The USDA World Agricultural Supply and Demand Estimate (WASDE) for July was met with much skepticism based on the corn numbers. With production 195 million bushels (mb) higher than in June and nearly 375 mb above the average trade estimate, the corn market sloughed off early weakness and closed sharply higher. Wheat, buoyed by an unexpected cut of 10 million metric tons (mmt) of foreign production, also rose sharply in response.
Let's take a look at some of the changes in both U.S. and world numbers on the USDA/WASDE July 11 report.
With the trade expecting potentially lower acreage and yield numbers, USDA instead used the June 28 survey's 91.7 million-acre (ma) planting estimate and left yield unchanged at 166 bushels per acre (bpa). That was 1.9 million acres above the June 11 USDA planted acreage of 89.8 ma and 1.2 million more harvested acres, resulting in a U.S. corn production of 13.875 billion bushels (bb). That compares to June at 13.680 bb and the average pre-report guess from Dow Jones' trade survey of 13.511 bb.
The notable changes in usage were a drop in exports of 100 mb for 2018-19, and a drop in feed and residual of 25 mb, leading to a larger 2018-19 ending stocks and carry-in of 2.340 bb -- one of the largest since the 1980s. A modest increase in 2019-20 feed and residual of 25 mb was noted, leading to a 2019-20 ending stocks of 2.010 bb, which much larger than expected. That compared to 1.675 bb in June and an average trade estimate of 1.642 bb from Dow Jones' survey.
World corn ending stocks were a bearish surprise too, with ending stocks rising to 298.82 million metric tons (mmt) versus June at 290.5 mmt. Much of the increase was attributed to increased U.S. production and stocks and an increase of 1 mmt in Ukraine production.
Needless to say, traders are highly skeptical about these numbers and most expect to see a sharp decline in planted acres and yield following the early August report. The futures market reflected that skepticism with an 18-cent rally from the post-report low.
Unlike corn, there were no real shockers on soybeans as WASDE chose to incorporate the June planting estimate of 80 ma and lower yield by only 1 bpa, to 48.5 bpa, to account for late planting and the worst beginning crop conditions since 2012. Harvested acres are pegged at 79.3 ma, down 4.5 ma from June.
USDA also chose to lower U.S. soy exports for 2019-20 due to the slow start of new-crop sales, the continued impact of African swine fever and the China trade impasse. That resulted in a U.S. ending stocks number of 795 mb. That was just below the average trade estimate of 812 mb from Dow Jones and compares to June ending stocks of 1.045 bb.
This was certainly a modestly bullish report for soybeans but didn't come as a surprise. As in corn, we are likely to see a change in acreage and a fall in yield in the August report. Until then, the supply of both U.S. and world soybeans remains burdensome, with demand from the world's number one importer, China, still in question.
On the world front, the only change compared to June came in U.S. soybean production, with the world ending stocks falling from 112.66 mmt to 104.53 mmt, all attributed to the U.S. decrease of roughly 8 mmt. The 104.53 mmt world stocks number is still a historically very large supply. Throughout much of the day on Thursday, soybean prices had moved very little.
Estimates of China soy imports of 85 mmt for 2018-19 and 87 mmt for 2019-20 were left unchanged. The U.S. ag attache, as recently as last week, lowered the latter to 83 mmt due to the scourge of African swine fever. That would add another bearish input to an already supply heavy soy market.
Soybeans reacted to the report about as expected, up modestly in two-sided trade, but rallied well above the lows in sympathy with wheat and corn.
The wheat market was supposed to be least impacted by the July WASDE, but ended up having the most volatile numbers.
The U.S. all wheat production number was pegged at 1.912 bb, little changed from June's 1.905 bb. Hard red winter (HRW) wheat and soft red winter (SRW) wheat production nearly matched pre-report expectations at 804 mb and 359 mb, respectively. Spring wheat production of 572 mb was slightly under the expectations of 581 mb. USDA listed feed demand 10 mb higher at 150 mb and exports were increased by 50 mb, resulting in a slightly lower than expected, but still burdensome, 1.00 bb ending stocks number in the U.S.
The world wheat numbers ended up being the surprise of the July WASDE, with world wheat production cut by 10 mmt, leading to a world ending stocks number of 286.46 mmt. That compared to June's number of 294.3 mmt and Dow Jones' pre-report estimate of 290.8 mmt.
Of the world production cuts, Russia was the biggest surprise, down 3.8 mmt from June due to their heat spell in recent weeks. That heat also affected EU production, down 2.5 mmt, and Ukraine, down 1 mmt. Australia and Canada had declines of 1.5 mmt and 1.2 mmt, respectively.
Wheat reacted by closing sharply higher Thursday on the prospect for the U.S to have a greater share of world wheat exports. Kansas City wheat benefited the most, as the loss of Ukraine and Russian wheat is most likely HRW wheat.
Before we get all excited about the world wheat situation, we must realize that major exporter production in 2019-20 is still pegged at 328.8 mmt, a gain of 26 mmt over 2018-19. The world is still awash in wheat.
At the end of the day, corn traders said, "We don't believe you Mr. WASDE!" There is something to be said for a market that ignores bearish information and instead rallies. As traders in Kansas City used to tell me while I was trading in the pit, "Where she closes is where she goeses." Sure, the grammar and the spelling is not perfect, but you get the idea.
The trade appears to be bracing for some big changes in August!
Dana Mantini can be reached at firstname.lastname@example.org
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