Let me begin by saying that if you've been following along on your DTN heading into USDA's April round of monthly Supply and Demand reports, you weren't surprised by any of the numbers. The main takeaway is that USDA basically left old-crop demand for all three major grains largely unchanged, setting the stage for revisions to be made starting in May when world traders are focused on new-crop numbers. Before we get to that, let's talk about the featured number in Tuesday's reports for each grain.
Soybeans: The trading world (note I didn't say U.S. agriculture) was focused on what USDA's guess would be for Brazilian soybean production. After all, the last week has seen an auction-style buildup with the latest estimate topping the one prior. What was most interesting was that these estimates were coming out of Brazil, and were not the domestic pin-the-tail-on-the-donkey guesses to see who could be closest to USDA's latest dart. On report day, Conab (Brazilian government) pegged domestic soybean production at 110.2 million metric tons, well below private estimates and seeming to be more a guess as to where USDA would come in.
In Tuesday's DTN Early Word Grains commentary, I posed the question of how traders would view a USDA Brazilian production guess of 111 mmt. Yes, it was above its previous estimate of 108 mmt but well below recent guesses ranging from almost 112 mmt to 114 mmt. It would put USDA in the foggy, gray area where precision isn't necessary. What did USDA release? That's right, 111 mmt on the nose.
How big does the Brazilian crop get from here? After all, USDA still has plenty of wiggle room to make further increases down the road, particularly after computerized traders have rewritten code to focus on new-crop 2017-2018 guesses starting in May. For now, it seems Brazil is well suited to fill the additional 0.72 mmt of world demand USDA estimated, if not a little more by taking some of the existing demand away from the U.S.
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Corn: While USDA also upped its Brazilian corn estimate, that wasn't the most interesting number in its April spreadsheets. No, that title falls to U.S. export demand holding steady at 2.225 billion bushels. What's so interesting about an unchanged number, you ask? As I discussed in this week's DTN USDA Report Preview, "Confounded Demand," I analyzed possible corn export demand based on the most current total marketing-year shipments data from USDA's own weekly Export Sales and Shipments reports.
Through Thursday, March 30, total corn shipments were 1.265 bb. Using data from the last three years, the average shipped at this time of what would ultimately be total export demand was 48%. Dividing total shipments by that percentage resulted in possible marketing-year total exports of 2.635 bb, or 410 million bushels above USDA's March estimate, a guess that has actually been in place since last October.
What can we read into USDA's refusal to budge on old-crop export demand, despite the extraordinary pace seen through the first-half-plus of 2016-2017? Probably nothing. But it does raise the question on such important topics as potential Q3 stocks on hand due to the increasing likelihood of a contra-seasonal slowdown in demand. And, if that happens, what will be the catalyst? A stronger U.S. dollar, implying higher interest rates? Mexico, a key customer, turning south to Brazil for supplies as a result of a possible trade dispute? Something else? It is a bit alarming that world demand was increased 3.18 mmt in April, and U.S. exports were once again unchanged.
Wheat: 51.8%. That's it in a nutshell -- the key number resulting from USDA's latest guesses that any trader should be focusing on. 51.8%, otherwise known as U.S. ending stocks-to-use (ES/U). This is a large number, a very large number, meaning the U.S. is expected to see 2016-2017 ending stocks large enough to cover more than 50% of old-crop demand.
Why the slight increase in domestic ending stocks that led to the higher ES/U? Feed demand was down and exports remained unchanged. Unlike corn and soybeans, global demand was actually trimmed, a possible reason USDA left domestic export demand unchanged at 1.025 bb. The risk? What if this demand starts to get trimmed back in subsequent reports, again as world traders turn their attention to new crop in May.
I'll close as I began: There were no real surprises in USDA's April reports, as it took the expected path of leaving demand largely unchanged. However, keep your eye on the background in May to see what few others will see.
Darin Newsom can be reached at email@example.com
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