USDA solidly lowered their estimates of the U.S. corn and soybean crops in this month’s Crop Production report, taking a step in the right direction following the considerable decline in crop conditions over the last month. Based on the relationship between conditions and yields, though, today’s downward revision may not be the last. USDA’s old crop and new crop demand revisions did not hold many surprises, leaving 2020/21 corn and soybean ending stocks ideas moving lower amid the production cuts, but still at historically comfortable levels…for now. The USDA essentially left the U.S. wheat situation unchanged this month with the Small Grains Annual Summary and Grain Stocks reports due at the end of the month.
A summary of key report numbers relative to market expectations is attached to this post as a PDF file.
Corn
USDA took a two-pronged approach to lowering this month’s estimate of the U.S. corn crop with their initial assessment of the derecho wind event across Iowa prompting a reduction in harvested area of 550k acres for the state, while widespread yield reductions given the hot/dry August conditions prompted the lowering of the U.S. average yield by 3.3 bushels/acre from last month to 178.5 million acres. The combination resulted in USDA lowering the U.S. corn crop by 378 million bushels to 14.900 billion bushels from 15.278 billion bushels in August. As expected, the state-level yield declines from last month were both widespread and considerable, led by the 11 bushel/acre cut in Iowa to 191 bushels/acre, but also 6 bushel/acre reductions in MO and MI, 7 bu/acre cut in KS and 4 bu/acre cut in IL.
We can’t argue with any of the reductions, but we are concerned the rapidly maturing crop will see little benefit from the notable increase in rains across the corn belt of late, leaving the USDA’s crop ideas still too high. The following chart is an update of the one we discussed in our pre-report commentary, updated with today’s USDA yield estimate of 178.5 bu/acre. As seen, the solid reduction from last month’s 181.8 bu/acre yield estimate helped bring early September conditions vs the September yield estimate a bit more in line with how USDA has reflected the crop at this time of the year in recent years, but still considerably more optimistic than in the past. We additionally have to question the USDA’s 178.5 bu/acre yield estimate being 8.6 bushels/acre above their September estimate in 2017, only three years ago, with essentially identical crop conditions at the time despite today’s USDA reflecting of average ears per acre in the 10 objective yield estimate state of 28,650 being almost identical to 2017’s 28,550. While the USDA’s ear/acre assessment is up, understandably, from last year’s 28,200 in September, it is below the 2016-2018 average of 28,816 (28,550-29,350 range), yet USDA is reflecting yield ideas considerably above those years.
Looking forward, we remain concerned the USDA’s yield/crop assessment is overly optimistic unless crop conditions somehow see an impressive late season improvement. We do feel this year’s yields will outperform those of last year in a relative sense given the historically strong start to this year’s crop vs last year’s crop which was under stress throughout much of the growing season given the historically late start. However, with ear/acre counts below those of the 2016-2018 average, the late dryness stress and remaining harvested acreage uncertainty, we feel the risk in the U.S. corn crop size remains to the downside. We’re estimating the crop at 14.682 billion bushels with an average yield of 175.4 bushels/acre, putting 2020/21 total supplies at 17.065 billion bushels (USDA 17.178 billion) vs last year’s 15.883 billion and still barely eeking out a new record in surpassing 2017/18’s 16.939 billion bushels.
On the demand side, USDA pulled back on new crop domestic usage ideas given slow COVID-recovery expectations, reducing 2020/21 corn for ethanol usage by 100 million bushels from last month to 5.100 billion, but still reflecting a 245 million bushel increase from 2019/20. Based on the new estimate, we see weekly U.S. ethanol production needing to average roughly 6% above last year’s level throughout the course of the marketing year. USDA also lowered 2020/21 feed/residual usage by 100 million bushels to 5.825 billion bushels, an assessment we feel is more appropriate for the time being as we’ve discussed their previous ideas reflecting a historically large year-over-year increase. We continue to feel their 2019/20 feed/residual usage estimate is too high, though, possibly by around 100 million bushels, which we will discuss in our commentary ahead of the September 30 Grain Stocks report.
On the upside, USDA raised 2020/21 exports by 100 million bushels to 2.325 billion bushels in an appropriate move given the notable Chinese buying of late with 8.8 MMT already on the books. The export situation for 2020/21 remains a considerable uncertainty/risk, particularly in context of declining production ideas. While the balance sheet remains comfortable as currently estimated by USDA, things get much more interesting/complicated/potentially concerning if the crop ends up being 200-300 million bushels less than USDA is currently estimating and China continues buying corn, with their total import ideas of 20+ MMT this year becoming a bit more commonplace. While continued strong Chinese purchases of U.S. corn would likely push some amount of other buyers’ demand away from the U.S., another 200 million bushels (5 MMT) in exports added to the balance sheet, combined with lower production, easily pushes ending stocks ideas below 2.0 billion bushels.
USDA lowered 2020/21 U.S. corn ending stocks by 253 million bushels today to 2.503 billion, reflecting a stocks/usage ratio of 17.1% vs their 2019/20 assessment of 16.5% for the time being. While today’s USDA crop and ending stocks estimates were both slightly above the respective average trade estimates, they confirmed ideas of this year’s balance sheet not being nearly as burdensome as earlier feared and open up the conversation to “what if†type views. The tightening up of the balance sheet prompted USDA to raise the 2020/21 estimated average farm price by 40 cents/bushel this month to $3.50, back in line with 2019/20’s $3.60.
We’re currently estimating 2020/21 total demand at 14.8 billion bushels, 125 million higher than USDA on a combination of higher exports and ethanol usage, while our crop estimate is 218 million bushels lower than USDA. This is partially offset by our old crop ending stocks ideas being 100 million bushels higher than USDA due to our feed/residual usage ideas, but still results in our 2020/21 ending stocks estimate of 2.265 billion bushels being 238 million bushels below USDA with our stocks/usage ratio estimate at 15.3% vs 17.4% last year and 15.5% in 2018/19. It will likely take ending stock moving below 1.9 billion bushels to push the stocks/usage ratio below the 12.7% seen in 2014/15 and 2015/16.
USDA left their estimate of 2020/21 Chinese corn imports unchanged at 7.0 MMT, which clearly appears too low given believed combined US/Ukrainian purchases already exceed 10 MMT. Last year’s Brazilian corn crop was bumped up to 102 MMT from 101 MMT previously, while the new crop was raised 3 MMT from last month to 110 MMT, putting next year exports at 39.0 MMT (up 1 MMT from last month) vs this year’s 34.0 MMT. USDA only lowered Ukraine’s crop by 1 MMT this month to 38.5 MMT, which appears potentially still 5 MMT or so too high.
Soybeans
The USDA’s solid lowering of the U.S. soybean crop from last month was also in line with market expectations, but saw their revised average yield estimate of 51.9 bushels/acre fall right in line with the early September crop conditions/September yield estimate relationship we discussed in our pre-report comments, as opposed to corn which was much higher. For the specifics, USDA lowered the U.S. soybean crop by 112 million bushels from last month to 4.313 billion with the average yield declining 1.4 bushels/acre. The crop estimate was slightly above the average trade estimate of 4.276 billion bushels, as was the yield relative to the average trade estimate of 51.6 bushels/acre.
As seen, the 51.9 bu/acre yield for the September report was exactly in line with the relationship between early Sept conditions and the Sept yield estimate of the 2018 and 2019 estimates. This adjustment gives us hope final yields will also move more into line with the relationship between final conditions and yields when all is said and done. Unlike corn, though, we do feel soybean conditions can benefit from the recent very favorable rains across much of the corn belt and a late season improvement may be seen. Without an improvement, though, we feel there could still be additional downside in the USDA’s yield/crop estimate to come.
Based on current crop conditions, a U.S. average yield of 50.0-50.5 bushels/acre would be implied, allowing for a modest upward adjustment from the straight-line relationship of final conditions/final yields from 2017-2019. A final yield in this range would put the crop at 4.150-4.193 billion bushels vs USDA’s 4.313 billion bushel estimate today. Based on our expectations for some improvement in conditions and, accordingly, yields from current levels, we see the crop at 4.250 billion bushels, 63 million bushels below today’s USDA estimate of 4.313 billion, but still up 660 million bushels from our assessment of last year’s crop of 3.590 billion. Our average yield of 51.2 bu/acre reflects a further decline of 0.7 bushels/acre from today’s USDA estimate of 51.9 bu/acre. We feel an improvement in conditions to levels near 2018’s final rating could allow for an average yield around our estimate. Interestingly, current crop conditions of 65% good/excellent are nearly identical to 2018’s final 66% g/e rating, but 2018 saw the portion of the crop rated excellent 5% higher than current conditions.
Today’s 10-state objective yield survey data showed an average pod count of 1,780, up sharply, as expected, from last year’s 1,561 in September and modestly above the 2016-2018 average of 1,735 in the September report (1,678-1,786 range). This supports ideas of yields potentially proving slightly above the recent-year condition/yield relationship. In most years, pod counts further increase in the October and November assessments, though, so that will be something to watch in next month’s report as to whether there was any detrimental impact from the hot/dry conditions in August.
USDA did not find any reason to lower harvested acreage in this month’s report following the re-survey of farmers following the derecho wind event. Accordingly, the 112 million bushel production decline was entire due to yields, which were highlighted by the 4 bu/acre cut in IA to 54, 3 bu/acre declines in MI and AL and multiple 2 bu/acre cuts from last month including IL, KS, NE, MO, MS, OH and SD.
Based on our crop estimate of 4.250 billion bushels, we see 2020/21 total U.S. soybean supplies at 4.827 billion bushels, up 312 million bushels from last year, but modestly below 2018/19’s 4.880 billion. As with corn, while the 2020/21 balance sheet still looks comfortable from a historical perspective based on the USDA’s current crop and demand estimates, further reductions in the crop and/or demand increases start to raise warning flags in quick fashion.
Unlike corn, USDA was rather quiet on the demand side of the U.S. soybean balance sheet. Old crop tweaks were in line with expectations/needs with 2019/20 exports raised 30 million bushels to 1.680 billion and crush raised 10 million bushels to 2.170 billion. USDA continues to hold onto the -45 million bushel residual in the old crop balance sheet, which will need to be resolved with an adjustment to last year’s crop in the coming September 30 Grain Stocks report. If actual September 1 stocks are near the USDA’s current 575 million bushel ending stocks estimate (down 40 million bushels from last month), last year’s crop would be expected to be revised up to around 3.607 billion bushels from 3.552 billion bushels currently in the end of month report. We’re currently estimating 2019/20 ending stocks at 557 million bushels, with an old crop production assumption of 3.590 billion bushels.
USDA essentially did not touch 2020/21 demand this month, leaving exports at 2.125 billion bushels and crush at 2.180 billion. We won’t argue with the crush estimate for now, but feel their export estimate is conservative as we’re 50 million bushels higher at 2.175 billion bushels and leaning higher. Our current export estimate reflects a 490 million bushel (13.3 MMT) increase from last year. If China is to push imports of U.S. soybeans back towards record levels of 36.1 MMT, shipments to China in 2020/21 would be up roughly 20 MMT (735 mil bu) from 2019/20. Obviously, exports to non-Chinese destinations would need to see a pullback as there is not room to accommodate unchanged exports to “others†along with a 20 MMT increase to China.
Based on our lower crop estimate and higher demand, we’re currently estimating 2020/21 U.S. soybean ending stocks at 357 million bushels vs USDA last at 460 million and last year’s 557 million. This would easily be the lowest stocks since 2016/17’s 302 million, but still comfortably above stocks during the 9-year period from 2007/08-2015/16 of 92-215 million bushels. However, add another 100 million bushels in demand and/or subtract production, things may start to get interesting rather quickly. As the 2020/21 balance sheet has moved away from the worst-case burdensome situation, USDA raised the estimated 2020/21 average farm price by 90 cents/bushel this month to $9.25 and compares to last year’s $8.55.
USDA lowered 2019/20 U.S. soybean oil stocks by 215 million pounds from last month to 1.745 billion, with total demand raised 350 million pounds (450 million domestic, of which 150 was biodiesel), while exports were lowered 100 million pounds), all of which was partially offset by the 135 million pound increase in production (crush). At 1.845 billion pounds, soybean oil stocks would still be above the previous year’s 1.775 billion and right in line with the most-recent 5-year average of 1,805 billion pounds. The 215 million pound decline in old crop stocks was directly carried through the 2020/21 balance sheet, as well, putting new crop stocks at 1.860 billion pounds. USDA raised old crop soybean meal production 175k tons, allowing exports to be raised, as needed, by 150k tons to 13.8 million. The new crop balance sheet was unchanged.
Wheat
It was an extremely quiet month for wheat, as expected, as USDA essentially left the entire 2020/21 U.S. wheat balance sheet untouched. The only revisions were a 5 million bushel increase in HRW exports and a 5 million bushel reduction in SRW exports, leaving all wheat exports unchanged at 975 million bushels. The USDA’s 2020/21 ending stocks estimate remained at 925 million bushels as the end of September Small Grains Annual Summary and quarterly Grain Stocks reports will provide fodder for revisions in the October WASDE report. USDA left the estimated 2020/21 average farm price unchanged at $4.50/bushel and compares to last year’s $4.58.
We currently see the all wheat crop at 1.828 billion bushels, 10 million below the USDA’s 1.838 billion and 2020/21 total demand almost identical to USDA, but with exports 20 million bushels higher and feed/residual usage 20 million bushels lower. The U.S. wheat balance sheet remains more than comfortable from an overall perspective, but estimated ending stocks of 917 million bushels would be the lowest in six years. It’s hard to get excited about wheat at the moment as it clearly does not have the demand focus of corn and soybeans, while supply-side surprises at this point are unlikely.
USDA was active on the global front this month with Australia’s crop raised 2.5 MMT to 28.5 MMT (more to come), Canada raised 2.0 MMT to 36.0 MMT and the EU raised 650k tonnes to 136.2 MMT. USDA left the Russian crop unchanged at 78.0 MMT, which clearly appears too low with private estimates around 83 MMT, and left Ukraine unchanged at 27.0 MMT, which appears good for now. USDA raised Chinese wheat imports by 1 MMT to 7.0 MMT and compare to 5.4 MMT last year.
USDA Monthly Supply/Demand Balance Sheet Revisions
