USDA Reports Review

The USDA World Agricultural Supply and Demand Estimates (WASDE) report for September featured little in the way of big surprises. As pre-report trader surveys had predicted, the flash drought and derecho in August had a bullish effect on corn and soybean prices. Friday's yield estimates of 178.5 bushels per acre (bpa) for corn and 51.9 bpa for soybeans were still record large but fell 3.3 bpa and 1.4 bpa, respectively, from August. Harvested corn acreage fell by 550,000 acres. Both corn and soybean futures closed report day with sharp gains.

The report began with some comments from the National Agricultural Statistics Service (NASS): First, they noted that conditions were as of Sept. 1 and no consideration was given to any freeze damage that may have occurred after that. NASS collected harvested acreage information for corn and soybeans in Iowa in response to the Aug. 10 derecho event. Harvested acres for corn were reduced by 550,000 to 83 million acres, while beans were left unchanged. NASS stated that additional harvested acreage information will be collected for the October report, suggesting that Friday's numbers were not final.

Just prior to the report, December corn was up 2 cents and finished 3 1/2 cents higher. November beans were up 11 cents and finished 18 1/2 cents higher. Kansas City December wheat was down 1 cent and finished 2 3/4 cents lower.

CORN

The crop production estimates by traders before the report turned out to be fairly accurate. With pre-report estimates looking for a 177.7 bpa corn yield and a 14.833 bb production, yield was instead pegged at 178.5 bpa (record large), and production came in at 14.9 bb -- slightly above expectations and down 378 mb from August. Corn ending stocks fell less than expected, by 253 mb to 2.503 bb -- the largest ending stocks number in over 30 years. Corn exports for 2019-20 fell by 25 mb. For 2020-21, corn used for ethanol was reduced by 100 mb, while exports were raised by 100 mb to account for increased demand from China. The season average price was raised by 40 cents to $3.50 per bushel.

On the global front, EU and Ukraine corn production were lowered, and Brazil was raised 3 million metric tons (mmt) to what would be a new record-large 110 mmt (4.33 bb). World ending corn stocks for 2019-20 were lowered slightly more than expected to 309.2 mmt (12.2 bb) and to 306.8 mmt (12.08 bb) for 2020-21 -- down 2.6 mmt. On the world front, some traders will wonder why China's corn imports were left unchanged at 7 mmt when, including some sales to "unknown," China is thought to have already bought nearly 9 mmt.

SOYBEANS

As they did in corn, NASS lowered soybean yield to a still record-large 51.9 bpa but down 1.4 bpa from their lofty August projection. Production, at 4.31 bb, came in slightly higher than the trader survey had projected and down 112 mb from August. Harvested acres for beans were left unchanged at 83 million. U.S. ending stocks on beans for 2019-20 came in 40 mb lower than expectations due to better exports and crush, leading to a lower beginning stocks number. Ending stocks for 2020-21 was pegged at 460 mb -- down 150 mb from August and about what the traders had expected. The season average price for soybeans was raised a hefty 90 cents per bushel due to increased demand from China to $9.25 per bushel. Soybean meal prices were raised by $25 per ton to $315, and the bean oil season average price was figured 2 cents higher at 32 cents per pound.

On the global front, world ending stocks fell by another 1.8 mmt to 93.6 mmt (3.44.bb) -- slightly above trade expectations. There was no increase in China soybean imports, which were already a record-large 99 mmt. Brazil's 2020-21 crop production was raised another 2 mmt to a record-large 133 mmt (4.89 bb). That would be up roughly 8 mmt versus last year. WASDE left Argentina's 2020-21 soy production at 53.5 mmt, and that compares to the Rosario Exchange' production estimate of just 50 mmt.

WHEAT

The September USDA report left wheat ending stocks unchanged at 925 mb for 2020-21 and left the season average price unchanged at $4.50 per bushel. Hard red winter wheat ending stocks rose by 5 mb, while soft red winter fell by a like amount.

It was on the world front that wheat had some changes. As expected, Australian wheat production was raised by 2 mmt to 28.5 mmt (1.04 bb) -- a large jump from last year's 15.2 mmt drought-ravaged crop. Also expected was an increase in the Canadian wheat crop by 2 mmt to 36 mmt (1.32 bb). Argentine wheat was lowered by 1 mmt to 19.5 mmt on expanding dryness. This may have more room for downward revision, as Argentina's own Rosario Exchange this week lowered the crop to just 18 mmt.

Perhaps one of the largest surprises was the increase in wheat imports for China by 1 mmt to 7 mmt -- the largest since 1995-96. Some traders are dumbfounded that China's wheat imports were raised and corn was left unchanged. The net effect of the world wheat changes is a new all-time-record-large world wheat ending stocks number of 319.4 mmt (11.74 bb) -- over 3 mmt higher than the trade had expected. This could move even higher, as Russia's wheat crop was left unchanged at 78 mmt (2.86 bb). That's another mystery since Russia has already harvested 80 mmt and consultancy Sov Econ this week pegged the crop at 83.9 mmt (3.08 bb).

FINAL THOUGHTS

The September WASDE report turned out to be less volatile than many in the trade had expected. Despite what was a neutral to even mildly bearish report, corn, and especially soybeans, reacted in a bullish manner. China continues to return to buy U.S. soybeans, and the U.S. will be the origin of choice into late December. Ahead of the fall harvest push, it is clear that commodity funds prefer to be long the soybean complex in a big way. They had better hope that China's appetite remains ferocious for U.S. soybeans in a market that is getting dangerously overbought.

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

Follow Dana Mantini on Twitter @mantini_r

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