Following the USDA March Grain Stocks and Prospective Plantings reports, which had corn and wheat stocks in the U.S. much greater than expected, the April 9 USDA World Agricultural Supply and Demand Estimates (WASDE) report was pretty much as expected, but continued to reflect a burdensome U.S. supply of all three primary ag crops. For corn and wheat, the U.S. ending stocks were roughly 11 million bushels (mb) and 22 mb above the pre-report estimates, respectively. Corn and wheat world ending stocks were 1.5 million metric tons (mmt) and 4.5 mmt above the average trade estimates, respectively. Tuesday's price reaction was muted, with corn having made a new contract low on spot May futures just before the report, finishing unchanged. Soybeans finished unchanged and wheat finished down 5 to 6 cents in both Chicago and Kansas City.
Let's look at each crop:
The U.S. soybean ending stocks number came in slightly below the average trade estimate. The 895 mb ending stocks compared to the average estimate of 913 mb. The 5 mb reduction was all attributed to a 3 mb reduction in imports and a 2 mb increase in soybean seed.
The world soybean ending stocks number also provided little excitement, with ending stocks at 107.36 mmt (3.945 billion bushels) versus the last report at 107.17 mmt, but was about 1 mmt below the average pre-report estimate. Highlights were an unexpected 500,000-metric-ton (mt) increase in Brazil soy production to 117 mmt (4.299 bb), compared to the average trade estimate of 116.1 mmt. Argentina soy production was left unchanged at 55 mmt (2.021 bb). The improved outlook for Brazil soy was likely due to great finishing weather in Rio Grande do Sul, and that production number could eventually work higher. Brazil's production, at 117 mmt, is just 3.8 mmt below last year's all-time-record-large production, while Argentina soy production, at 55 mmt, is 17.2 mmt (625 mb) above last year's drought-affected crop.
The April USDA report did little to change the overwhelmingly bearish supply and demand outlook for both the U.S. and world soybean markets, especially in light of the ongoing U.S.-China trade differences and the demand-dampening African swine fever, which has reduced Chinese demand.
Following the much-higher-than-expected stocks of corn revealed in March, USDA was forced to reduce U.S. demand to account for that. That demand reduction came in three categories. Feed and residual was reduced 75 mb to 5.3 bb, and corn used for ethanol fell by 50 mb, as negative margins and logistical problems stemming from Midwestern floods stymied production at many plants. U.S. corn exports also fell by 75 mb, and even though U.S. corn shipments still exceed last year, the pace is slowing dramatically as both Argentina and Brazil are priced well below U.S. values and their exports look to increase at the expense of U.S. These changes resulted in a U.S. ending stocks increase of 200 mb to a burdensome 2.035 bb. That was also roughly 22 mb higher than the trade had estimated. The seasonal average price to producers was left unchanged at $3.55 at the midpoint.
As expected, world corn ending stocks rose to 314.01 mmt (12.3 bb) from 308.53 mmt, and was above the average pre-report estimate of 312.4 mmt. Much of the 5.5 mmt gain in stocks can be attributed to the U.S. But we also saw an increase in Brazil production to 96 mmt (3.78 bb) from 94.5 mmt and Argentine production to 47 mmt (1.85 bb) from 46 mmt. Combined Brazil and Argentine production was up 29 mmt (1.141 bb) from last year's drought-reduced crops.
Other minor changes were small increases in EU, Mexico and Indonesian corn production were offset by decreases in the Philippines and Pakistan. Higher projected corn exports by the Ukraine, Brazil, Argentina and the EU, in effect, reduced U.S. exports.
The USDA April report on corn loosened up the balance sheet again as ending stocks move back above 2 bb. With a huge increase in South American production, the U.S. could be hard-pressed to regain market share in the absence of a U.S.-China trade deal. Such a deal could be a boon for U.S. corn as China purchases may include pork and possibly DDGs in addition to corn.
As expected, USDA's April report was bearish for the wheat market again. Wheat came out about 11 mb higher than the average trade estimate of 1.076 bb, for a total of 1.087 bb. A reduction in feed and residual of 10 mb, and a drop in exports of 20 mb, led to the 31.5 mb gain in U.S. ending stocks. Hard red winter (HRW) exports increased 10 mb, but that was more than offset by a reduction in hard red spring (HRS) exports of 15 mb. The further drop in export demand is likely attributed to aggressive wheat selling by Black Sea exporters and competition from both the EU and Argentina.
World wheat ending stocks rose by a greater-than-expected 5.1 mmt (187 mb) to 275.6 mmt. That compares to the pre-report trader estimate of 271.1 mmt. In addition to the increase in U.S. stocks, other surprises were a multi-year revision of Iran's wheat stocks, along with lower feed use by the EU this year.
Even though stocks in the U.S. and world were higher than many had thought, the recent price erosion in wheat had already penciled in a bearish reaction. With world wheat production expected to be significantly higher in 2019, the U.S. would love to see a China deal consummated and a China purchase of U.S. wheat to whittle down stocks. Otherwise, the U.S. will continue to have stiff competition from other major exporters in 2019.
Dana Mantini can be reached at email@example.com
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