USDA Reports Review

Corn Soars to Limit Gains, Soybeans Reach New Highs

Dana Mantini
By  Dana Mantini , Senior Market Analyst
March 2021 corn futures climbed to limit gains -- up 25 cents per bushel -- following the bullish WASDE report Tuesday. (DTN ProphetX chart)

While most traders were locked in on the ending stocks number for U.S. soybeans, the January USDA reports shocked the trade with corn production and stock changes from December. Corn yield was slashed 3.8 bushels per acre (bpa), and production fell by a hefty 325 million bushels (mb), as the true impact of summer drought and the derecho came home to roost. Add to that the record corn usage for the first two quarters of the crop year, and you had a limit-up corn market. Soybean stocks fell, as expected, leading to a nearly 50-cent-higher close.

Here's a closer look at some of the changes in both U.S. and world numbers.

CORN

With traders expecting only a modest drop in corn yield, production and ending stocks levels, the reports sent shockwaves through the industry, putting a smile on the face of farmers and fund managers, as corn surged to the daily limit gain of 25 cents.

Starting with what would be final yield and production numbers, USDA slashed U.S. corn yield by 3.8 bpa to just 172 bpa. That was a full 3 bpa below the average trade estimate and led to production of 14.182 billion bushels (bb) -- a huge 325 mb below December production.

There was likely much more damage to the central and Western Corn Belt due to summer drought and derecho than could be determined earlier in the year. Adding to the bullishness was the Dec. 1 corn stocks, which fell far below the average trade estimate. The 11.332 bb of stocks were nearly identical to a year ago and a huge 310 mb below the Dow Jones survey estimate. That would imply record corn usage for not only the second quarter of the crop year, but for the first two quarters, of 4.850 bb.

To offset some of the yield, production and usage losses, USDA strangely lowered feed and residual by 50 mb, lowered exports by 100 mb and also corn for ethanol usage by 100 mb.

U.S. corn exports to date are on a torrid pace, and without a change in Argentine weather soon, there is little chance that corn exports move lower, and feed was just implied to be record large.

On the world front, ending stocks fell to a close-to-expected 283.83 million metric tons (mmt) (11.1 bb), and just slightly under the average estimate -- a full 5.2 mmt lower than December. Other notable changes were the 1 mmt rise in China corn imports, to 17.5 mmt (689 mb), and only modest declines of 1 mmt and 1.5 mmt, respectively, in Brazil and Argentine production.

Brazil, at 109 mmt (4.29 bb), is still perhaps 5 mmt to 7 mmt above some private analyst estimates, while Argentina, at 47.5 mmt (1.87 bb), certainly has room to fall without a pickup in rain there.

The average corn price was raised by 15 cents to $4.85 per bushel.

Prior to the report, spot corn futures were trading right around unchanged. March corn finished the day just slightly below a major chart point of $5.20, with a close above that being bullish. Funds came into the report wildly bullish with a record net long and were rewarded; they likely added to that position following the report.

SOYBEANS

U.S. soybean yield and production came out at 50.2 bpa and 4.135 bb, respectively. Yield fell by 0.5 bpa, while production was down 35 mb from December and about 20 mb under where the trade had expected.

Expecting ending stocks to decline to 135 mb, the Dow Jones survey was close, with ending stocks pegged at a still very tight 140 mb.

U.S. soybean exports were raised 30 mb -- perhaps less than many analysts are penciling in, and soy crush was increased by only 5 mb. Dec. 1 stocks of soybeans were revealed to be 2.933 bb, with the trade expecting 2.904 bb. Those stocks compare to 3.252 bb a year ago.

World changes were minor, but the continued tightening of both the U.S. and world balance sheets provided impetus for a further rally.

World ending stocks were pegged at 84.3 mmt (3.09 bb) -- down from 85.6 mmt in December. Notable changes were Argentine soy production falling by 2 mmt to 48 mmt (1.76 bb), while Brazil soy production was, surprisingly, left unchanged at a record-by-far 133 mmt (4.89 bb). Despite recent improvement in that crop, many analysts feel that it may be too high by 4-6 mmt; only time will tell. China soybean production was increased by 2 mmt to 19.6 mmt, but China crush and imports were left totally unchanged.

The average soybean price was raised 60 cents to $11.15, while bean oil was increased to $0.385 from $0.36, and soymeal was raised a hefty $20 per ton to $390. Funds were thought to be carrying a combined long of over 400,000 contracts prior to the report and likely added to that.

WHEAT

Wheat traders came into the January reports with expectations for only minor changes. Wheat had its own outside reasons for rallying before the report, with each of the three markets scoring double-digit gains at 11 a.m. CST. The gap higher opened to a new contract high in Paris milling wheat futures, along with rumors that Russia would raise wheat export taxes to 50 euros per ton ($1.65 per bushel) sent wheat screaming higher early.

The report featured a larger drop in U.S. ending stocks to 836 mb than most had expected, while the average Dow Jones estimate was 20 mb more than that. Wheat feed and residual was raised by 25 mb, while seed wheat usage was up 1 mb. Dec. 1 stocks of wheat, which was expected to be 1.695 bb, instead came out at 1.674 bb. Hard red winter wheat stocks fell by 14 mb, while soft red and white wheat stocks declined by 5 mb and 6 mb, respectively.

World wheat stocks were reduced to a lower-than-expected 313.9 mmt (11.5 bb) compared to 316.5 mmt in December and trade expectations for a fall to 315.3 mmt. A few notable changes in world numbers were a fall of 500,000 metric tons in Argentine production to 17.5 mmt, a rise in Russian wheat production to a record-large 85.3 mmt (3.13 bb) and a fall in China's wheat production to 134.25 mmt (4.9 bb) -- down 1.75 mmt from December. Also notable for world wheat is that consumption was raised by 1.8 mmt to account for a larger use of wheat for feed with corn stocks tightening.

In another segment of the report, winter wheat seeding was raised to 32 million acres for all wheat. That's 1.6 million acres (ma) above last year's record-low 30.4 ma, the lowest since 1909. The 32 ma was about 600,000 acres higher than the pre-report estimate.

CONCLUSION

Once again, we had USDA confirming the continued tightening of wheat, corn and soybean balance sheets, as demand continues to soar and production had some issues.

The sharp reaction in corn to a limit gain tells me that few traders believe that corn exports and feed use should have been revised downward. Without a sharp uptick in Argentine and southern Brazil rain -- and with more China buying -- we could see stocks tighten even further in the weeks to come.

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

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