Despite the market providing every push it could to “find†additional acres given the historically tight old crop balance sheets, they were not to be found as USDA reported 2021/22 U.S. corn and soybean planted area solidly below market expectations and only slightly larger than initially estimated in March. The quarterly Grain Stocks report didn’t hold any notable surprises today, but was supportive overall, leaving the market to focus squarely on the need for solid yield performances for corn and soybeans this summer. With considerable dryness across the northwest portion of the corn belt, sub-trend yield ideas are increasing, exactly what the balance sheets cannot handle, increasing the potential need for demand rationing over the coming year.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file.
Corn
The hoped-for saving grace in a large-scale acreage increase from the USDA’s March estimate did not materialize for the corn market today as lower than expected/desired 2021/22 U.S. corn area was again reflected in today’s report. Additionally, while rather mundane by Grain Stocks reports’ standards, today’s estimate of June 1 U.S. corn stocks was slightly lower than average market expectations, providing a slight added boost to the bullish sentiment.
Starting with the Grain Stocks report, USDA estimated June 1 U.S. corn stocks at 4.112 billion bushels, slightly below the average trade estimate of 4.144 billion and compared to 5.003 billion bushels last year, implying 3rd quarter (March-May) feed/residual usage of roughly 843 million bushels, reflecting a 15% decline from last year’s 991 million. As we discussed in our pre-report commentary, as 3rd quarter feed/residual fell in line with our expectations, 4th quarter feed/residual usage will now need to be down 29% (276 million bushels) from last year at roughly 681 million bushels in order for the USDA’s 5.700 billion bushel 2020/21 annual feed/residual usage estimate to prove accurate and would reflect the largest year-over-year percentage decline in 4th quarter feed/residual usage in 25years. Clearly considerable feed usage rationing is expected in the final quarter of the year, anecdotally supported to rampant talk of large-scale wheat feeding taking place, but realizing large-scale replacement of corn with wheat in feed rations tends to prove more difficult when all is said and done. Accordingly, we are anticipating a bit more modest feed usage rationing in the 4th quarter of 24%, putting our 2020/21 annual feed/residual usage estimate at 5.750 billion bushels.
For the record, USDA only marginally revised March 1 corn stocks to 7.696 billion bushels from 7.701 billion initially reported, putting 2nd quarter feed/residual usage at 1.423 billion bushels, up 8.1% from last year, while 1st quarter feed/residual usage was up 4.6% from last year at 2.754 billion. With today’s data, 1st-3rd quarter implied feed/residual usage of 5.019 billion bushels was up 1.6% from last year’s 4.941 billion.
Of the 4.112 billion bushels of June 1 corn stocks, USDA reported 1.744 billion bushels on-farm (42%) and 2.369 billion off-farm (58%), reflecting the lowest and highest percentages, respectively in the last 30+ years. Not surprisingly, the level of on-farm stocks as of June 1 is the lowest since 2013 and down massively from last year’s 2.867 billion bushels.
Based on June 1 stocks of 4.112 billion bushels and our current 4th quarter demand ideas, we estimate 2020/21 U.S. corn ending stocks at 1.071 billion bushels vs USDA last at 1.107 billion, with a stocks/usage ratio of 7.1% vs USDA’s 7.4%, slipping below 2012/13’s 7.4% to be what would be the lowest since 1995/96’s 5.0%. A look at our balance sheet, taking into consideration today’s new crop acreage considerations is at the end of the corn section.
Shifting to the Acreage report, USDA estimated 2021/22 U.S. corn planted area at 92.692 million acres, up a modest 1.548 million acres from March, but 1.1 million acres below the average trade estimate and only reflecting a 1.9 million acre increase from last year despite the move to 8-year price highs. As warned in our pre-report commentary, the degree of the acreage increase many had been anticipating simply would have been an unprecedented situation, with even today’s 1.5 million acre increase from March being the largest June increase in 12 years. Moreover, for those still holding onto the idea of higher corn acreage in the end, history again does not support that potential whatsoever with each of the last 8 years’ final corn acreage proving lower than the June estimate and only 5 of the last 32 years’ final acreage higher than estimated in June. Of those five, the maximum increase in U.S. corn area from the June estimate was only 900k acres. If history is any indicator, what you see is what you get regarding the USDA’s June acreage estimate.
Looking at the USDA’s state-level revisions, widespread increases from March were reflected by USDA, but simply not to the degree many were anticipating. Specifically, USDA raised ND and SD corn area by 300k and 400k acres, respectively, but some felt ND could have been up as much as 800k-1.2 million acres from March. The largest increase was in MN by 500k acres, while IL was up 300k and IN and OH both up 200k. USDA lowered IA corn area by 100k acres from March, while NE was lowered 200k and WI 250k.
So where does this leave us? Quite frankly in a very precarious position. While a repeat of this year’s massive 2.850 billion bushel export program is not expected in 2021/22, it appears to be rather clear already, though, another year of historically strong exports is likely with new crop sales on the books already at 617 million bushels vs 143 million at the same time last year, dwarfing the previous record new crop sales as of mid-June of 285 million bushels for the 1996/97 marketing year. Additionally, a continued rebound in ethanol production is likely in 2021/22, expected to add 200+ million bushels in corn demand relative to 2020/21. Accordingly, any demand rationing is likely to fall heavily on the feed/livestock sector in the coming year with the degree of needed rationing far from clear given the massive unknowns of the crop size.
On that topic, given the considerable dryness and historically poor crop conditions across the northwest portion of the corn belt, a nationwide sub-trend yield appears to be a very real possibility. Obviously it is a very long growing season and conditions/yield potential should be improving for the eastern 2/3 of the corn belt, but based on current conditions, we’re currently looking at a U.S. average yield around 174.5 bushels/acre vs USDA’s last balance sheet assumption of 179.5 bushels/acre. Moreover, applying today’s acreage figures, the crop would be implied at 14.744 billion bushels vs USDA’s current 14.990 billion bushel assumption. Based on our new crop export ideas of 2.500 billion bushels and corn for ethanol usage of 5.275 billion, 2021/22 feed/residual usage would need to be rationed to around 5.600 billion bushels just to maintain new crop ending stocks at minimal levels of 1.050 billion bushels – essentially unchanged from this year, with the stocks/usage ratio holding at a historically low 7.1%. Keep in mind every 1 bu/acre yield change alters the supply outlook by roughly 85 million bushels. If yields are able to prove closer to 178.5 bu/acre, 4 bu/acre above our current thinking, roughly 340 million bushels in “breathing room†would be added. On the other hand, every bushel/acre slip below our current ideas would prompt the need to cut another 85 million bushels in total demand simply to maintain new crop ending stocks near 1.0 billion bushels. Needless to say, the focus on daily weather forecast changes, weekly crop condition updates and, ultimately, yield prospects is going to be razor sharp in the coming weeks/months, likely leaving quite volatile market conditions in place for the foreseeable future.
USDA’s next balance sheet update, incorporating implications of today’s Grain Stocks and Acreage reports will be on July 12. In that report, USDA will assume the new acreage numbers for the 2021/22 balance sheet, but may choose to leave their yield idea unchanged at 179.5 bu/acre until the first objective assessment is made in the August Crop Production report. USDA has not altered their U.S. average corn yield estimate in the July WASDE since 2012 and only 6 times over the last 26 years. Accordingly, it is possible/likely the USDA’s 2021/22 ending stocks estimate could actually move higher in the July WASDE report as today’s harvested acreage estimate of 84.495 million acres was nearly 1 million acres higher than their current balance sheet reflection.
Soybeans
Similar to corn, the USDA’s Grain Stocks report did not provide much for the soybean market in terms of surprise, but certainly was fundamentally supportive, coming in slightly below market expectations and confirming historically low stocks heading into the 4th quarter of the 2020/21 marketing year. More importantly, though, the shockingly-low 2021/22 U.S. soybean acreage estimate, reflecting no change from initial March ideas, all but guarantees the market maintain a full demand rationing need focus heading into the new marketing year, with the job likely falling heavily on the export sector.
USDA reported June 1 U.S. soybean stocks at 767 million bushels, modestly below the average trade estimate of 785 million and compared to last year’s 1.381 billion. USDA’s reported June 1 stocks and stocks indicated by actual usage were nearly identical, following the same situation as last year, which differed by only 5 million bushels, but a vastly different situation than “normal†with most year’s differing by around 100 million bushels, only to be largely evened out by the end of the 4th quarter. The bottom line read on the USDA’s June stocks figure is simply as no additional bushels were “foundâ€, every bushel of demand over final two months of the marketing year will be critical in assessing 2020/21 ending stocks. On that front, USDA’s monthly Oilseeds Crushings report tomorrow afternoon, providing soybean crush for the month of May will help clarify implications of today’s June 1 stocks figure. The average estimate of May soybean crush is 173.4 million bushels which, if accurate, would put marketing year to date crush at 1.644 billion bushels, leaving June-Aug crush able to total 531 million bushels based on their 2.175 billion bushel annual estimate, down only 1% from last year’s 4th quarter crush of 536 million bushels. However, crush has averaged nearly 5% below last year over the last four months, potentially allowing for a few bushels to be “found†in reduced crush rates by the end of August.
Of the 768 million bushels in total June 1 stocks, USDA reported only 220 million bushels remained in on-farm locations vs 633 million bushels last year, reflecting 29% of total stocks vs 46% last year, the lowest percentage and outright on-farm stocks since 2014. Conversely, off-farm stocks of 547 million bushels accounted for 71% of total June 1 stocks vs 54% last year and the highest percentage since 2014, although obviously still sharply below last year’s 968 million bushels.
As mentioned, every bushel of old crop usage during the final two months of the marketing year will be as closely monitored as possible with 2020/21 ending stocks ideas already at bare-minimum levels. Accordingly, tomorrow’s Oilseed Crushings report and Friday’s Census Bureau trade data, both providing May data, will be critical pieces of information. On that note, the Census Bureau’s import data may be just as important as the export data since USDA is currently estimating 2020/21 total imports at 35 million bushels, while only 8 million bushels had been imported through April, leaving 27 million bushels needing to be imported during May-Aug. We have adjusted our annual import ideas down to 25 million bushels. We’re currently estimating old crop exports at 2.270 billion bushels vs USDA’s 2.280 billion and crush at 2.165 billion vs USDA’s 2.175 billion bushels, putting our 2020/21 ending stocks estimate at 145 million bushels vs USDA last at 135 million. A look at our balance sheet is at the end of the soybean section.
Shifting to the Acreage report, let’s just say we’re surprised, but not surprised, the “expected†solid increase in soybean area from the USDA’s March estimate did not materialize as the USDA’s June soybean acreage estimate has come in below the average trade estimate by some degree now in each of the last six years. While we felt there was a solid potential for an atypically large increase in soybean area from the March estimate to show up this year given the price dynamics and favorable planting conditions, it ended up being more of the same ol’ same ol’ as the acres didn’t materialize, leaving the market to adjust balance sheets once again to lower than expected soybean area heading into the heart of the growing season.
USDA put 2021/22 U.S. soybean planted area at 87.555 million acres, essentially unchanged from their March estimate of 87.600 million and 1.4 million acres below the average trade estimate of 88.955 million. While still a solid 4.5 million acres larger than last year, the theoretical loss of around 71 million bushels in new crop supply from previous expectations, amid historically low old crop ending stocks, sent soybean prices soaring today. As is the case with corn, hoping to find additional soybean acres down the road should largely be stricken from any thought process as final soybean acres have proven lower than the June estimate in 7 of the last 8 years (10 of the last 12 years), with even those finding acres being by only 600k and 1.1 million.
Looking at the USDA’s state-level revisions, it was essentially a wash across major corn belt states with +/- 100k acre revisions from March being commonplace, with even the Dakotas being a wash with ND up 200k and SD down 200k acres.
It now all comes down to yields, and even that may not be enough as it would require a record 52.0 bushel/acre U.S. average yield to allow 2021/22 total demand to remain at this year’s level just to maintain new crop ending stocks at a historically minimal 145 million bushels. Anything less than a record yield would require demand rationing, which likely will be heavily focused on the export sector if the optimistic biofuels expansion ideas prove accurate, essentially dictating the need for higher crush rates over the coming year. On that front, while it is extremely early and August weather will ultimately dictate yield performance, we have trimmed our average yield ideas back to 50.3 bushels/acre (USDA 50.8) given the early struggles in the northwest portion of the belt.
With a 50.3 bu/acre average yield, total demand would be not able to exceed 4.395 billion bushels, 145 million bushels less than this year, to keep 2021/22 ending stocks near 140 million bushels. With early new crop crush ideas around 2.230 billion bushels vs 2.165 billion this year, exports would need to be cut to around 2.050 billion bushels from 2.270 billion estimated this year. Keep in mind, each 1 bushel/acre change in yields alters demand potential by +/- 87 million bushels. The USDA’s July WASDE report may actually be rather uneventful as June 1 stocks largely confirmed existing stocks ideas heading into the 4th quarter of the old crop marketing year, while the Acreage report was essentially dead on with the USDA’s existing 2021/22 planted and harvested acreage numbers.
Wheat
USDA reported June 1 U.S. wheat stocks (2020/21 ending stocks) at 844 million bushels, modestly below the average trade estimate of 859 million bushels, which reflected ideas for a small increase in from the USDA’s last balance sheet reflection of old crop ending stocks of 852 million, but in line with our pre-report ideas of 838 million bushels. Pending official trade data for May, due out Friday, June 1 stocks put the 4th quarter (March-May) implied feed/residual at -37 million bushels for 2020/21 annual feed/residual usage of 94 million bushels vs USDA last at 100 million in their balance sheet. Accordingly, the Grain Stocks report for wheat was largely a non-event, with a minor 8 million bushel downward tweaking of the USDA’s latest old crop ending stocks estimate forthcoming in the July 12 WASDE report.
However, while the USDA’s Acreage report didn’t hold much in the way of surprise either, the confirmation of spring wheat acreage near the USDA’s March estimate opens the door for a likely substantial downward revision in the USDA’s 2021/22 wheat production estimate in the upcoming July 12 reports given the historically poor condition of the spring wheat crop heading into the USDA’s first objective estimate of the year.
Starting with the specific numbers, USDA estimated 2021/22 “other spring†wheat planted area at 11.580 million acres, down modestly from 11.740 million estimated in March and actually slightly above the average trad estimate of 11.408 million, now reflecting a 670k acre decline from last year. Durum area was put at 1.480 million acres vs 1.540 million in March and the average trade estimate of 1.513 million. Interestingly, it was winter wheat which provided the most surprise, with planted area raised 605k acres from March to 33.683 million acres vs expectations for essentially unchanged area from 33.078 million previously. All told, U.S. wheat area ended up coming in 800k acres higher than expected and up 385k acres from March.
Looking at potential future acreage revisions, the USDA’s June spring wheat estimate has proven quite solid in recent years, with five of the last six year’s final acreage figures being within 200k acres of the June estimate. The only larger deviation was in 2016 with final acreage nearly 600k acres below the June estimate. Interestingly, over the last 20 years, the largest upward revision in final spring wheat area relative to the June estimate was by only 333k acres.
As we head into the USDA’s first objective estimate of the spring wheat crop on July 12, the historically poor condition of the crop is obviously leading to rather pessimistic crop ideas. Using today’s updated acreage estimates, we see the “other spring†wheat crop at only 416 million bushels vs last year’s 586 million, with the average yield falling to a 14-year low of 37.1 bushels/acre vs last year’s 48.6 yield. Additionally, we see the 2021/22 durum crop at only 41 million bushels vs last year’s 69 million, putting total spring wheat production at 457 million bushels vs 655 million last year. More importantly, the USDA is currently reflecting 2021/22 all wheat production at 1.898 billion bushels in their balance sheet. Based on their latest winter wheat estimate of 1.308 billion bushels, they have been assuming total spring wheat production of 590 million bushels, 133 million bushels larger than our current thinking. Clearly a significant downward revision in all wheat production should be forthcoming in the July report. However, following today’s upward revision in winter wheat area and our continued ideas of yields being better than USDA’s latest estimate, we see the total winter wheat crop at 1.351 billion bushels vs USDA’s 1.308 billion, with HRW at 807 million vs USDA 771 million, SRW 348 million vs USDA 335 million and winter white 196 million vs USDA 202 million. All together, we see the 2021/22 U.S. all wheat crop at 1.808 billion bushels vs USDA last at 1.898 billion and last year’s 1.826 billion.
Taking it a step further, we see 2021/22 U.S. HRW total supplies at 1.222 billion bushels vs 1.168 billion last year, SRW at 450 million bushels vs 376 million last year and HRS at 702 million bushels vs 858 million last year, comparable to 2017/18’s 707 million, but technically the lowest since 2011/12. USDA will issue their first new crop by-class balance sheets in the July WASDE report. Given the rather divergent supply outlooks between the classes, USDA is likely to reflect significantly reduced HRS exports for the coming year, while pushing higher domestic usage into HRW and SRW amid ideas of increased wheat feeding during the June-August quarter.
There is no doubt the 2021/22 U.S. wheat balance sheet is tightening up considerably from early ideas given the struggles with the spring wheat crop. We do feel wheat feed/residual usage will be higher than average this year but caution against getting to strong with ideas as instances of annual usage proving materially above 150 million bushels are few and far between. Additionally, with the rather good Black Sea region crops in the making, strong EU production and likely solid Australian crop, there appears to be ample opportunity for global buyers to turn their attention away from the U.S. for the coming year. Accordingly, we have lowered our new crop export ideas to 845 million bushels vs USDA last at 900 million and last year’s 990 million on the constraints of the individual classes. These ideas keep our 2021/22 U.S. wheat ending stocks estimate at 760 million bushels, comparable to USDA’s latest estimate of 770 million, but requiring demand 78 million bushels lower than USDA and down 84 million bushels from last year. At 760 million bushels, ending stocks would be the lowest since 2014, reflecting a much more fundamentally constructive picture than in recent years, but still not near the truly bullish situations in the past, i.e. 2013/14, 2007/08, 2006/07.
In a final note on today’s reports, the USDA’s combined major crop acreage (corn, soybeans, wheat, cotton, sorghum, barley, oats, rice) rose only 900k acres from their previous ideas in March, much less than trade estimates indicated the market was looking for of a 3.6 million acre increase. Specifically, USDA put major crop area at 252.8 million acres vs 251.9 million estimated in March, reflecting a 7.9 million acre increase from last year and moving right back into the middle of acres seen from 2015-2018 of 252-254 million acres. The entire debate about potentially significantly higher acres than USDA estimated today and expected since March has centered on ideas/expectations for total major crop area to return to 2012-2014 levels of 256-258 million acres, which would have allowed for another 3-5 million acres relative to today’s update. With crop prices back at levels of 2012-2014 the assumption simply has been acreage would return to those levels, as well, but therein lies the mystery/unknown of why they did not.
