USDA Report Review
Sometimes Big Does Get Bigger
Heading into Thursday's round of USDA Supply and Demand reports, the talk was whether USDA would take a small steps approach to possible South American production changes or go all in. In the flash of a micro-second, it was revealed that USDA was going all in on South America. Flooding in Argentina and Brazil? Forget about it. The WASDE report showed increases for three of the four categories with the fourth (Argentine soybean production) unchanged, basically equating to an increase.
The high side of pre-report estimates for Brazilian soybean production, until topped by FCStone earlier this week, came in at 108 million metric tons. Whoever had that guess pinned the tail exactly on the donkey as USDA upped its projection from February's 104 mmt. Not to be outdone, Brazil's corn production was increased 5 mmt from February to 91.5 mmt. What was that about February flooding in Mato Grosso?
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Also recall that talk has been rampant over Argentina losing 5% to 10% of its soybean crop due to earlier flooding issues. In response, USDA left its production estimate unchanged at 55.5 mmt. On the other hand, the WASDE report showed Argentine corn production estimates increasing 1 mmt from February to 37.5 mmt.
The end result of all of these production guesses was increased world ending stocks numbers for both soybeans and corn (and wheat). The soybean projection climbed from 80.38 mmt to 82.82 mmt while world corn ending stocks estimates jumped from February's 217.56 mmt to 220.68 mmt. Just imagine what would have happened had USDA not also increased world demand by 0.95 mmt (soybeans) and 6.4 mmt (corn).
These increases in demand are made even more interesting by USDA's unchanged export demand projections for U.S. soybeans and corn. As of the latest weekly Export Sales and Shipment reports, corn marketing year shipments were running ahead of last year's pace by 66% as opposed to USDA's projected increase of only 17%. Soybean total shipments were 14% ahead of last year's pace, yet USDA continues to hold to its estimate of a 6% year-to-year increase. The underlying question is: Why?
Is USDA factoring the expected effects of a stronger U.S. dollar/weaker South American currencies, the availability of larger South American supplies, and/or possible trade disputes with key U.S. grain buyers? Or is it simply waiting for confirmation of this incredible first half of the 2016-2017 marketing year demand? Regardless, the reaction by futures, and likely cash later in the day, was bearish for both corn and soybeans.
As for wheat, production estimates for the European Union and 12 states of the former Soviet Union were left unchanged, while Argentina saw a 1 mmt production bump, and the estimate for Australian production grew by 2 mmt. Again, increased global demand offset some of this growth, but not all, with global ending stocks of wheat climbing to 249.94 mmt from February's 248.61 mmt. The only change on the U.S. wheat ledger sheet was a 10 mb reduction in imports.
Darin Newsom can be reached at darin.newsom@dtn.com
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