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USDA's June Report Ill-Suited for Big Questions
USDA's World Agricultural Supply and Demand Estimates (WASDE) report on Tuesday, June 11, catches the market at a vulnerable time when lots of questions about planting are up in the air and loom big for future crop prices. Unfortunately, this report will likely have no tools for answering the big questions of how many row-crop acres will get planted in 2019 or what yields might be later in the year.
According to USDA's June 3 Crop Progress report, two-thirds of corn and a little more than one-third of soybeans have been planted, the slowest corn pace in USDA's Crop Progress archive, which dates back to 1995. There were some better chances for planting in the Western Corn Belt this past week, but even so, the big questions for row crops remain unanswered this year. How many corn and soybean acres will be successfully planted in 2019? And how will this year's yields fare with so many of the crops planted later than usual?
If those questions weren't difficult enough, we also have to look at the math of taking prevented plantings versus the expected economics of planting a late crop. And don't forget USDA has come up with an undisclosed formula for aid in a second Market Facilitation Program that requires producing an eligible crop.
So far, the answers to these questions have a wide range of possibilities. In the case of corn, the price consequence of a 1.0 billion-bushel (bb) ending stocks estimate in 2019-20 is much higher than a 1.5 bb estimate. Unfortunately, USDA's June WASDE report doesn't have the tools at this early date to help us narrow the range of those answers.
CORN
For the record, the 90% confidence interval on June's estimates of U.S. corn production is plus or minus 28% over the past 37 years -- actually a little higher than the confidence interval of the May estimate. As much as we might wish USDA could provide better answers in June, the reality is that it is just too early in a normal year, let alone a year that has seen as many challenges as 2019.
One piece of helpful information we do have is USDA's June 2 estimate that 46% of the corn crop has emerged, by far the lowest percentage of the past 20 years. That leaves 50 million corn acres unaccounted for thus far, with the next update due out Monday afternoon (June 10).
As usual, we typically look at Dow Jones' monthly survey of analysts to gauge what others are thinking in front of each WASDE report. I should mention that analysts are asked for their best estimates, not necessarily what they think USDA will say. Different analysts may answer in different ways, and we need to understand that, for some, the best estimates are not necessarily the same as what they think USDA will say Tuesday.
Understanding the above, Dow Jones' survey expects 2019-20 U.S. ending corn stocks to fall from 2.485 bb in May to 1.731 bb in June. This goes with a lower crop estimate of 13.903 bb for 2019 and a lower yield estimate of 170.3 bushels per acre (bpa). Typically, USDA does not change corn acres or yield in the June report as they have no measurement tools to do so. But it will be interesting to see how they respond to this unusual planting season, possibly making at least a modest adjustment lower.
If traders knew what they were doing (and that is a big "if"), they would ignore Tuesday's estimates, recognizing that the June report has no special insight and the market has already been making its own rough estimates of this year's situation.
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Among the world estimates for corn, Dow Jones' survey expects the estimate of world ending corn stocks to drop from 314.7 million metric tons (mmt) to 301.6 mmt, or 11.87 bb, based largely on the drop in U.S. production. If true, world stocks would be down 7% from 2018-19 and looking at its third consecutive reduction. In the current season, Brazil's corn crop is expecting a slightly lower adjustment to 99.8 mmt, or 3.93 bb, while Argentina's crop stays at 49.0 mmt, or 1.93 bb.
SOYBEANS
Going with the same understanding of estimates explained above, Dow Jones' survey expects 2019-20 U.S. ending soybean stocks to increase from 970 mb to 987 mb, a fairly rosy prediction given all the problems soybeans are currently facing. Analysts expect a 4.092 bb U.S. soybean crop in 2019, based on a yield of 48.7 bpa.
The potential problem that the analysts and USDA are not yet acknowledging is the woeful lack of soybean exports in the current 2018-19 season. With three months remaining, U.S. soybean exports are down 25% from a year ago, roughly 175 mb below USDA's estimated pace.
In addition, China is currently holding 245 million bushels (mb) of U.S. soybean sales not yet shipped, which means there is potential for cancellations ahead. As widely reported, U.S.-China trade talks have not been going well and are at a standstill.
Recently, the Chinese government provided a way for private importers to apply for a tariff waiver on U.S. soybeans, but the firms have to document how the tariff would be a social hardship and why the firms could not obtain soybeans from any other source. In other words, U.S. soybeans remain China's choice of last resort.
If analysts' estimates of U.S. ending soybean stocks are likely too low, the same is probably also true for USDA's estimate of world soybean stocks. Dow Jones' survey shows an average estimate of 114.7 mmt, or 4.21 bb, in 2019-20, up from 113.1 mmt in 2018-19. In the current season, Brazil's soybean crop estimate is expected to stay at 117.0 mmt, or 4.30 bb, while Argentina's crop is increased slightly to 56.1 mmt, or 2.06 bb.
WHEAT
After explaining why June's WASDE report has little insight to offer for row crops, it does have a useful contribution to make for winter wheat, thanks to field observations and producer surveys made in the final week of May and first week of June. However, the trick is that recent heavy rains in parts of the southwestern U.S. Plains may have already reduced some of those estimates.
Dow Jones' survey of analysts expects only a slight drop in 2019 U.S. wheat production, from 1.897 bb in May to 1.891 bb in June. Winter wheat production is also expecting a slight reduction, from 1.268 bb in May to 1.255 bb in June. The expected changes are small, but there is room for surprise.
As we have seen from USDA's weekly crop condition reports, winter wheat has earned high ratings in the Northwestern U.S. this year, while ongoing problems of excess moisture have taken a toll among the soft red winter wheat crop in the eastern Midwest. The southwestern Plains were showing high ratings a few weeks ago, but have encountered unwelcome rains just as crops are nearing harvest.
Wheat is a world crop and Dow Jones expects 288.2 mmt, or 10.59 bb, of world ending wheat stocks in 2019-20, up from 274.6 mmt in 2018-19. If true, that will still be a new record-high surplus for the new season, but down from May's higher estimate of 293.0 mmt, or 10.77 bb. Tuesday's new estimates from USDA are not likely to significantly change the bearish perception of the wheat market, but the season is still young.
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USDA's June WASDE report won't have much ammunition to shock markets with on Tuesday, but given how unusual this spring has been, it may have a surprise or two in store. Join us Tuesday at noon CDT for DTN's post-report webinar where I will review USDA's estimates and answer your burning questions. Sign up for Tuesday's webinar at:
| U.S. ENDING STOCKS (Million Bushels) 2018-2019 | ||||||
| Jun | Avg | High | Low | May | ||
| Corn | 2,165 | 2,485 | 2,035 | 2,095 | ||
| Soybeans | 1,010 | 1,079 | 920 | 995 | ||
| Wheat | 1,113 | 1,128 | 1,077 | 1,127 | ||
| U.S. ENDING STOCKS (Million Bushels) 2019-20 | ||||||
| Jun | Average | High | Low | May | Outlook | |
| Corn | 1,731 | 2,404 | 1,133 | 2,485 | 1,650 | |
| Soybeans | 987 | 1,346 | 825 | 970 | 845 | |
| Wheat | 1,115 | 1,180 | 1,025 | 1,141 | 944 | |
| WORLD ENDING STOCKS (Million metric tons) 2018-2019 | ||||||
| Jun | Avg | High | Low | May | ||
| Corn | 323.6 | 328.4 | 314.0 | 325.9 | ||
| Soybeans | 113.1 | 115.4 | 107.4 | 113.2 | ||
| Wheat | 274.6 | 276.0 | 272.1 | 275.0 | ||
| WORLD ENDING STOCKS (million metric tons) 2019-20 | ||||||
| Jun | Avg. | High | Low | May | ||
| Corn | 301.60 | 315.00 | 285.00 | 314.71 | ||
| Soybeans | 114.70 | 136.20 | 108.00 | 113.09 | ||
| Wheat | 288.20 | 293.00 | 276.40 | 293.01 | ||
| WORLD PRODUCTION (million metric tons) 2018-19 | ||||||
| Jun | Avg | High | Low | May | ||
| CORN | ||||||
| Argentina | 49.0 | 50.0 | 48.0 | 49.0 | ||
| Brazil | 99.8 | 102.0 | 96.0 | 100.0 | ||
| SOYBEANS | ||||||
| Argentina | 56.1 | 57.0 | 55.5 | 56.0 | ||
| Brazil | 117.0 | 116.0 | 118.0 | 117.0 | ||
| WHEAT PRODUCTION (million bushels) 2019-20 | ||||||
| Jun | Avg. | High | Low | May | 2018-19 | |
| All Wheat | 1,891 | 1,952 | 1,837 | 1,884 | 1,884 | |
| All Winter | 1,255 | 1,316 | 1,194 | 1,268 | 1,184 | |
| Hard Red | 766 | 816 | 662 | 780 | 662 | |
| Soft Red | 263 | 286 | 252 | 265 | 286 | |
| White | 228 | 252 | 215 | 224 | 236 | |
Todd Hultman can be reached at todd.hultman@dtn.com
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