While there wasn’t anything in today’s USDA numbers which would be considered overtly bearish, allowing the markets to trade in a fairly mundane manner, there certainly wasn’t anything considered especially constructive fundamentally either, as large U.S. supplies and/or questionable demand found a way to creep into the balance sheets in one way or another. Without anything new/unexpected, the focus will shift increasingly to U.S. production prospects and for now, there is little to worry about.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file.
Corn
There isn’t too much in today’s USDA U.S. corn balance sheets to argue with in terms of directional moves of their demand estimates, but their 2019/20 corn for ethanol usage estimate still appears too high, which helped keep ending stocks from rising more than they likely should have. While there is absolutely nothing fundamentally supportive in declining old crop demand estimates and a massive increase in estimated new crop stocks to levels not seen in decades, the fact the USDA’s 2019/20 and 2020/21 ending stocks estimates were both below the average trade estimates was somehow deemed constructive by some.
The most notable revision to the U.S. corn balance sheet this month was the 100 million bushel cut in 2019/20 corn for ethanol usage to 4.950 billion bushels. Without a doubt, a reduction was needed, but we feel this month’s revision was more of stairstep-type approach following last month’s massive 375 million bushel cut as USDA made the initial cut as the impacts of the pandemic became brutally aware. Moving forward, it is likely to be more of the same as USDA continuously monitors ethanol production data and makes smaller revisions on a monthly basis. Based on today’s new 4.950 billion bushel estimate, we see ethanol production needing to run roughly 11.6% below year ago levels through the end of August vs 45.0% year-over-year decline experienced over the last four weeks. While a recovery in ethanol production is likely/expected as the country attempts to re-open businesses, etc., it’s all going to come down to a matter of scale. To put the situation moving forward in perspective, corn for ethanol demand would need to be cut another 100 million bushels if ethanol production averages 17% below year ago levels through August, 200 million lower with ethanol production down 23% on average and 300 million lower with ethanol production down 28% on average. We’re maintaining our 2019/20 corn for ethanol usage of 4.825 billion bushel at this time.
USDA raised their 2019/20 U.S. corn export projection by 50 million bushels to 1.775 billion in a fully warranted move given the very impressive level of new sales of late as we discussed in our pre-report commentary. Based on the revised estimate, May-August corn export sales would need to average roughly 14.2 million bushels/week vs last year’s historically low 8.3 million/week average and would still be less than average sales over the last four months of the marketing year in 2017/18, 2015/16 and 2014/15. A continued solid pace of sales over the next 4-6 weeks could very well prompt the need for another upward revision down the road. We’re at 1.800 billion bushels and leaning a bit higher.
Perhaps the most unexpected corn revision by USDA today, albeit a minor one, was the 25 million bushel increase in 2019/20 feed/residual usage to 5.700 billion bushels. USDA did not specifically address the issue in their written commentary in the WASDE report. We continue to feel feed/residual usage is likely to prove below USDA’s projection, as we’re at 5.625 billion bushels. The next “read†on feed/residual usage will come as a result of the June 30 Grain Stocks report.
After the resurvey of farmers in South Dakota, Minnesota, Wisconsin and Michigan, USDA lowered last year’s U.S. corn crop by a modest 29 million bushels to 13.663 billion. Harvested area was lowered by a minor 60k acres. Specifically, the SD crop was lowered 10 million bushels, MN 9 million, WI 7 million and MI 3 million. USDA said they are conducting a re-survey of North Dakota farmers this month, with any necessary changes being reflected in the June Crop Production report. Based on today’s revisions, the harvest progress ND has been reporting in recent weeks and the relative size of the ND crop to the others, we would not expect to see much more than a 15-20 million bushel reduction from the ND resurvey. As a result of today’s crop revision, USDA lowered Dec 1 U.S. corn stocks to 11.372 billion bushels from 11.402 billion previously reported, with no impact on implied feed/residual usage given the same amount of offset.
The bottom line saw USDA raise 2019/20 U.S. corn ending stocks by a minor 6 million bushels from last month to 2.098 billion. With ideas of a more notable cut in corn for ethanol usage being needed, the average trade estimate of 2.261 billion bushels reflected expectations for a 169 million bushel increase in ending stocks. We’re currently estimating old crop stocks at 2.259 billion bushels.
The supply-side of the USDA’s 2020/21 balance sheet was as expected with USDA assuming the March Prospective Plantings acreage estimate of 96.990 million, with harvested area put at 89.6 million and using the February Ag Outlook Forum yield assumption of 178.5 bushels/acre for a crop of 15.995 billion bushels, up 2.3 billion bushels from last year. The USDA bumped up their new crop export and feed/residual usage ideas from the February Ag Outlook numbers, with exports estimated at 2.150 billion bushels (2.100 bil in Feb) and feed/residual usage at 6.050 billion bushels vs 5.800 billion in Feb. USDA said the expected low prices in 2020/21, given the anticipated huge crop, prompted higher feed/residual usage expectations. However, a 350 million bushel (6.1%) increase appears optimistic to us. An anticipated rebound in gasoline/ethanol demand next year prompted USDA’s 5.200 billion bushel corn for ethanol usage estimate vs 4.950 billion this year, while we’re currently using 5.250 billion. USDA put 2020/21 U.S. corn ending stocks at 3.318 billion bushels, up 1.220 billion bushels from this year in what would be the highest outright stocks since 1987/88. Again, though, there was somehow a sigh of relief by the market as new crop stocks came in below the average trade estimate of 3.420 billion bushels, as that is of any positive consequence in context of stocks expected to be the highest in 30+ years. The USDA estimated the 2020/21 U.S. corn average farm price at $3.20/bushel vs this year’s $3.60.
Our current views on 2020/21 included modestly lower acreage at 95.5 million acres, similar ideas on exports, but understanding China could be a substantial wildcard next year, particularly if the crop verifies and prices push to historically low levels, modestly lower feed/residual usage ideas than USDA and a slightly more optimistic view on the rebound in corn for ethanol usage. We’re currently estimating 2020/21 U.S. corn ending stocks at 3.228 billion bushels, with a stocks/usage ratio estimate of 22.0%, the highest since 1992/93.
While the market appeared to be preoccupied by the lack of a “bearish surprise†to the U.S. corn stocks numbers, USDA sharply raised 2019/20 world corn ending stocks by 11.5 MMT to 314.7 MMT vs the average trade estimate reflecting an expected increase of only 3.3 MMT. USDA raised China’s corn ending stocks this year by 9 MMT to 208 MMT, accounting for the majority of the increase due to reduced demand ideas. 2019/20 global corn stocks excluding China were revised up, as well, but modestly to 106.7 MMT from 104.1 MMT last month (110.6 MMT year). USDA put 2020/21 Chinese corn imports at 7.0 MMT, unchanged from this year, with corn production seen mostly unchanged, as well, and corn stocks declining modestly to 200.1 MMT amid a modest recovery in demand.
Soybeans
Based on known data, USDA made the right move in notably lowering their 2019/20 U.S. soybean export projection by 100 million bushels today to 1.675 billion bushels. Total commitments are still down nearly 12% from last year, while even today’s reduced export projection still reflects only an estimated 4.2% decline in exports from last year. In order to reach the USDA’s new export estimate, May-August soybean sales would need to average roughly 12.7 million bushels/week, sharply above last year’s 8.3 million/week average from this point forward and would still be the 2nd highest on record for the period. Given this situation, the USDA’s export cut today is fully justifiable. But then there is the unknown…
The unknown of potential Chinese purchases of U.S. soybeans over the coming months is likely to loom over the market constantly, though. Certainly, there has been an increase in Chinese buying of late, which is encouraging and may cause some to question the timing of today’s export cut. Looking at recent years of non-Chinese purchases of U.S. soybeans during May-August, we estimate China would still need to buy and ship and additional 3 MMT, give or take, of soybeans from the U.S. in 2019/20 in order for the USDA’s 1.675 billion bushel export projection to be reachable. This would allow soybean sales to average 6.5-7.0 million/week to all others, which is completely “doable†in historical perspective. Without those sales to China, though, even today’s export estimate reduction could prove too high. We’re holding our export estimate at 1.700 billion bushels for now.
USDA did not revise 2019/20 crush of 2.125 billion bushels today, mostly as expected, although we have bumped our estimate down to 2.115 billion. The USDA’s re-survey of SD, MN, WI and MI did not find material differences from the January Annual Crop Production report, with USDA lowering last year’s crop by just 1.7 million bushels to 3.557 billion. MN and SD were unchanged, while WI was lowered 470k bushels and MI by 1.2 million. We do not expect the resurvey of ND producers this month to show much different when USDA publishes changes in the June Crop Production report.
With the export revision being really the only old crop change this month, USDA raised 2019/20 U.S. soybean ending stocks by 100 million bushels to 580 million, much larger than the average trade estimate of 497 million bushels reflecting an expected 17 million bushel increase from last month. While some may question the degree of the export cut, data certainly justifies the move. We’re currently estimating 2019/20 U.S. soybean ending stocks at 553 million bushels.
For the USDA’s first official estimate of the 2020/21 balance sheet, they used exactly the same demand estimates as assumed at the February Ag Outlook Forum, with exports at 2.050 billion bushels and crush at 2.130 billion. The 2020/21 export estimate now reflects an expected 375 million bushel (10.2 MMT) increase from this year. As expected, the USDA assumed the March Prospective Plantings acreage estimate of 83.510 million acres, while putting harvested area at 82.8 million (75.0 million last year) and the February average yield assumption of 49.8 bushels/acre for a crop of 4.125 billion bushels vs last year’s 3.557 billion. With beginning stocks now estimated at 580 million bushels vs 425 million in February, the USDA is estimating 2020/21 total supplies at 4.720 billion bushels vs 4.635 billion reflected in February and 2019/20’s 4.481 billion. The bottom line saw USDA put 2020/21 U.S. soybean ending stocks at 405 million bushels vs 321 million reflected in February and the average trade estimate of 440 million.
We’re looking for a bit higher soybean area at this time at 85.0 million acres, reflecting a 1.5 million acre switch from corn to soybeans as a result of the recent gains in the soybean/corn price ratio. While corn planting has advanced in historically quick fashion in the western belt, likely supporting earlier corn acreage ideas, we still feel there is room for soybeans to gain some acres in the north and Delta/southeast. The new crop SX/CZ ratio made a new high this week at 2.55, attempting to pull some acres from corn to soybeans as would appear justified by the looks of the 2020/21 balance sheets. Our 2020/21 export and crush estimates are a bit above USDA at 2.100 billion and 2.140 billion bushels, respectively, leaving our new crop ending stocks estimate similar to USDA at 414 million bushels. In historical perspective, stocks anywhere above 300 million bushels have been deemed fundamentally bearish, but stocks potentially declining to around 400 million bushels this year, in the context of the massive unknown of potential Chinese buying, feels like a fundamental win. However, it still may very well require huge Chinese buying of U.S. soybeans in 2020/21, which can’t be ruled out amid the Phase One trade deal, in order to prompt any sort of longer-term price ascension. USDA put the 2020/21 U.S. soybean average farm price at $8.20/bushel today vs 2019/20’s $8.50 (lowered from $8.65 last month).
USDA only slightly lowered their estimate of the Brazilian soybean crop to 124.0 MMT from 124.5 MMT previously, while the average trade estimate was 123.0 MMT. The Argentine crop was lowered to 51.0 MMT from 52.0 MMT last month vs the average estimate of 51.3 MMT. USDA estimated Chinese soybean imports in 2020/21 at 96.0 MMT, up from this year’s 92.0 MMT, which were raised from 89.0 MMT last month. USDA’s very early ideas on next year’s South American crops reflect continued increases, with Brazil penciled at 131.0 MMT, up 7 MMT from this year, and Argentina at 53.5 MMT, up 2.5 MMT.
For the soybean products, USDA further cut their estimate of 2019/20 soybean oil for biodiesel usage by 200 million pounds to 7.500 billion, resulting in the same decline in total domestic usage. However, it was nearly offset by a much-needed 150 million pound increase in exports to 2.550 billion pounds (1.941 billion last year) as the SBO export program remains impressive. The net result was a 50 million pound increase in ending stocks to 1.880 billion pounds, right in line with stocks over the previous five years of 1.687-1.995 billion pounds. USDA sees a modest increase in soybean oil for biodiesel demand in 2020/21, but offset by a pullback in exports to leave ending stocks near unchanged from this year at 1.865 billion bushels. USDA completely left the 2019/20 soybean meal balance sheet unchanged this month, while the 2020/21 SBM balance sheet was exactly the same as reflected at the February Ag Outlook Forum.
Wheat
USDA only made minor revisions to the 2019/20 U.S. wheat balance sheet, as is typical this late in the marketing year, lowering exports by 15 million bushels to 970 million, while raising food usage by 7 million bushels to 962 million as a result of the May 1 Flour Milling report showing a solid uptick in the Jan-March quarter relative to last year. The export estimate revision is a bit debatable as 962 million bushels in total commitments already on the books as of 4/30/20 are enough to allow exports to reach the USDA’s export projection, when taking into account differences with official Census Bureau data, as well as flour/product exports, but the actual shipment pace has been slow and that’s what matters in the end. The net result was an 8 million bushel increase in 2019/20 U.S. wheat ending stocks to 978 million bushels from 970 million last month, while the average trade estimate of 969 million bushels reflected little change was expected.
The focus for wheat this month, though, was on the USDA’s first objective estimate of the 2020/21 winter wheat crop. The USDA estimated the all winter wheat crop at 1.255 billion bushels, which was right in line with our ideas heading into the report of 1.259 billion and slightly above the average trade of 1.245 billion bushels. Last year’s winter wheat crop was 1.304 billion bushels. There is always uncertainty about harvested acreage heading into the May report, but the USDA’s 24.275 million acre estimate today reflected an estimated harvesting percentage of 78.9%, slightly up from last year’s 78.1% and in line with our general thinking given the rebound in SRW from last year’s historically low harvesting percentage.
On a by-class basis, USDA put the HRW crop at 733 million bushels vs our ideas of 737 million and last year’s 833 million, SRW at 298 million vs our ideas of 299 million and last year’s 239 million and the winter white wheat crop at 224 million vs our 225 million and last year’s 232 million. Today’s USDA state-level harvested acreage numbers resulted in our HRW crop moving slightly higher from our pre-report ideas and SRW production slightly lower. We currently estimate 2020/21 U.S. HRW total supplies at 1.257 billion bushels vs 1.354 billion last year, SRW at 422 million vs 402 million last year and white wheat at 357 million vs 365 million last year.
On a state-level basis, considerable changes from last year are apparent in the following summary table following last year’s historically poor SRW, resulting in large-scale year-over-year increases this year, and just the opposite in HRW states following last year’s 2nd highest on record average HRW yield.
USDA put the 2020/21 all wheat crop at 1.866 billion bushels, implying an assumed total spring/durum crop of 611 million bushels vs last year’s 616 million, which compares to last year’s all wheat crop of 1.920 billion bushels. We’re currently using an all wheat crop assumption of 1.875 billion bushels as we await crop condition reports of the spring wheat crop in order to begin objective estimates ourselves. USDA’s first objective production estimate of the spring wheat crop will be released in the July Crop Production report. The USDA was a bit more pessimistic on 2020/21 U.S. wheat export prospects at 950 million bushels, down from this year’s 970 million, citing expected increases in production this year by Australia, Russia, Canada and Argentina. Their initial estimate of 2020/21 combined major exporter wheat production of 327 MMT is up from last year’s 324.6 MMT, putting total exports among them at 136.5 MMT in 2020/21 vs 133.7 this year. 2020/21 U.S. wheat feed/residual usage is expected to decline, as would be expected given the anticipated massive corn crop, at 100 million bushels vs 135 million estimated by USDA this year. We’re lower still at 75 million. The bottom line saw USDA estimate 2020/21 U.S. wheat ending stocks at 909 million bushels, well above the average trade estimate of 818 million and compares to the USDA’s February Ag Outlook Forum new crop stocks estimate of 777 million. We’re currently at 891 million bushels. While U.S. wheat stocks are expected to decline for the 4th consecutive year, current ideas around 900 million bushels would still hardly be considered fundamentally constructive. This is apparent in the USDA’s estimate of the 2020/21 average farm price of $4.60/bushel, which would be unchanged from 2019/20.
USDA put 2020/21 world wheat ending stocks at 310.1 MMT, solidly above the average trade estimate of 292.7 MMT, up from this year’s 295.1 MMT and easily reflecting a new all-time record. The USDA’s global wheat stocks estimate excluding China of 149.8 MMT is up solidly from this year’s 144.8 MMT and reflects what would be the 2nd highest level on record after 2017/18’s 153 MMT. USDA estimated 2020/21 Chinese wheat imports at 6.0 MMT vs this year’s 4.0 MMT.
USDA Monthly Supply/Demand Balance Sheet Revisions
