Canada Markets

The elephant in the room needs to be addressed before Tuesday's USDA World Agricultural Supply and Demand Estimates (WASDE) details are discussed.

The $0.76/bushel break in May corn in nine trading sessions was almost entirely because of selling by funds in response to fears about escalating trade war developments, not due to current changes to the world supply or demand situation. In the two weeks that the break took to play out, money managed funds and commodity index traders were net sellers of 1.022 billion bushels (bb) of corn. They remain large net-long position holders and present the greatest risk to prices and price stability.

Moving on to what is tangible (from the unpredictable world of emotion and surprise social media posts), the WASDE report provided some interesting changes that the bulls should find encouraging.

But first -- I would like to acknowledge that it was somewhat frustrating and confusing to many that the USDA again refused to increase its United States corn export estimates regardless of all the facts suggesting it should. Maybe we are seeing the first sign that turmoil and job losses at the USDA is taking away from their performance -- especially following the second month in a row with not even a tweak to the U.S. corn balance sheet? Regardless, what USDA did change is certainly worth taking note of.

The most important changes were found with the major exporting countries (Argentina, Brazil, Russia, South Africa and Ukraine) use categories. Specifically, the trend to reduce exports while increasing domestic use and maintain very tight ending stocks. It is that trend that has been responsible for strong interest in U.S. corn exports to date with more of the same expected in the months to come.

Even with South American production being left unchanged against expectations of a small decline for Argentina's crop, export estimates for the major exporting countries fell 2.9 million metric tons (mmt) from last month. The 2024-25 export estimates are now 6 mmt below last year, 9 mmt below 2022-23, and 10.6 mmt below record levels set in 2021-22.

The consistent increase in domestic use is primarily responsible for the change with a month-over-month increase of 1 mmt for 2024-25 predicted. That takes the domestic use estimate to 3.75 mmt over last year, an 11.71-mmt increase compared to 2022-23, and 13.2 mmt above 2021-22 levels.

In the meantime, production has been falling during that time frame. Even though 2024-25 production is currently expected to match last year's level, downward revisions are expected. That said, the current estimate is still 8.7 mmt below the record set in 2021-22. Declining production in Ukraine has had the greatest impact with 2024-25 output being 15.3 mmt below that of 2021-22, prior to the Russian invasion.

The combination has left ending stocks in major exporting countries stuck at what looks to be minimum (pipeline) levels (see accompanying chart). The combination has left ending stocks in major exporting countries stuck at what looks to be minimum (pipeline) levels (see accompanying chart). The 8.23 mmt estimated for 2024-25 is basically the same as that seen in 2012-13, leaving the market looking at 18 years since ending stocks were any tighter. For the record, ending stocks are expected to be 8.23 mmt this year, down from 12.70 mmt last year and 56% below 2022-23's level of 18.67 mmt.

That takes us back to the exceptional pace of U.S. exports to date, and the reluctance by the USDA to make changes. Current total export commitments (outstanding sales plus exports to date) are running 26.3% ahead of last year with actual shipments up 30.5% year over year. Yet the USDA again stuck to its estimate of a 6.9% increase compared to last year.

Given this analysis of the competition expected from world exporting countries (or lack of), bulls in particular are frustrated by the absence of any increase in the U.S. export estimate. Besides the potential for distractions within the USDA from recent Department of Government Efficiency (DOGE) related turmoil, the most likely explanation could be the expectation for a fallout from trade wars -- even though they claim the assumptions are based on current developments, not future risks. All future U.S. weekly export sales reports and trade war developments will have to be watched for signs of sales slowing.

To quantify the risk remaining from additional fund long liquidation -- according to Commitments of Traders data -- money managers were still net long 219,752 contracts (1.099 bb) of corn while commodity index traders (CIT) remain net long 420,217 contracts (2.1 bb) as of March 4. Keep in mind, the lowest net long position (since reporting started in 2006) for the CIT's was 208,821 contracts. They tend to maintain some level of long exposure.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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