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July WASDE: Mirage or for Real?
Coming off the questionable USDA Acreage Report in late June, the market is faced with the dilemma of how seriously to take the July World Agricultural Supply and Demand Estimates (WASDE), knowing that a second planting survey is due out in August and could significantly alter Thursday's new estimates.
On Thursday, July 11, USDA is going to provide its best supply and demand estimates for U.S. corn, soybeans, wheat and various other ag commodities; that is the official line. In the real world, USDA is likely to provide crop estimates of corn and soybeans, using flawed planting estimates from the June 28 Acreage Report.
By "flawed," I am not suggesting malfeasance on USDA's part. It is just that we know from the June 28 report that some large share of 15.8 million acres of unplanted corn at the time of the survey was assumed to have gotten planted -- a bold assertion, given the wet June conditions that prevailed, especially in the eastern Midwest.
So, we come to July 11 and what else can the World Agricultural Outlook Board (WAOB) do but use the National Agricultural Statistics Service (NASS) planting estimates from June 28? This happens to be the final WASDE report overseen by Dr. Seth D. Meyer, chairman of the WAOB for the past five years.
As USDA Chief Economist Robert Johansson said in a June 19 news release, "Seth has been a real asset to USDA, OCE, and the WAOB. The board in particular has benefited tremendously from his knowledge and leadership."
Read that news release here: https://www.usda.gov/…
I would also like to thank Dr. Meyers for his service to U.S. agriculture. We analysts can be tough critics and we get paid to find weak spots in USDA estimates. Few, if any, of us would actually want the weight of making those tough decisions, especially when the measurable data is not available, as it hasn't been so far this year.
It is difficult to say if the WAOB will find enough contrary evidence to overrule the June 28 planting estimates of 91.7 million acres of corn and 80.0 million acres of soybeans. As Dr. Meyers explained by email on July 2, "We would, on July 11, want to know we knew something had changed from (the) June 28 acreage report."
For our purposes, I have to assume the WAOB will accept the June 28 estimates, which means July's ending stocks estimate for U.S. corn could increase a few hundred million bushels and the ending stocks estimate for soybeans could drop a few hundred million bushels.
The next question then becomes: Will traders believe Thursday's numbers and, if so, for how long? My best guess is Thursday's report will give prices a brief shot of volatility on the way to the more critical second planting survey, set for Aug. 12.
Given the situation explained above, Dow Jones' survey of 16 analysts is puzzling this year, but I'll try to explain. Dow Jones' survey estimates U.S. ending corn stocks at an average of 1.642 billion bushels (bb) for 2019-20, based on a 13.511 bb crop with a yield of 164.9 bushels per acre. The ending stocks estimate is actually a little smaller than USDA's June estimate of 1.675 bb and ignores the NASS planting estimate altogether.
Apparently, either the analysts don't expect USDA to use the 91.7-million-acre planting estimate on Thursday or they are already leapfrogging USDA's July number and simply stating their estimate of current conditions.
Similarly for the world estimate, Dow Jones' survey expects a slightly lower world ending corn stocks estimate of 290.2 million metric tons (mmt) (11.42 bb) for the new 2019-20 season. Current crop estimates for Brazil and Argentina are only expecting slight tweaks to 100.9 mmt (3.97 bb) for Brazil and 49.2 mmt (1.94 bb) for Argentina.
An interesting side note on world corn estimates comes from an attache report released Tuesday. USDA's attache in Beijing said, "High corn prices reflect a tightening supply situation for feed grains across China" and went on to estimate China's 2019 corn production at 9.05 bb, the lowest in seven years. It will be interesting to see if or how that gets reflected in Thursday's world estimates.
Read that report here: https://gain.fas.usda.gov/…
In the case of soybeans, USDA's June estimate of 1.045 bb of U.S. ending stocks is due for a significant drop if the June 28 planting estimate is used. It does look like analysts in Dow Jones' survey are willing to bend that direction somewhat, estimating new-crop ending stocks at 812 million bushels (mb).
The Dow Jones estimate is based on a lower soybean crop of 3.85 bb and a slightly lower yield of 48.4 bushels per acre. As a reminder, USDA will not have a yield estimate based on field surveys until the September WASDE report. July WASDE yield estimates are still too early to trust, but even 46 or 47 bushels per acre would be reasonable this year.
In line with lower U.S. soybean stocks, Dow Jones survey also expects the estimate of world soybean stocks to drop from 112.7 mmt in June to 110.7 mmt (4.07 bb) in July. Brazil's soybean crop estimate is expected to stay the same at 117.0 mmt or 4.30 bb.
For wheat, USDA's National Agricultural Statistics Service (NASS) will provide new production estimates for U.S. wheat categories, including spring wheat. According to Dow Jones' survey, U.S. wheat production is only expected to increase from 1.903 bb in June to 1.905 bb in July, so we are only talking about small tweaks to each wheat category. The survey estimates HRW wheat production at 804 mb, up from 794 mb in June.
On the world stage, Dow Jones' survey expects world wheat ending stocks to drop from an estimate of 294.3 mmt in June to 290.8 mmt (10.68 bb) in July. There has been talk of a possible reduction to Russia's wheat crop estimate, but weather threats have been limited. I suspect Dow Jones' analysts are underestimating the size of this year's world wheat crop.
As you can see above, 2019 continues to be an atypical year for grain markets, with more questions on the table than USDA or any of us have answers for at the moment. Except for new wheat production estimates from NASS, we aren't likely to find any better answers in Thursday's report and it is difficult to know if the market will even trade Thursday's numbers.
Join us Thursday at noon CDT for DTN's post-report webinar where I will discuss USDA's estimates, discuss any surprises and answer your questions. Sign up for Thursday's webinar at: https://dtn.webex.com/…
|U.S. PRODUCTION (Million Bushels) 2019-20|
|U.S. AVERAGE YIELD (Bushels Per Acre) 2019-20 (WASDE)|
|U.S. ENDING STOCKS (Million Bushels) 2018-2019|
|U.S. ENDING STOCKS (Million Bushels) 2019-20|
|WORLD ENDING STOCKS (Million metric tons) 2018-2019|
|WORLD ENDING STOCKS (million metric tons) 2019-20|
|WORLD PRODUCTION (million metric tons) 2018-19|
|U.S. WHEAT PRODUCTION (million bushels) 2019-20|
Todd Hultman can be reached at firstname.lastname@example.org
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