Coming into the June 11 USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, the focus was on corn acreage, yield and production, and the report did not disappoint. While just minor tweaks were recorded in both wheat and soybeans, the much-greater-than-expected cut in U.S. corn yield (10 bushels per acre) before the entire crop is even fully planted caught many traders flat-footed. Corn was down 5 to 6 cents per bushel before the release of the report and promptly rallied to close 12 cents higher for July futures and 12 1/2 cents higher for December. In contrast, just a month ago, we were talking about the prospect for one of the largest ending stocks number ever.
On June 11, we saw that ending stocks number fall by 810 million bushels (mb) to the lowest since 2013. Wheat and soybean markets rose modestly in sympathy with corn, with Chicago wheat up 10 1/2, Kansas City up 4 1/2, while soybeans managed to finish up close to a penny higher.
Let's take a look at some of the changes in both U.S. and world numbers from the report:
Beginning stocks on corn for 2019-20 were raised by 100 mb, attributed to a cut in 2018-19 U.S. corn exports as shipments have been lagging due to stiff major exporter competition. That beginning stocks number was revised to a burdensome 2.195 billion bushels (bb).
Moving on to 2019-20, the record-slow U.S. planting pace of just 83% planted as of Sunday, June 9 -- along with flooding and the expectation of severe yield drag once planting occurs -- led USDA to slash U.S. corn planted area to 89.8 million acres (ma) -- down 3 ma from the lofty March intentions report. This acreage number is likely to fall even further, as there remains over 15 ma to plant and prevented planting dates have (or will soon) pass. The trade feels strongly that prevented planting acreage could move to as high as 6 ma.
Although the decline of 3 ma was not a surprise, the much-larger-than-expected cut in U.S. corn yield to 166 bushels per acre (bpa) was a big surprise. It is typically USDA's inclination to be more conservative, and few expected this big of a cut so soon. The 166 bpa was well below the pre-report trade estimate of 170.3 bpa and well under the May yield of 176 bpa.
With the sharp cut in production to 13.680 bb, compared to 15.030 bb May and the pre-report estimate of 13.9 bb, USDA was also forced to reduce anticipated corn usage for 2019-20. Feed and residual, as well as exports, were reduced by a total of 425 mb.
With the U.S. ending stocks number now 810 mb below that of May, the season average price for corn was raised 50 cents per bushel to $3.80 from $3.30.
World corn ending stocks fell by a huge 24.2 million metric tons (953 mb) from May to just 290.50 mmt (11.4 bb). That's a decline from 314.7 mmt in May and well above the trade estimate of 301.6 mmt. The U.S. was responsible for the lion's share of that reduction. Individual changes were minor with a 1 mmt increase in Argentina corn production to 50 mmt (1.97 bb) -- an increase of 500,000 metric tons in Russian production and a 1.4 mmt (55 mb) drop in Canada's corn production to 14 mmt.
This report changes the corn landscape with many private analysts still projecting a much sharper fall in corn acreage and production. While that is possible, July weather is typically more important to yield than planting weather, and that could keep buyers at bay.
As in corn, the slow pace of U.S. soybean exports in 2018-19 led USDA to cut U.S. soy exports by another 75 mb, leading to a revised 2018-19 ending stocks level of 1.070 bb. The sharply lower Chinese sales, large supplies of South American soybeans and the impact of African swine fever has cut U.S. soy exports.
Moving on to 2019-20, unlike corn, USDA made no change to either soybean acreage or yield from the March intentions report or the May report. Ending stocks for 2019-20 were estimated to be 1.045 bb -- down 25 mb from the revised 2018-19 carryout. The resulting production of 4.150 bb with a yield of 49.5 bpa were both higher than the pre-report estimates of 4.092 bb and 48.7 bb, respectively. Even though soybeans are well behind the normal planting pace, it was determined that yield and production could still be favorable with good weather from here on out.
World soybean production was dropped by a modest 300,000 mt (11 mb) to 355.39 mmt, while world ending stocks were cut by 400,000 mt (14.6 mb) to a still-large 112.66 mmt (4.140 bb). Argentina's production for 2018-19 was left unchanged at 56 mmt and Brazil's unchanged at 117 mmt, while expectations are for Argentina and Brazil to produce 53 mmt and 123 mmt, respectively, in 2019. Argentina's exports for 2018-19 were raised 1.5 mmt to 7.8 mmt (286 mb). China's soybean imports for 2018-19 were lowered another 1 mmt to 85 mmt (3.12 bb) -- no doubt the result of African swine fever.
Although soybeans may have been influenced by the bullish corn numbers, this report has done little to change the overall bearish landscape for soybeans, both in this year and in 2019-20, as there is still the chance that some unplanted acres intended for corn could change to soybeans.
All wheat production was raised 6 mb from May to 1.903 bb, and winter wheat was pegged 6 mb higher at 1.255 bb. Feed and residual use for 2019-20 was projected to be 50 mb higher than in May as possible quality and protein issues might work their way into rations at feed yards. Some private analysts have the U.S. wheat feeding number significantly higher than the 140 mb projected in this report. The 2019-20 U.S. ending stocks number of 1.072 bb was under the May estimate of 1.141 bb and the trader estimate of 1.115 bb, but that's still a very burdensome supply of U.S. wheat. With the U.S. condition ratings at the highest level in years, there is a possibility for this number to increase.
For the world numbers, wheat production was raised by 3.3 mmt (121 mb), with Russian and Ukrainian wheat production pegged 1 mmt higher each. World wheat ending stocks were raised 1.3 mmt to another new record-large carryout of 294.3 mmt (10.8 bb).
Even though wheat futures rose in sympathy with corn, the wheat balance sheet both in the U.S. and in the world remains bearish overall.
Dana Mantini can be reached at email@example.com
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