The USDA World Agricultural Supply and Demand Estimates (WASDE) report for October featured higher than expected corn yield and production numbers than many had expected. That, coupled with a fall in demand as both exports and ethanol were reduced, corn prices were sharply lower Thursday. U.S. soybean yield and production were lower than expected, leading to a 50 million-bushel (mb) smaller ending stocks number than anticipated. USDA's wheat numbers again reinforced the bearish supply scenario for both U.S. and world wheat, with a 30 mb higher U.S. stocks number and a record large world carryout.
Here's a deeper look at some of the numbers from the Oct. 10 report:
Following the challenging 2019 weather year that U.S. farmers have endured, most analysts and traders expected a steady decline in yield, production and harvested acres with each passing report. Thursday's USDA report, however, actually showed the national corn yield .20 bushels per acre (bpa) higher at 168.2 bpa and production down just 20 mb from September. Dow Jones' pre-report survey pegged the average yield at 166.8 bpa and production at 13.661 billion bushels (bb) USDA's production estimate of 13.779 bb -- just 20 mb below the September report. Even harvested acres, at 81.8 million acres (ma), came out 300,000 acres above the average trade estimate and 100,000 acres higher than September. Some notable yield changes were a drop in Illinois yield and a rise in Iowa yield by 1 bpa each from September. Mississippi had the largest decline at 10 bpa.
In addition to the bearishly construed supply data, USDA chose to lower both exports and ethanol usage while increasing feed and residual. Exports were lowered 150 mb to 1.900 bb and ethanol was dropped 50 mb to 5.4 bb. Exports continue to lag badly, as both Black Sea and South American exporter prices are well below those of the U.S. Meanwhile, feed and residual was increased by 125 mb to account for disappearance from 2018-19. The net effect of all this was a drop in 2019-20 ending stocks to 1.929 bb -- down 261 mb from September, but 245 mb above the average trade estimate. The stocks-to-use ratio for 2019-20 falls to 13.8% from 14.6% in 2018-19.
World corn ending stocks were about as expected for 2018-19 at 324 million metric tons (12.75 bb), but fell less than expected for 2019-20 to 302.55 mmt (11.9 bb). The trade had an average estimate of just 296.1 mmt, according to Dow Jones' survey.
The season-average farm price for corn was raised 20 cents to $3.80 per bushel -- an inexplicable change from September with only minor supply reductions and the very real prospect that both U.S. exports and corn used for ethanol could be reduced further in future reports. U.S. corn export sales are tracking 52% behind last year, while corn inspections are a huge 66% below last year at this time.
Unlike in corn, soybean producers received some welcome news from the Oct. 10 report, with not only a decline in yield and production, but also in harvested acres and ending stocks. Soybean yield was pegged at a lower than expected 46.9 bpa -- down 1 bpa from September -- and production fell by 83 mb to 3.550 bb, or about 20 mb below the average pre-report estimate. Harvested acres fell by 300,000 acres from September to just 75.6 million; the trade expected only a 100,000-acre fall pre-report. U.S. ending soybean stocks fell to just 460 mb -- about 50 mb below the Dow Jones survey average estimate and 180 mb below September. Beginning stocks were lowered by 92 mb to account for the lower September stocks. The 2019-20 carryout is 453 mb below 2018-19 and the stocks-to-use ratio fell to just 11.4% from 23% in 2018-19.
World soybean ending stocks were relatively unchanged for 2018-19 at 109.87 mmt (4.033 bb), but for 2019-20 they fell to 95.21 mmt (3.5 bb), down from 99.19 mmt in September.
The season-average farm price for soybeans improved to $9.00 from $8.50 in September. U.S. soybean exports were left unchanged as we appear to be on pace to reach the 1.775 bb projection.
With little fanfare expected for the wheat portion of the October WASDE, USDA instead gave us some slightly bearish numbers. U.S. wheat ending stocks, according to the Dow Jones traders' survey, were expected to be close to unchanged at 1.014 bb. Instead, ending stocks rose to an even more burdensome 1.043 bb on the heels of a 25 mb cut in U.S. exports based on stiff competition for export business. USDA also lowered the feed and residual by 30 mb, partially offset by an 18 mb drop in production to 1.962 bb, as harvested acres fell by 300,000 to 38.1 million.
Adding to the wheat woes was a world ending stocks number that figures to be another record large number of 287.8 mmt (10.57 bb) -- up 1.3 mmt. This compares to 286.5 mmt in September and trade expectations of about 2 mmt lower. While ending stocks-to-use ratio rises to 49.2% in the U.S., world stocks-to-use rose to 38.1%. The world numbers saw a 1 mmt fall in Australia and a rise in EU wheat production, while Russian wheat production was left unchanged at 72.5 mmt, despite the Russian Grain Union's projection of 78 mmt a few days ago.
The season-average farm price for wheat is lowered 10 cents per bushel to $4.70.
The world is awash in wheat, and export competition will continue to be fierce in coming months.
The October USDA report proved to be a shocker for many who anticipated lower yield, production and acreage estimates. That sent noncommercial longs scrambling to sell corn, which had been on a 45-cent rally from the lows set in early September. December corn closed 14 cents per bushel lower, with all three wheat markets 7 to 10 cents lower. Soybeans finished report day near unchanged, but 11 cents below the daily high likely due to sympathy selling.
We would now expect the market focus to shift to U.S. and South American weather, as well as news from the 13th meeting of U.S. and China trade representatives taking place Thursday and Friday.
Dana Mantini can be reached at firstname.lastname@example.org
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