethanol usage down solidly from last year, 1st quarter (Sept-Nov) feed/residual usage was implied at an all-time record 2.606 billion bushels, up 18% from last year’s 2.208 billion, in clearly what is the positive demand take-away from today’s reports. While there certainly is the potential for future quarterly Grain Stocks reports to provide a bit of an offset if there was a bit of statistical aberration in today’s numbers, the bottom line comes down to a rather solid domestic feed demand base being in place for 2019/20 to help counter the very poor export and mediocre ethanol situations.
The implications of the strong 1st quarter implied feed/residual usage are encouraging/supportive. As seen, December 1 corn stocks are the lowest in four years, but more importantly, the Dec 1 stocks/Sept-Nov usage ratio of 2.51 declined solidly from 2.62 last year and is the lowest since 2014/15. While not necessarily considered outright “bullish†at that level, it is fundamentally constructive nonetheless. Again, though, this reflection is entirely predicated on the record and, admittedly, surprising (massive) 18% implied increase in feed/residual usage in the quarter, which could be statistically offset to some degree in future revisions.
Based on the combined feed usage implications, USDA raised 2019/20 annual feed/residual usage by 250 million bushels from last month to 5.525 billion and now reflecting an estimated 93 million bushel increase from last year vs their previous unrealistic reflection of a 343 million bushel annual decline. In order for the USDA’s annual feed/residual usage estimate to be accurate, combined 2nd-4th quarter feed usage will need to be down 9.5% from last year, a notable opposition to the 18.1% 1st quarter increase. The still-high 4th quarter usage last year allows for some statistical offset likelihood, but this does appear to leave open the possibility feed/residual usage could prove higher than the USDA’s new estimate. However, while unusual, there is precedent in the current situation as 2012/13 saw 1st quarter implied feed/residual usage up 16% from the previous year, while combined 2nd-4th quarters were down 17%. We all know implied feed/residual numbers can get whacky at times so we can’t rule out a situation as indicated by USDA playing out, but there appears to be risk for higher feed/residual usage to be seen.
On the other side of the demand picture, though, USDA solidly lowered 2019/20 exports by 75 million bushels to 1.775 billion in what would be the lowest exports in 7 years. It was time for USDA to cut their export estimate, but the 75 million bushel decline was likely more than most anticipated and was a clear offset to the positive feed usage implications. Even with the sizable export cut, U.S. corn sales through the end of August will still need to average nearly 29 million bushels/week, which would be the 3rd highest Jan-Aug sales program of the last 10 years. Yes, a considerable slow-down in South American exports should be forthcoming and U.S. corn has begun to work back into Asian markets of late, but this could still prove to be a tall task to achieve.
USDA also cut non-ethanol food/industrial usage of corn by 20 million bushels from last month, as well, putting non-feed related demand reductions at 95 million bushels and solidly offsetting the 250 million bushel increase in feed/residual usage. In total, USDA raised 2019/20 U.S. corn demand by 155 million bushels from December.
The bottom line, after all of this, saw the USDA’s 2019/20 U.S. corn ending stocks estimate decline by a mere 18 million bushels to 1.892 billion – a significant disappointment to the “bulls†given the average trade estimate of 1.742 billion bushels reflected ideas of a 168 million bushel cut in stocks. Moreover, the USDA’s 13.4% stocks/usage ratio estimate was also essentially unchanged from last month’s 13.7%, while the combination of production/stocks trade estimates reflected an overall expectation for the stocks/usage ratio to decline to 12.5% this month. At the end of the day, and likely until the next quarterly Grain Stocks report at the end of March, the market is essentially stuck with a balance sheet indicated continued range-bound trade is warranted. Until/unless conditions change which indicate the stocks/usage ratio will make a concerted push down towards 10%, the long-established $3.50-$4.25 trading range should largely remain in place. Come next spring, upon a resurvey of the crop and another Grain Stocks report, this possibility cannot be ruled out, but it may take that amount of time to see fundamental justification. Additionally, and likely to overhang the market in the months ahead, is the additional 19+ million acres (last year Prevent Planting) that will be searching for a home this spring. Even with a modest 4 million acre increase in corn area next year, a return to a more normal yield could still allow 2020/21 ending stocks to move to multi-decade highs above 2.3 billion bushels even with a 700+ million bushel increase in total demand – a daunting realization without a doubt.
Soybeans
The soybean situation today was much quieter than corn. While the USDA’s U.S. soybean crop revision was minimal, at just an 8 million bushel increase from November, it was certainly negatively construed with the average trade estimate reflecting an expected 38 million bushel decline from last month. In fact, the 46 million bushel “bearish surprise†was the 2nd largest on record for soybeans for the January report. USDA put the 2019/20 U.S. soybean crop at 3.558 billion bushels vs 3.550 billion last month and the average trade estimate of 3.512 billion. Moderate acreage reductions were seen with harvested area down 605k acres from November and planted area down 357k acres. The harvested acreage cut was actually more than expected as the average estimate only indicated an 164k acre decline. Of note, USDA lowered SD harvested area by 120k acres, NE by 110k, ND by 100k, IL by 80k, and MN and KS both by 50k. However, the acreage cuts were more than offset by solid yield increases, defying expectations once again, with IL raised 3 bu/acre from November, 2 bu/acre increases in IA and IN, 1.5 bu/acre in NE and 1 bu/acre increases OH and WI. Minor yield reductions were made for ND, SD and MN.
Pending the re-survey in the spring, as it stands now, the 2019/20 U.S. soybean crop of 3.558 billion bushels was down 870 million bushels (20%) from last year’s 4.428 billion. However, given the massive old crop stocks of 909 million bushels, 2019/20 total supplies of 4.482 billion bushels are down “only†398 million bushels (8%) from last year. Despite the solid decline in supplies, the supplies/previous year’s usage ratio actually stayed fairly stable as a result of last year’s poor export demand.
It came as no surprise, with the soybean crop 46 million bushels above the average trade estimate, that December 1 U.S. soybean stocks also were larger than expected at 3.251 billion bushels, coming in 65 million bushels larger than “expected.†As with the crop estimate, this was also the 2nd largest “bearish surprise†on record for December 1 stocks. However, the 1st quarter residual was just 82 million bushels, lower than expected and the lowest in 14 years, which contributed to the higher than expected Dec 1 stocks figure, as well.
As we discussed in our pre-report comments, while down solidly from last year, December 1 U.S. soybean stocks are still the 2nd highest on record, with the Dec 1 stocks/Sept-Nov usage ratio the 2nd highest of the last 11 years. The fundamental structure of soybeans clearly remains negative and requires a considerable demand improvement to alter this view.
For the balance sheets, USDA made absolutely no demand revisions to U.S. soybeans, soybean oil or soybean meal this month. 2019/20 U.S. soybean ending stocks were completely unchanged from last month at 475 million bushels as the 8 million bushel crop increase was perfectly offset by minor tweaks to old crop ending stocks (Sept 1 stocks) and this year’s imports (down 5 mil bu). USDA took a pass on any export ideas this month with nothing concretely known about the Phase One trade deal and overall export sales being uneventful of late. The January set of reports for soybeans has to be considered disappointing by the “bulls†as, according the average trade estimate, a cut in 2019/20 ending stocks to 424 million bushels was expected. It simply remains a waiting game as to whether the Chinese trade deal actually prompts an improvement in exports or not, with price action moving forward likely to be directly related accordingly.
Looking forward, similar to the situation in corn, the 2020/21 balance sheet could remain more than adequately comfortable, again depending on the Chinese situation. With an estimated 9 million acre rebound in planted area, following last year’s disastrous 13.1 million acres loss, and a return to average yields, ending stocks could still remain near 500 million bushels even with a 300 million bushel (8+ MMT) increase in exports from this year. Again, though, the entire export situation is obviously a massive unknown at this point, with the new crop balance sheet certainly not able to withstand a Chinese buying onslaught of the magnitude indicated by some as part of $40 billion in U.S. commodity purchases.
USDA left the South American and Chinese soybean balance sheets unchanged this month, as well.
Wheat
Today’s USDA reports were modestly supportive for wheat as December 1 stocks came in considerably below expectations, but the feed/residual usage implications were already largely built into the USDA’s balance sheet so the visible impact was limited.
USDA reported December 1 U.S. wheat stocks at 1.834 billion bushels, 83 million bushels below the average trade estimate, the largest “bullish surprise†on record for this report, down from last year’s 2.010 billion bushels and the lowest in four years.
Typically, a development such as this would see a much stronger market reaction than the minor gains posted today, but the implications of the Dec 1 stocks number were already largely factored into the USDA’s balance sheet. Based on Dec 1 stocks of 3.251 billion bushels, the 2nd quarter feed/residual was actually a positive 13 million bushels, the first positive 2nd quarter residual in 34 years going back to 1985/86. When combined with the 1st quarter of 187 million bushels, total 1st half feed/residual usage was 200 million bushels, the highest in three years, which comes as no surprise. However, 2nd half feed/residuals in recent years have ranged from -30 million bushels to -107 million bushels. Taking a middle-of-the-road approach of -50 to -60 million bushels would imply the 2019/20 annual feed/residual at 140-150 million bushels. USDA was already estimating annual usage at 140 million bushels last month and bumped it up slightly to 150 million today. Accordingly, despite the “bullish†Dec 1 stocks number, there was essentially no material impact on the balance sheet.
Along with a minor 1 million bushel cut in seed usage, 2019/20 total wheat demand rose by a minor 9 million bushels from last month, reducing ending stocks by the same amount to 965 million bushels, which was in line with the average trade estimate of 962 million bushels. We feel exports have to potential to move a bit higher from the USDA’s 975 million bushel estimate given the overall decent sales pace during much of Nov-Dec, but the recent slowdown in sales warranted the steady estimate this month. We don’t have much to argue with the USDA’s numbers at this time. The balance sheet has improved modestly in recent years, with stocks coming off the 2016/17 highs near 1.2 billion bushels, but it continues to be a long drawn-out uneventful affair as demand for U.S. wheat simply is uninspiring. A further reduction in stocks in 2020/21 is likely, but would a decline to near 900 million bushels and a stocks/usage ratio still above 40% anything to get excited about?
The USDA estimated 2020/21 U.S. winter wheat planted area at 30.804 million acres, down from last year’s 31.159 million and mostly in line with the average trade estimate of 30.664 million. On a by-class basis, HRW area of 21.8 million acres is down from 22.5 million last year and a bit below average expectations of 22.1 million. However, SRW area was estimated at 5.640 million acres, up modestly from last year’s 5.201 million as we expected, but solidly above average market expectations looking for a decline to 5.118 million. White wheat acres were estimated at 3.370 million vs 3.500 million last year and 3.490 million “expected.†A table detailing the state-level by-class acreage estimates, with changes from last year, is at the end of this post. As the decline in acreage continues, today’s USDA estimate once again reflected what would be a new low since 1909.
Based on average harvesting percentage and yield assumptions, today’s winter wheat acreage ideas would indicate 2020/20 U.S. HRW production around 745 million bushels vs 833 million last year, SRW 269 million vs 239 million last year and white 222 million vs 232 million last year. As always, spring weather volatility certainly could come into play with acreage at historically low levels, but the historically high level of HRW stocks currently in place provide a considerable offset to the reduced production prospects this year.
World balance sheet revisions this month saw combined competing exporter production down 1 MMT from last month (Russia down 1 MMT, Australia down 0.5 MMT, EU up 0.5 MMT), with exports raised 1.3 MMT (EU up 2.0 MMT, Ukraine up 0.5 MMT, Russia down 1.0 MMT, Australia down 0.2 MMT).
USDA Monthly Supply/Demand Balance Sheet Revisions
Winter Wheat Planted Acreage Estimates
