USDA Reports Review
Well That Was Unexpected
If I had told you beforehand that USDA's estimates of planted acres for corn, soybeans and wheat would all come in above pre-report expectations, and that corn and soybean quarterly stocks would be larger than expected while wheat ending stocks were pegged at the highest level since 1988, you'd expect post-report action to be dominated by selling. Well, as logical as that sounds, you'd be wrong.
Not in corn, though. The market immediately stretched its loss to double digits on the back of a quarterly stocks figure of 4.722 billion bushels and planted area of 94.15 million acres. Regarding stocks: This number was close to DTN's 4.795 bb estimate following the March 31 Quarterly Stocks report, based on average third quarter (Q3) demand. The fact USDA came in a little lower than DTN implies Q3 demand was stronger than normal, supporting what has been seen in exports, feed and ethanol demand over the last three months. However, projecting forward to the end of August now has ending stocks at 2.270 bb as compared to USDA's June Supply and Demand estimate of 1.708 bb.
In regard to estimated corn planted area, the 94.15 million acres is one of the largest on record. And while it defies logic that corn's planted area would increase by more than 6 ma, it's the number on the books for now. Yes, it will change, with the first opportunity likely in USDA's August Supply and Demand report. If not then, possibly October or even next January's "final" 2016 crop numbers. But using the June 30 number, and using USDA's June differential between planted and harvest, multiplied by USDA's expected yield of 168 bushels per acre, puts 2016 production at 14.465 bb.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
Then there's soybeans. The average pre-report estimate for quarterly stocks came in at 833 mb, a figure overshadowed by USDA's 870 mb. This implied Q3 demand of 3.240 bb, well below the previous year's 3.425 bb and putting soybeans on track for an ending stocks figure of 439 mb. In its June Supply and Demand report, USDA pegged ending stocks at 370 mb. Following the March 31 Quarterly Stocks report, DTN's analysis put Q3 stocks at 761 mb and ending stocks at 316 mb. While demand wasn't sparkling the last three months, the market's old-crop futures spreads would suggest that demand was stronger than implied by USDA's surprisingly large June 30 figure. Given the long-term commercial outlook remains bullish, it would not be surprising to see this number adjusted down the road.
USDA pegged soybean planted area at 83.69 ma, generally in line with the average pre-report estimate of 83.66 ma, but up 1.45 ma from the March 31 Prospective Plantings figure of 82.24 ma. Keep in mind that many in the industry viewed the latter number as too low. Also, the November soybean/December corn futures spread had suggested soybeans were buying acres away from corn over the course of the summer, though true farming logistics may have negated that theory. Still, the larger ending stocks/beginning stocks figure of 439 mb (for now) combined with slightly larger production potential of 3.87 bb would result in new-crop ending stocks of 444 mb. USDA's June Supply and Demand report estimated this at 260 mb. Despite all this, new-crop soybeans rallied as much as 48 cents Thursday after the release of the numbers, erasing what had been a double-digit loss earlier in the day.
And then there's wheat. The June 30 quarterly stocks figure, the crop's old-crop ending stocks figure, came in at 981 mb. While in line with pre-report expectations and USDA's June ending stocks estimate of 980 mb, it's still the largest since the 1.261 bb reported at the end of the 1987-1988 marketing year. On top of all that wheat, USDA estimated planted area for all wheat at 50.82 ma, up from the 49.56 ma estimated in the March 31 Prospective Plantings report. Combining all this into a hypothetical supply-and-demand table results in new-crop, 2016-2017, ending stocks of 1.102 bb and an ending stocks-to-use ratio of 51.7%. No matter how you slice it, those numbers are bearish. So what did the market do following the release of the reports? Why, rallied of course, with the September Chicago contract stretching its gain to almost 9 cents late in the day.
In the end, both the numbers and market reaction were unexpected, setting the stage for what should continue to be a volatile summer.
Darin Newsom can be reached at darin.newsom@dtn.com
Follow him on Twitter @DarinNewsom
(AG/CZ)
Copyright 2016 DTN/The Progressive Farmer. All rights reserved.