The November USDA World Agricultural Supply and Demand Estimate (WASDE) report was expected to be a bullish report, but it exceeded all expectations! Yield and production on both corn and soybeans fell greater than expected -- 2.6 bushels per acre (bpa) for corn and 1 bpa for soybeans. Ending stocks fell by 465 million bushels (mb) for corn and 100 mb for soybeans. Perhaps the biggest surprise was the 325 mb rise in U.S. corn exports, as Ukraine corn fell by 8 million metric tons (mmt) and China imports rose by 6 mmt. Another surprise was seeing no change in U.S. soybean exports, with USDA likely fearing an even greater demand-rationing rally ahead.
Although most traders had expected a drop in corn yield and production, along with a possible rise in corn exports, traders ended up getting even more than they bargained for. U.S. corn yield fell by a much larger than expected 2.6 bpa to 175.8 bpa, with production sliding 215 mb from the October report. But that wasn't even the biggest surprise of the day, as USDA raised U.S. corn exports by a hefty 325 mb. That sent U.S. corn ending stocks down by 465 mb to 1.702 billion bushels (bb), when the trade had expected 2.048 bb. The export demand change was directly related to not only the pace of U.S. corn sales -- already 179% above a year ago -- but also the sharp cut in Ukraine corn production by 8 mmt to 28.5 mmt and the rise in China's corn imports by 6 mmt to 13 mmt (512 mb).
With China's internal corn prices currently above $9.60 per bushel, it's not a surprise that they may buy more U.S. corn.
Also dropped were both Russian and EU corn crops by 1 mmt and 1.9 mmt, respectively. That was partly offset by the rise in South African maize production by 2 mmt to 16 mmt (630 mb).
On the world front, while Brazil and Argentine corn production for 2020-21 was left largely unchanged, the dramatic supply and demand changes sent world ending stocks of corn to 291.4 mmt (11.5 bb) from 300.5 mmt (11.8 bb) in October (a drop of 9 mmt). That was roughly 6 mmt below what traders had anticipated. If it comes to fruition, global ending stocks will be nearly 30 mmt (1.18 bb) below those of 2018-19.
As China has already bought close to 10.8 mmt (425 mb) of U.S. corn, even 13 mmt might end up being light, with private analysts looking for further increases. Another corollary to the Ukraine demand change was the drop in EU corn feeding by 5.5 mmt and rise in EU wheat feeding by 1 mmt, as the EU often buys corn from the Ukraine.
Prior to the report, corn futures were trading up a nickel, but the bullish report helped the December contract close the day up 16 cents. The average corn price for the year was raised 40 cents per bushel to $4.00. Funds, who had entered the report long over 320,000 contracts, were vindicated and they likely added to that total following the report.
While the soybean ending stocks number and demand implications were a major focus heading into the November WASDE report, the news for corn took the spotlight away. However, there were some significant changes in soybeans, with yield dropping 1.2 bpa from October to 50.7 bpa, and production falling more than expected by 98 mb, leading to an ending stocks number of just 190 mb -- that's down 100 mb from October and roughly 50 mb lower than what traders were expecting.
Perhaps the biggest surprise of all in the report was USDA's failure to raise U.S. soybean exports at all! With the current export pace at a record large 1.782 bb -- totaling a huge 81% of the entire year's projection -- few thought this number wouldn't be increased.
With China buying of U.S. soybeans already at 32 mmt (1.176 bb) and internal prices bordering on $16 per bushel, it is very likely that China may not yet be done buying ahead of Brazil's new harvest. The risk of raising exports in the November report would have been sending U.S. ending soybean stocks toward their lowest level since 2013. As it stands, without any cancelations, it is likely that the U.S. soybean export projection could be too low by 100 mb or more -- stay tuned.
On the world front, soybean production declined by 6 mmt (220 mb), with the U.S. responsible for 2.65 mmt (98 mb) of that drop. While Brazil production was left unchanged, Argentine soy production was lowered by 2.5 mmt from October to just 51 mmt (1.87 bb). World ending stocks of soybeans fell 2.2 mmt from October to just 86.5 mmt (3.18 bb). Soybean meal ending stocks fell to 8.9 million short tons (mst) from 9.62 mst. The average price for soymeal was raised by $20 per ton to $355 and the average soybean oil price was increased by 2 cents per pound to $34.50.
The soybean bull market is alive and well. Trading 14 cents higher just before the report release, January soybeans ended up closing 35 1/2 cents higher to finish at a new contract high.
While supply is decreasing and demand is rising, the focus will now shift back to South American weather -- especially southern Brazil and Argentina -- where a strengthening La Nina pattern threatens to clip even more production from those areas. While WASDE maintained a 133 mmt (4.89 bb) production number for Brazil, the agricultural statistics company, CONAB, raised that production to a record large 135.7 mmt (4.99 bb). That is for a crop that is only 54% planted. That kind of production number will be sorely needed, based on demand.
Heading into the report, most had expected the wheat changes to be mild and have less impact than the corn and soybean changes. That turned out to be the case, with U.S. wheat ending stocks falling by a modest 6 mb to 877 mb. There were only minor changes in wheat by class ending stocks while wheat food use was increased by 5 mb.
The results of the wheat report were neutral, but some "any port in a storm" sympathy buying sent Kansas City futures to a 9-cent gain.
Notably, in the global wheat picture, was a drop of 1 mmt in Argentine wheat production to 18 mmt (661 mb) -- the lowest level in eight years. Russian wheat rose by 500,000 mt to 83.5 mmt (3.07 bb). China's wheat imports were raised by 500,000 mt to 8 mmt.
World consumption of wheat was increased by 1.7 mmt due to a feed and residual increase for China and the EU. China's wheat imports are the largest since 1995-96. World ending stocks fell modestly by 1 mmt to 320.5 mmt (11.77 bb) -- still record large.
Dana Mantini can be reached at email@example.com
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