While the most anticipated set of numbers in Thursday's USDA reports are undoubtedly the latest take on prospective plantings, I will start my analysis off with a look at quarterly stocks.
In fact, come report day, the bulk of my time will be spent using first-half demand for corn and soybeans and three-quarters demand for wheat to project total demand for the marketing year. This then gives us an estimated ending stocks figure for the current marketing year that becomes the beginning stocks number for next marketing year. With that in hand, expected planted acres can then be applied to the mix.
USDA will release its Prospective Plantings and Quarterly Grain Stocks reports at 11 a.m. CDT Thursday.
Starting with corn, I use the average four-year (we are in the fifth marketing year of record production) and 11-year (the length of corn's ethanol-based demand market) average quarterly demand to project what total demand, and therefore marketing-year ending stocks, could be.
For corn, stocks on hand as of March 1 reflect demand over the first half of the marketing year. The four-year average shows this to be 56.4% of what total demand eventually turns out to be, with the 11-year coming in at 57.3% of total demand. Following the Dec. 1 (first quarter) report, this same analysis concluded 2017-2018 ending stocks would be between 2.663 billion bushels (four-year) and 2.847 bb (11-year). If the average pre-report estimate of 8.731 bb is close Thursday, the range drops to between 2.381 bb (four-year) and 2.606 bb (11-year). USDA's latest domestic corn ending stocks projection is 2.127 bb.
I also use four-year and 11-year averages when analyzing soybean quarterly stocks. Through the first half of the marketing year, demand ranges between 69.2% (four-year) and 65.6% (11-year) of eventual total demand. Using the average pre-report estimate of 2.042 bb results in an estimated ending stocks range of 640 million bushels to 850 mb. Obviously, the four-year estimate is extremely bearish, more so than the carry in the May-to-July futures spread would suggest, so I would lean more toward the estimate based on the 11-year average. Earlier this month, USDA raised its 2017-2018 projected ending stocks to 555 mb.
For wheat, I use standard five-year and 10-year averages, with the results an interestingly consistent pattern over time. Beginning with Q1 stocks on hand as of Sept. 1, average quarterly usage and cumulative usage have projected domestic wheat ending stocks near the 1.1 bb level. Using the average pre-report estimate for third-quarter stocks of 1.486 bb and the five-year average of total demand of 80% and the 10-year of 80.5%, 2017-2018 ending stocks would be projected between 1.102 bb and 1.089 bb. A look at USDA's accumulated ending stocks projections for this marketing year shows it started at 924 mb (June 2017) and has climbed to 1.034 bb (March 2018).
Average estimates for spring crop plantings are as follows: corn -- 89.3 million acres (ma), soybeans -- 90.9 ma, cotton -- 13.1 ma, and spring wheat -- 11.6 ma. If realized, these would reflect a 900,000-acre year-to-year decrease in corn, an 800,000-acre increase in soybeans, a 500,000-acre increase in cotton, and a 600,000-acre increase in wheat. Winter wheat is expected to be down 100,000 acres to 32.6 ma while grain sorghum adds a possible 400,000 acres.
The troubling aspect of USDA's Prospective Plantings report, at least to me, is the little change ultimately seen in planted area in the following January's set of "final" numbers. In other words, USDA tells the trading world almost exactly what will be planted in the U.S. in March, removing that variable and the possible market uncertainty it brings from the equation. To me, the market should have to work to figure it out for itself.
Editor's note: Join DTN Senior Analyst Darin Newsom at 12 p.m. CDT Thursday as he analyzes the Quarterly Grain Stocks and Prospective Plantings reports. Sign up now at: https://bit.ly/…
|QUARTERLY GRAIN STOCKS (million bushels)|
|ACREAGE (million acres)||USDA||USDA|
Darin Newsom can be reached at firstname.lastname@example.org
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