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Bracing for Another Bearish WASDE Report

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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USDA will release its latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports at 11 a.m. CDT Wednesday, Aug. 12. (Logo courtesy of USDA)

USDA's lower-than-expected planting estimates in June gave corn and soybean prices a temporary reprieve, but both prices remain under bearish pressure. Wednesday's World Agricultural Supply and Demand Estimates (WASDE) report is likely to show higher crop estimates, boosted by several weeks of beneficial rains around most of the Corn Belt.

CORN

July's WASDE report gave corn prices a break from the extreme bearishness of USDA's earlier 3.323 billion bushel (bb) ending stocks estimate for 2020-21. Since then, crops have benefited from a broad coverage of rain across much of the Corn Belt, and Wednesday's new ending corn stocks estimate is now expected to head back in a higher direction. Dow Jones' pre-report survey of analysts expects USDA to increase the July ending stocks estimate of 2.648 bb to 2.795 bb Wednesday, or roughly 19% of annual use.

Survey estimates include a record high 15.163 bb crop, based on a national yield of 180.3 bushels per acre (bpa), almost 2 bpa above trend. If true, new-crop corn ending stocks will be the highest since the 1980s and hold the highest ending stocks-to-use ratio since 2004-05.

Before we get carried away about what the survey expects, I need to point out the August WASDE report has been one of the most difficult to predict and has typically been a source of bearish pain for prices on report day. Four of the past five years showed double-digit declines in December corn prices on report day. You may recall December corn finished down its 25-cent limit last year and dropped another 16 1/4 cents the day after the report.

The demand side of corn remains a concern in 2020. By my calculations, there is room for slight reductions of ethanol production and corn exports in 2019-20. USDA's 2.150 bb export estimate for 2020-21 still looks suspiciously high, but probably won't be changed Wednesday.

If there is anything good to say for this year's corn prices, it is that coronavirus and USDA's high 71% good-to-excellent crop rating have largely deflated bullish hopes already. Even if USDA comes in with a higher-than-expected crop estimate Wednesday, it isn't apt to shock corn prices, as noncommercials are already significantly net short.

With analysts expecting a higher estimate of U.S. ending stocks, a higher world ending stocks estimate of 320.4 million metric tons (mmtt)(12.61 bb) is also anticipated, up from 315.0 mmt in July. Traders will also be watching for any adjustments to USDA's 2019-20 Brazil crop estimate of 101.0 mmt and Argentina's 50.0 mmt. Ukraine's new-crop estimate is currently 39.0 mmt and is at risk of being adjusted higher.

SOYBEANS

The outlook for soybean prices is not as heavily bearish this year as it is for corn, but good weather has added to bearish expectations. USDA's 74% good-to-excellent soybean crop rating is the highest for this time of year in at least 10 years and raises the chances for a record soybean crop in 2020.

As with corn, the August WASDE report has been hard on soybean prices, accompanied by losses in each of the past five years. The largest loss of the past five years was 61 1/2 cents in 2015, followed by a 52 1/4 cent loss in 2018.

This time around, analysts expect USDA to increase its estimate of U.S. ending soybean stocks from 425 million bushels (mb) in July to 527 mb in August, based on a 4.278 bb crop and 51.4 bpa yield.

Old-crop soybean exports are running at their lowest pace in six years and could be at the lowest in seven years after Wednesday's report. On the other hand, old-crop ending soybean stocks are not expected to change much, thanks to room for a 20 mb increase in crush demand.

If Dow Jones' survey is correct, the ending stocks-to-use ratio for soybeans will be near 12%, a supply level that historically puts cash soybean prices in the low $9s. USDA, however, estimates an average farm price of $8.50 a bushel in 2020-21, weighed down by concerns about coronavirus and ongoing trade disputes with China.

Analysts expect USDA's estimate of world soybean stocks to increase from 95.1 mmt in 98.2 mmt, largely due to changes in the U.S. Current crop estimates for Brazil and Argentina stand at 126.0 mmt and 50.0 mmt, respectively.

WHEAT

KC and Minneapolis wheat prices fell to new contract lows last week, pressured by reports of higher yields in U.S. winter wheat, higher private crop estimates for Canada and Russia, and reports of beneficial rain in Australia. With no major production threats looming in 2020, there's a good chance USDA will raise the production estimates of both U.S. and world wheat, but the analysts in Dow Jones' survey see things differently.

Dow Jones' survey expects USDA to slightly increase its estimate of U.S. ending wheat stocks from 942 mb to 946 mb for 2020-21. U.S. wheat exports are running 9% above a year ago early in 2020-21, but USDA will probably not change the 950 mb export estimate this early in the season. USDA's feed demand estimate for wheat is already low, at 90 mb, but there is always a risk it could be trimmed further with so much corn available.

For world wheat, Dow Jones' survey expects USDA to reduce its estimate of ending world wheat stocks from 314.8 mmt to 313.5 mmt (11.52 bb). There is a chance the crop estimate for the European Union could be reduced, but other than that, it is difficult to understand what would reduce USDA's ending stocks estimate in August. A higher ending stocks estimate seems more likely with possible increases in Russia, the U.S. and Canada.

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As bearish as things are looking for crop prices in Wednesday's WASDE report, there is always a chance USDA will throw out an unexpected surprise. We have a team of reporters ready to publish the first findings on DTN shortly after the 11 a.m. CDT release.

Join us Aug.t 12 at noon CDT as we present an online webinar to talk about USDA's new estimates and what they will mean for grain prices. We're also glad to answer any market-related questions you may have. Register now at: https://dtn.webex.com/…

U.S. PRODUCTION (Million Bushels) 2020-21
Aug Avg High Low Jul 2019-20
Corn 15,163 15,330 14,815 15,000 13,617
Soybeans 4,278 4,499 4,150 4,135 3,552
All Wheat 1,832 1,856 1,795 1,824 1,920
Winter 1,215 1,232 1,193 1,218 1,304
HRW 710 720 700 710 833
SRW 279 295 270 280 239
White 228 235 224 227 232
Durum 57 61 55 56 54
Other 560 574 550 550 562
U.S. AVERAGE YIELD (Bushels Per Acre) 2020-21 (WASDE)
Aug Avg High Low Jul 2019-20
Corn 180.3 182.5 177.5 178.5 167.4
Soybeans 51.4 53.0 50.0 49.8 47.4
U.S. ENDING STOCKS (Million Bushels) 2019-20
Aug Avg High Low Jul
Corn 2,263 2,388 2,150 2,248
Soybeans 615 640 578 620
Wheat 1,036 1,045 935 1,044
U.S. ENDING STOCKS (Million Bushels) 2020-21
Aug Average High Low Jul
Corn 2,795 3,206 2,460 2,648
Soybeans 527 689 440 425
Wheat 946 976 899 942
WORLD ENDING STOCKS (Million metric tons) 2019-20
Aug Avg High Low Jul
Corn 312.5 314.0 311.0 311.9
Soybeans 98.6 100.3 94.8 99.7
Wheat 296.8 299.2 292.0 297.1
WORLD ENDING STOCKS (million metric tons) 2020-21
Aug Avg. High Low Jul
Corn 320.4 340.1 312.0 315.0
Soybeans 98.2 111.7 93.0 95.1
Wheat 313.5 316.6 308.2 314.8

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

Todd Hultman