USDA Reports Review
No Change May be Step in Right Direction
Where to begin? There were many surprises in USDA's latest round of Supply and Demand reports, both domestic and world, leading to more questions than answers. I'll address as many of them in this space as I can.
Earlier Thursday morning, the latest round of weekly export sales and shipment data was released. These numbers were for business through Feb. 2, with the following bottom line: Marketing year total sales (outstanding sales plus total shipments) of corn at 1.639 bb, or 69% ahead of last year's total sales pace. Soybeans showed total sales of 1.874 bb, 24% of last year's pace, and wheat sat at 860 mb, 37% of last year's anemic pace as compared to USDA's January projection of a 26% increase.
Total shipments were as follows: Corn at 819 mb, 67% ahead of last year; soybeans at 1.490 bb, 21% ahead of last year; and wheat at 609 mb, 26% of last year. Note that corn shipments were running 50 percentage points ahead of expected, soybeans 15 percentage points ahead, and wheat was on pace with projected. Lastly, corn and soybeans were only 44% through their 2016-2017 marketing years while wheat was 69% through.
Given those numbers, what would be the obvious next move by USDA when it comes to its export demand projections? If you guessed leaving corn and soybean export demand unchanged and raising its wheat export demand projection by 50 mb, you are far smarter than I.
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Because that's what USDA did.
Regardless of export pace.
Now, let's talk currency battles. In the wheat market, two of the main U.S. competitors are the former Soviet Union and the European Union. The ruble is next to worthless on the global currency market, and the euro only slightly better. The strength of the U.S. dollar and U.S. dollar index continues to put U.S. wheat supplies on the high end of the price scale. On the other hand, the Brazilian real (the key competitor in soybean exports and global corn business) has shown incredible strength of late, outpacing gains seen in the U.S. dollar. Therefore, U.S. soybeans and corn are more competitive on the world stage, a fact that continues to play out in weekly sales and shipment numbers.
Yet, wheat demand was increased by 50 mb.
One could make a number of assumptions about what message USDA might be trying to send. Is there growing concern that trade disruptions with key corn buyers (Japan, Mexico) are imminent? Is there evidence the U.S. is about to see soybean sales to the world's largest consumer (China) come to an abrupt end?
The interesting thing is this is the sort of thing futures spreads have been warning us about recently. Recall in previous analysis on DTN that the March-to-May spreads for both corn and soybeans have been showing stronger carry, so much that both are now covering a bearish level of full commercial carry. This alone is cause for alarm when it comes to expecting strong demand to continue. On the other hand, the carry in the March-to-May Chicago wheat spread has been weakening. And thanks to the variable storage rate situation, the still large carry covers only a neutral level of full commercial carry. All this would suggest demand could indeed continue to strengthen.
It's also interesting that the only major world production estimate that was changed was Argentina's soybean number, coming in at 55.5 mmt as compared to last month's 57 mmt. But that was even well above the average pre-report estimate of 54.3 mmt. Could it be, and maybe this is just me wishing it true, that USDA is slowly getting out of the ridiculous projection game by leaving estimates unchanged month after month after month?
The answer to that is obviously "no", but one can always hope. It does seem though that USDA is becoming more willing to leave its highly variable estimates alone until more is known about production, exports, etc., a move that would indeed be in the right direction.
Darin Newsom can be reached at darin.newsom@dtn.com
Follow Darin Newsom on Twitter @DarinNewsom
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