USDA Reports Review

Bearish Stocks Sends Prices Lower

Dana Mantini
By  Dana Mantini , Senior Market Analyst
This chart reflects the position prior to Friday's USDA report. U.S. ending corn stocks will approach the upper boundary of this chart in 2019, unless corn acres and yield are affected by the late planting, which appears likely. (Chart by CME Group)

Already in the throes of a full-fledged bearish decline, the May 10 USDA World Agricultural Supply and Demand Estimates (WASDE) report findings were not what U.S. farmers or exporters wanted to see. In addition to already growing supplies -- and along with the ongoing trade tensions and the demand-dampening impact of African swine fever -- Friday's move toward even larger supplies sent corn, wheat and soybeans all plunging to new contract lows.

Here is a look at some of the key findings of the report:

CORN

USDA began by ratcheting up U.S. corn ending stocks for 2018-19 to 2.095 billion bushels (bb) due to lagging demand. That compares to the April ending stocks of 2.035 bb. New-crop corn plantings were left unchanged at 92.8 million acres. With the assumption of good planting and growing weather, the U.S. is projected to produce a 2019 crop of 15 bb. Using a trend yield of 176 bushels per acre (bpa), that is well above the average estimate of 14.765 bb and leads to a burdensome ending stocks number of 2.485 bb for 2019-20. If that holds true, it will be the largest stockpile since 1987-88 and the highest stocks-to-use ratio (16.9%) since 2005-06. Ethanol, food seed and industrial (FSI) and feed and residual are all expected to increase slightly, adding to the pain already felt from lower exports and higher production. If this all proves to be true, then a U.S. corn supply over 17 bb would be the largest ever.

World numbers are equally as bearish with an ending stocks number of 325.94 million metric tons (12.8 bb) for 2018-19, compared to the average estimate of 315.5 mmt. Brazil's corn was pegged at 100 mmt (3.9 bb), well above the average estimate of 96.7 mmt. Argentine corn was at 49 mmt (1.92 bb), higher than the average estimate of 48.2 mmt and last year's drought-ravaged 32 mmt crop.

In short, these numbers are bearish to corn. However, with a planting pace by May 12 expected to be no higher than 35% to 40%, it is likely acreage will be lower (perhaps by 1 million to 2 million acres), and yield could fall from the current trend. Around 60% of the corn crop will be planted after May 10, which is generally recognized as the optimal date to have planting complete. So, while the report is bearish, the jury remains out.

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SOYBEANS

USDA estimated U.S. soybean carryout at 995 million bushels (mb) for 2018-19, well above the April WASDE report's 895 mb and higher than the average trade estimate of 925 mb. Due to the trade spat with China and the bearish impact of African swine fever, USDA lowered U.S. soybean exports to 1.775 bb.

The 2019-20 U.S. soybean crop is pegged at 4.150 bb, 394 mb below last year with a yield of 49.5 bpa. U.S. new-crop ending soybean stocks are still a hefty 970 mb, above the average pre-report estimate of 943 mb. The season average price is at $8.10 per bushel at the farm, down 45 cents per bushel.

In the world, Brazil soybean production was pegged slightly higher 117 mmt (4.3 bb) and Argentina higher at 56 mmt (2.05 bb). Both contributed to a larger than expected world ending stocks number of 113.18 mmt (4.158 bb). China's soybean imports were put at 86 mmt (3.16 bb) for 2018-19 and 87.0 mmt (3.20 bb) in 2019-20, affected by African swine fever. Brazil's soybean production for 2019-20 is projected to rise to a record 123 mmt (4.5 bb).

The May USDA report for soybeans is clearly bearish, but much of the news had already been factored into price, and it is likely that acreage is still a moving target with the potential for soybean acres to even go higher. Going forward, all eyes will be on the ongoing U.S.-China trade talks, how African swine fever further affects soybean demand, and lastly, how the U.S. weather and planting decisions might be altered in weeks to come.

These numbers continued to paint a bearish picture for soybeans.

WHEAT

While the pre-report trade estimate had 2018-19 U.S. wheat ending stocks at 1.1 bb, USDA came out with a slightly higher 1.127 bb due to reduced exports. Moving onto the 2019-20 year, higher carry in stocks along with weaker exports resulted in a lower but still burdensome U.S ending stocks number of 1.073 bb. Exports for 2019-20 were reduced by 25 mb, as other major exporters are likely to have much larger supplies in the coming year.

U.S. all wheat production is pegged at 1.897 bb in 2019-20, with a yield of 48.9 bpa, up 1 bpa versus last year. Winter wheat production, at 1.270 bb, is up 7%, with a yield of 50.3 bpa; hard red winter (HRW) wheat, at 780 mb, up 18%; soft red winter (SRW) wheat, at 265 mb, down 7%; and white wheat, at 224 mb, is down 5%. HRW ending stocks look to be at 501 mb compared to 490 mb last year, while hard red spring (HRS) wheat stocks will fall by 8 mb to 305 mb and SRW stocks will fall to 168 mb, down 15 mb.

Moving into the world numbers, foreign supplies are expected to increase sharply by 38.5 mmt (1.415 bb), as all major exporters are expected to have larger production -- with the EU, Russia, Canada, Argentina, Australia and Ukraine all expected to produce more wheat. In fact, world ending stocks of wheat are expected to surge to a new record-large 293 mmt (10.77 bb) from 274.8 mmt in 2018-19, up 7%. The largest increase is in the EU, which is expected to produce 153.8 mmt (5.6 bb) of wheat. Russia is expected to produce 77 mmt (2.83 bb), and once again be the world's largest wheat exporter at 36 mmt, down from 37 mmt last year. World wheat stocks excluding China are projected to be 146.82 mmt (5.4 bb), up from 134.99 mmt last year.

This report was bearish for wheat -- larger supplies and lower exports will extend the bearish supply and demand situation that we have faced the past few years.

Dana Mantini can be reached at dana.mantini@dtn.com

Follow Dana Mantini on Twitter @mantini_r

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Dana Mantini