USDA Reports Review

USDA's World Agricultural Supply and Demand Estimate (WASDE) report for August 2021 gave some early Thursday morning sellers a bad case of indigestion. Prior to the report release, corn and soybeans were trading with significant losses. Upon the report release, the bullish yield, production and ending stocks numbers for both corn and wheat sent sellers scrambling for cover and buyers flocking to buy. Soybeans reluctantly followed the strength before fading late in the day.

CORN

While most traders were bracing for a minor bullish change in corn yield and production, USDA shocked traders with larger cuts in yield, production and even old- and new-crop demand. With traders looking for a modest 2.4 bushel-per-acre (bpa) drop in yield to an average estimate of 177.1 bpa, USDA instead pegged yield at just 174.6 bpa -- nearly 5 bpa below July. In addition, USDA dropped both feed and residual use and exports each by 100 million bushels (mb), while raising food, seed and industrial by 10 mb, sending U.S. 2021-22 ending stocks to a much-lower-than-expected 1.242 billion bushels (bb). U.S. corn production was estimated to be 14.750 bb, or 200 mb below expectations, with production down 415 mb from July. Notable was the sharp decline in yields in those states affected by summer drought in the Northern Plains. North Dakota yield figured a dismal 106 bpa, with South Dakota at 133 bpa and Minnesota at 166 bpa. It appears that even the high yields in the Eastern Corn Belt could not offset losses in the West and North. Illinois had a record yield of 214 bpa, with Ohio and Iowa registering 193 bpa each. Old-crop corn exports were lowered 75 mb to 2.775 bb to account for the slow pace.

On the world front, there were minor changes for Russia's corn crop, up 1.1 million metric tons (mmt) to 16.50 mmt, and Ukraine's corn crop was raised by 1.5 mmt to 39 mmt. China corn imports for both 2020-21 and 2021-22 were left unchanged at 26 mmt. WASDE lowered Brazil's corn production by 6 mmt to 87 mmt (3.2 bb); that has room to move lower. The net effect of the above was that ending stocks for 2021-22 were lowered by 6.6 mmt to 284.6 mmt (10.46 bb), or about 3.4 mmt below pre-report estimates. The average farm price was increased by 15 cents to $5.75 per bushel.

December corn, trading 5 cents lower prior to the report, rallied to $6.03 1/4 following the report, but closed 20 cents below that level. The report was based on producer surveys and satellite imagery, leaving plenty of room for revisions down the road. One thing that does not seem to make much sense is that U.S. new-crop exports were lowered again and already considered too low, even as Brazil's production continues to fall. This could mean that corn might turn much more bullish down the road, as Ukraine and the U.S. are likely to satisfy much more of the world demand. China is the wildcard, with varying estimates of China corn demand in the coming year.

SOYBEANS

Soybeans were certainly not as much of a shock as the WASDE corn numbers and were primarily neutral to expectations. The Dow Jones survey estimated soy yield to fall by 0.5 bpa from July. Instead, soybean average yield was reported to be 0.8 bpa lower at 50 bpa, with production falling by 67 mb to 4.338 bb. Traders had expected a slightly higher 4.360 bb. Old-crop exports were dropped by 10 mb to 2.260 bb, while new-crop exports and crush were each slashed by 20 mb, keeping new-crop ending stocks unchanged at 155 mb. As in corn, it was the Northern states, stricken by extreme drought, that pulled the national yield lower. North Dakota was recorded at 24 bpa, South Dakota at 39 bpa, and Minnesota figured 43 bpa.

On the world front, China imports for 2021-22 were lowered by 1 mmt to 101 mmt (3.7 bb), while China's crush fell by 2 mmt to 98 mmt on poor crush margins. World ending stocks on soybeans actually rose to 96.16 mmt (3.53 bb) from 94.5 mmt in July and trade expectations for 94.8 mmt.

The net effect was that the soybean numbers were neutral, but soybeans, down 16 cents prior to the report, rose to nearly 30-cent gains before plunging to finish just a penny higher. Of course, there is plenty of time -- if predicted rains fall -- to improve soy conditions, and once again, China demand and finishing weather is the key.

WHEAT

Wheat in recent weeks had taken over the bullish leadership role, and Thursday was no exception. USDA, usually known for gradual changes in yield and production, threw a few surprises our way.

Starting on the domestic front, all-wheat production fell to 1.697 bb, down 49 mb from July and 28 mb lower than the average trade estimate. Contrary to expectations, it was not spring wheat, but rather hard red winter (HRW) and white wheat in the northwest that was the likely reason for much of the drop.

Winter wheat fell 46 mb below July, with HRW down 28 mb and white wheat down 22 mb, while HRS fell just 2 mb. U.S. ending stocks on wheat fell to 627 mb -- down from 665 mb in July and a good 18 mb below the average trade guess. The average wheat yield fell by 1.8 bpa to 51.8 bpa. Feed and residual were lowered 10 mb to 160 mb, likely due to wheat pricing itself out of feed rations.

While domestic changes were mild, world changes were very dramatic and surprising. Australian wheat production was increased by 1.5 mmt to 30 mmt, Ukraine increased 3 mmt to 33 mmt, and both Brazil (800,000 mt) and the EU (600,000 mt) rose as well. However, between Canada and Russia, production was slashed by 20 mmt (735 mb), with Canada down 7.5 mmt to 24 mmt (882 mb) and Russian wheat falling to 72.5 mmt compared to 85 mmt in July. In just two months, Russian production estimates fell from a record-large 86 mmt to just 72.5 mmt (2.66 bb). Kazakhstan was lowered by 500,000 mt to 12.5 mmt. World ending stocks of wheat fell by almost 13 mmt since July to 279 mmt (10.25 bb), and that is a five-year low.

Kansas City September wheat, trading up a nickel pre-report, surged to a new contract high and closed 28 1/2 cents higher for the day. On another note, abandonment for spring wheat remained at just 3%, with many thinking this could be a lot higher in the end, which would be even more bullish for wheat, if true.

The bottom line is that world stocks of corn and wheat continue to tighten, and for corn, demand could be far understated with there still being a chance for yield to fall even more.

For a look at the full USDA Crop Production and WASDE report numbers, see: https://www.dtnpf.com/….

Dana Mantini can be reached at dana.mantini@dtn.com

Follow Dana Mantini on Twitter @mantini_r

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