Wheat moved lower today in response to the larger-than-expected U.S. winter wheat crop estimate and the notable increase in global stocks ideas, while corn and soybeans sloughed off today’s reports as they didn’t hold much new of importance, with the focus remaining on this year’s crop ideas and ongoing optimism for continued Chinese demand.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file.
Corn
The biggest “surprise†for corn this month was the somewhat larger-than-expected cut to last year’s North Dakota crop after the re-survey conducted in May. USDA lowered the ND crop by 45 million bushels to 410 million, while lowering harvested acreage by 100k acres to 3.130 million. The combination lowered last year’s ND average yield to 131 bushels/acre from 141 previously estimated. These changes resulted in the 2019 U.S. corn crop being lowered to 13.617 billion bushels from 13.663 billion previously and last year’s final yield ticking down to 167.4 bushels/acre vs 167.8 previously.
Demand revisions were quite limited, with USDA leaving 2019/20 U.S. corn exports unchanged this month at 1.775 billion bushels, while we continue to feel there is modest upside potential in the end, as we’re currently estimating exports at 1.825 billion. To reach the USDA’s export projection, we estimate June-August corn sales need to average only about 8.7 million bushels/week after averaging 28.8 million/week over the last six weeks. Last year’s sales during the same 6-week period averaged 15.4 million bushels/week, while sales in 2017/18 averaged 34.8 million/week and were 50.4 million/week in 2015/16. Overall, this year’s sales program during the 2nd half of the marketing year has been running similarly in pattern to those of 2017/18 and 2015/16 (both years with very strong Brazilian export programs to end the previous year and quickly/dramatically slowed with new crop), albeit at modestly lower levels than those year, but solidly better than last year. We expect this overall situation to remain in place through the end of the marketing year resulting in sales proving better than the current “needed†pace of 8.7 million bushels/week.
The USDA made a necessary downward revision in their 2019/20 corn for ethanol usage estimate by 50 million bushels to 4.900 billion – a step in the right direction, but very likely not to be enough when all is said and done. The new estimate would require ethanol production to average roughly 7% below last year through the end of August. While ethanol production has steadily improved over the last six weeks, last week’s production was still nearly 24% below last year. Achieving a 7% average decline over the final 12 weeks of the year likely will require at least a stretch of production running above last year, a situation we simply do not see happening. Another 50 million bushel cut to 4.850 billion would leave ethanol production needing to run roughly 11% below last year through the end of August, with a 100 million bushel cut being needed if ethanol production runs 15% below last year on average. We’re at 4.850 billion bushels, but leaning a bit lower.
USDA did not revise 2019/20 feed/residual usage, as expected, with the quarterly Grain Stocks report due out on June 30. The reports at the end of the month will be key to price direction through the heart of the growing season as USDA updates planted acreage at that time, as well. We’re currently estimating old crop feed/residual usage at 5.625 billion bushels, 75 million below the USDA.
The USDA’s 46 million bushel cut in last year’s crop was a nearly perfect offset to the minimal old crop demand revisions of only corn for ethanol usage being lowered by 50 million bushels. The net result was 2019/20 U.S. corn ending stocks being raised 5 million bushels to 2.103 billion vs the average trade estimate of 2.169 billion bushels reflecting an expected increase in stocks of 71 million bushels based on ideas of a larger cut in ethanol and less reduction in last year’s crop.
USDA made no revisions to the 2020/21 U.S. corn balance sheet, whatsoever, with only the 5 million bushel increase in old crop ending stocks being carried through, ticking new crop stocks higher by the same amount to 3.323 billion. Based on our modestly lower acreage ideas 1.5 million acres below USDA, we’re currently estimating 2020/21 ending stocks at 3.146 billion bushels, a bit below USDA but still easily the highest since 1987/88.
Global revisions were quite limited, as well, with USDA leaving the Brazilian and Argentine corn crop estimates unchanged, while trade estimates indicated an expected small decline for both, particularly Brazil. USDA lowered Brazilian exports by 1 MMT, but was offset by a 1 MMT increase for Argentina. However, combined South American corn exports from this year’s crops are estimated to be down 7 MMT from last year. USDA left 20/21 Chinese corn imports unchanged from last month, as well as unchanged from 19/20, at 7 MMT. World corn ending stocks for 19/20 were lowered slightly to 312.9 MMT from 314.7 MMT last month (314.4 MMT “expectedâ€), while 2020/21 global stocks of 337.9 MMT were down slightly from 339.6 MMT last month (340.1 MMT “expectedâ€).
Overall, the U.S. crop is off to a good start and despite export demand proving to be fairly decent in the 2nd half of the marketing year, the lost demand due to the ethanol situation and the overhanging, omnipresent prospects of 3.0+ billion bushels in new crop ending stocks keeps is rather difficult to see corn prices sustaining extended periods of upside price action in the foreseeable future.
Soybeans
The USDA’s U.S. soybean balance sheet revisions today were equally uneventful, with modestly lower exports and modestly higher crush as expected, while the re-survey of the North Dakota crop resulted in only a minor downward revision. USDA lowered last year’s North Dakota soybean crop by 4 million bushels to 170 million, with harvested area lowered 50k acres to 5.400 million and the average yield ticking down to 31.5 bushels/acre from 32.0 previously. This put the U.S. soybean crop last year at 3.552 billion bushels and did not have an impact on the national average yield, holding at 47.4 bushels/acre.
The 2019/20 demand revisions were pretty much as needed, in our opinion, with export lowered 25 million bushels to 1.650 billion and crush raised 15 million bushels to 2.140 billion. These revisions will leave soybean export sales needing to average roughly 4.2 million bushels/week through the end of August, which may seem minimal, but keep in mind five of the last seven years’ old crop sales from this point forward averaged 5.7 million bushels/week or less. The vast majority of the increased Chinese buying activity of late has been for new crop, so the USDA’s lowered export target is still not assured in our opinion.
The USDA’s new 2.140 billion bushel crush estimate will require May-August crush to run 1.6% above last year’s pace, on average, an achievable target given the notable pullback in crush last year in May and June. Even with crush margins running below recent years’ levels, soybean oil and soybean meal export demand remains impressive, supporting continued solid crush activity. We have no issue with today’s USDA crush estimate increase.
The bottom line saw USDA bump 2019/20 U.S. soybean ending stocks up 5 million bushels to 585 million vs the average trade estimate of 577 million. We’re mostly in agreement with the old crop situation with our ending stocks estimate at 578 million.
USDA made a necessary solid increase in their 2019/20 soybean oil export estimate by 150 million pounds to 2.700 billion, as sales on the books had already reached levels necessary to achieve their previous projection with four months still in the marketing year. Even with the new estimate, sales still will likely only need to average 4.0-4.5k tonnes/week through the end of September vs last year’s 3.1k/week average from this point forward. Total commitments are up 52% from last year vs the new export projection reflecting an estimated 39% increase in exports from last year. On the other side of the equation, though, USDA further cut soybean oil for bio-diesel usage by 100 million pounds to 7.400 billion, resulting in total domestic usage lowered by the same amount. Official bio-diesel production data is still only available through March, but at 821 million gallons through the first 6 months of the 2019/20 soybean oil marketing year, it is down nearly 9% from last year. Marketing year-to-date soybean oil used for bio-diesel of 3.378 billion pounds is down 15% (593 million pounds) from last year, while the USDA’s annual estimate now reflects an estimated 463 million pound (5.9%) decline. SBO for bio-diesel usage in March and February was up 6% and 3% from last year, respectively, after 16-30% declines in each of the first four months of 2019/20. The net result was a 60 million pound increase in 2019/20 U.S. soybean oil ending stocks to 1.940 billion pounds, up from last year’s 1.775 billion.
USDA’s 2019/20 U.S. soybean meal balance sheet saw production raised 350k tons due to higher crush, with imports raised 50k tons to 600k. The supply increase was fully offset by a 400k ton increase in domestic usage to 37.5 million tons. USDA left old crop soybean meal exports unchanged at 13.450 million tons, a decision we can’t immediately argue with total commitments still down 3.5% from last year, but gaining, vs the export projection reflecting a 1% decline from last year. A bit of an increase may be needed, though, in the end.
For new crop, 2020/21, ideas, USDA raised soybean crush by 15 million bushels to 2.145 billion given the same increase in old crop crush. With exports unchanged at 2.050 billion bushels, the 5 million bushel increase in beginning stocks left new crop ending stocks declining by a minor 10 million bushels to 395 million. The overall average trade estimate was 441 million bushels, but those specifically reflecting this month’s expected revision was 426 million. With our modestly higher acreage ideas 1.5 million acres above USDA, we’re currently estimating 2020/21 U.S. soybean stocks at 439 million bushels.
USDA raised 2020/21 soybean oil ending stocks to 2.000 billion pounds from 1.865 billion last month, with production raised 175 million pounds due to higher crush and beginning stocks up 60 million pounds, while exports were raised by 100 million pounds. The USDA’s estimate minimally eclipses 2017/18 stocks of 1.995 billion pounds to be the highest since 2011/12. For soybean meal, production was raised 300k tons given the larger crush and was offset by a 300k ton increase in domestic usage to 37.8 MMT (37.5 MMT this year).
The soybean market is on high alert regarding Chinese export business. The solid improvement in sales to China of late has been supportive to the market at times but is what is needed/expected as USDA is projecting 2020/21 U.S. soybean exports up nearly 11 MMT from this year and obviously highly dependent on Chinese buying. Record annual soybean exports were 2.166 billion bushels in 2016/17, so the USDA’s export estimate is already within roughly 3 MMT of the all-time record.
For world numbers, USDA lowered the Argentine soybean crop by 1 MMT to 50.0 MMT, but raised exports 1 MMT on a local marketing year basis to 6.5 MMT. Local marketing year crush was lowered to 40.8 MMT from 41.6 MMT last month and is essentially unchanged from last year’s 40.9 MMT. Brazil’s soybean crop was unchanged at 124 MMT, with exports on a local marketing year basis left unchanged as well at 77.0 MMT (73.4 MMT last year). USDA raised 2019/20 Chinese soybean imports 2 MMT to 94.0 MMT, while 2020/21 imports were unchanged this month at 96.0 MMT.
Wheat
Today’s wheat market focus was on the USDA’s update of the U.S. winter wheat crop, which saw an 11 million bushel upward revision from last month to 1.266 billion bushels, in contrast to the average trade estimate of 1.241 billion bushels reflecting an expected decline of 14 million bushels. The overall decline in crop conditions over the last month was the main factor pointing to a potential decline in this month’s estimate, but once again, wheat yields show impressive resilience.
While there weren’t any major revisions in the largest-producing states, the theme was clear with KS raised 2 bu/acre from last month, NE raised 3 bu/acre, CO raised 1 bu/acre and SD raised 3 bu/acre. The OK yield was left unchanged, while TX was lowered 2 bu/acre, but the HRW crop saw a 10 million bushel increase from last month to 743 million, while the average trade estimate was for an 11 million bushel decline. The SRW crop was essentially unchanged at 297 million bushels (298 mil last month), in line with expectations, with state revisions a bit more of a mixed bag. IL was up 1 bu/acre and OH up 2 bu/acre, but MO and AR were unchanged and IN was down 3 bu/acre. The white winter wheat crop was also essentially unchanged at 225 million bushels vs 224 million last month and in line with expectations.
Today’s total winter wheat crop estimate reflected the 6th consecutive year, and 10th of the last 11 years, in which the June report was above the average trade estimate by some degree.
The USDA’s 2020/21 all wheat crop assumption moved up, accordingly, to 1.877 billion bushels from 1.866 billion last month with the “other springâ€/durum assumption held at 611 million bushels prior to next month’s first objective, field survey-based estimate of the year. We’re currently a bit higher for the all wheat crop at 1.891 billion bushels.
Demand revisions were minimal this month. In fact, the only demand revision to both the old crop and new crop balances was a 5 million bushel reduction in 2019/20 exports to 965 million bushels. A minor decline was expected following April Census data being released and Export Inspections data winding out the year. With official May export data still awaited, we feel 2019/20 exports still have room for another 4-5 million bushels to the downside. With the old crop export revision, USDA’s 2019/20 ending stocks estimate ticked up 5 million bushels to 983 million. Final 2019/20 stocks will be revealed in the June 30 Grain Stocks report. We’re at 995 million bushels as we feel feed/residual usage is likely to prove a bit below USDA’s 135 million bushel estimate, along with exports. We would note June 1 wheat stocks have held a propensity for coming in higher than expected, having done so in 15 of the last 20 years. Recently, though, the bias hasn’t been as strong, doing so in 6 of the last 10 years, but only two years over the last 20 saw June 1 stocks below expectations by a meaningful amount, one of them being last year. For the 2020/21 balance sheet, the untouched demand estimates resulted in a carry through of the 16 million bushel increase in supplies (5 million beginning stocks, 11 million production) to the bottom line, pushing new crop ending stocks up to 925 million bushels from 909 million last month. U.S. wheat ending stocks are expected to decline for the fourth consecutive year, but with the stocks/usage ratio still around 45%, there simply is no supply concern whatsoever in the current global wheat construct.
Globally, expectedly, it was a mixed bag with major exporters’ crop ideas varying from region to region. USDA lowered the EU crop 2 MMT and Ukraine crop 1.5 MMT, but Australia was raised 2.5 MMT, with Russia, Argentina and Canada left unchanged. We see upside potential from the USDA’s Russian estimate of 77.0 MMT, as well as Australia’s 26.0 MMT estimate, but downside for the EU. Overall, combined major exporter production was lowered 1.5 MMT from last month, but at 325.5 MMT remains slightly larger than last year’s 324.6 MMT, while we feel there is upside for combined production in the end. Despite the tick lower in production, USDA raised total exports among the major competing exporters by 1 MMT from last month (Australia up 2 MMT, Russia up 1 MMT, Ukraine down 1.5 MMT, Eu down 0.5 MMT) to 137.5 MMT and compares to 136.2 MMT last year. Should the Russian and Australian crops prove larger, export competition for the U.S. would only worse. World wheat ending stocks for 2020/21 were raised solidly today by 6.0 MMT to 316.1 MMT, reflecting a 20 MMT increase from 2019/20. Even excluding China, global stocks are estimated to increase 9.2 MMT from last year to 154.2 MMT. Both would be reflections of new record stocks levels. Keep these two charts in mind when comments regarding “improving U.S. fundamentals†or “improving U.S. trade prospects†are made.
USDA Monthly Supply/Demand Balance Sheet Revisions
