USDA Reports Review
A Sigh of Relief
For the record, December corn closed the week 1/4 cent higher than the previous Friday and up 21 1/4 cents for the month. On the other hand, November soybeans closed 1 cent lower for the week and 11 cents higher for the month. That's the big picture, the one not likely to get as much coverage following the release of USDA's Quarterly Grain Stocks report on Friday.
Yes, both contracts saw solid post-report rallies despite the fact neither had bullish quarterly stocks, per se. USDA pegged corn on hand at 1.738 billion bushels and soybeans at 197 million bushels, both as of Sept. 1. However, it was just over two weeks ago in USDA's Crop Production and Supply and Demand reports that traders saw 2015-2016 ending stocks of 1.716 bb and 195 bb, respectively. Therefore, Friday's "final" ending stocks numbers (final until they are revised again) were actually a little bigger than before. But not by enough to matter.
December corn rallied 7 1/2 cents for the day and November soybeans finished 3 3/4 cents higher. Action in both could best be described as a sigh of relief from traders, farmers -- most everyone in agriculture thinking USDA had the opportunity to hit them with another bearish surprise.
Here's the thing, though: While these numbers weren't that impressive one way or the other (bullish or bearish), the level of fourth-quarter demand both represent is. In fact, Q4 demand for corn and soybeans, most of it exports, was record large. Comparing corn's 1.738 bb to the June 1 stocks figure of 4.610 bb implies quarterly demand of 2.872 bb, outdistancing the last two years' records of 2.722 bb and 2.616 bb, respectively. Similarly, soybeans' June 1 figure was 790 mb, meaning Q4 disappearance was 593 mb, outdistancing the 2006-2007 number of 574 mb.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]
The question now is, can soybeans and corn maintain this torrid pace through the first quarter of the 2016-2017 marketing year? Both have a strong possibility given South America, namely Brazil, is months away from rebuilding stocks with another harvest. More importantly, demand for U.S. corn and soybean supplies has to stay strong if either market wants to stave off likely harvest pressure from what is expected to be record production.
That's a different can of worms, though, for USDA is likely to continue down the path of trimming its estimate for 2016 corn production. Back in August, USDA projected a crop of 15.153 bb before erasing and writing in 15.093 in its September report. Don't be surprised if corn production is whittled by at least another 250 mb over the coming months. How did I come up with that number?
Funny you should ask. The last two marketing years have seen USDA's Sept. 30 quarterly stocks figure come in fairly close to its initial estimate from the previous year's May, with 17 monthly reports in between. Believe it or not, in May 2014 USDA guessed 2014-2015 ending stocks to be 1.726 bb, and they reportedly wound up on Sept. 1, 2015, at 1.731 bb. The next year started at 1.746 bb and concluded with today's 1.738 bb.
Spooky, right? It gets even more so when you add in how ridiculously off the same group is in soybeans. There I compare USDA's peak estimate, usually one of the first of the 17, with the Sept. 1 final figure. For the 2013-2014 marketing year, Sept. 1 stocks of 92 mb were 31.2% of USDA's peak estimate of 295 mb. The 2014-2015 marketing year saw USDA post a guess of 475 mb before ultimately calculating ending stocks at 191 mb, or 40.2% of the first number. This time around, USDA opened with an initial ending stocks estimate of 500 mb. Friday's 197 mb equaled 39.4% of that previous high guess. All told, the three-year average shows USDA, at its peak, to overstate U.S. ending stocks by 63.1%.
What does that mean for next September's final stocks number? This past May, corn ending stocks were initially estimated at 2.153 bb, giving us a target lower than this past September's 2.384 bb. Speaking of which, the same report saw USDA increase its 2016-2017 soybean ending stocks estimate to 365 mb. Using the analysis above tells us next September's quarterly stocks could see corn near 2.15 bb and soybeans 130 mb. Unless the latter sees higher guesses in the months ahead due to increased production estimates.
As for wheat, poor wheat, both the Quarterly Stocks and Small Grains Summary numbers were viewed as bearish. The former came in at 2.527 bb, above the pre-report average estimate of 2.398 bb, implying Q1 demand of only 890 mb. In regard to production, all wheat came in at 2.310 bb, slightly below the average pre-report estimate of 2.326 bb, but still well above 2015-2106's final tally of 2.062. At a time when the world remains awash in wheat. By class, the most bullish was hard red spring with production pegged at 534 mb, well below last year's 603 mb.
Now that the Sept. 30 reports are out of the way, and likely before Friday's session had even closed, attention turns back to harvest and yield reports for corn and soybeans. Monday could go a long way in determining whether or not there was more to Friday's rally than a simple sigh.
Darin Newsom can be reached at darin.newsom@dtn.com
Follow Darin Newsom on Twitter @DarinNewsom
(AG/CZ)
Copyright 2016 DTN/The Progressive Farmer. All rights reserved.