We haven't ventured very far into 2020 and markets have already been confronted with a U.S. military strike against Iran, coronavirus, bird flu and the long-awaited phase-one trade agreement with China. It is the trade agreement that will be back in the spotlight Tuesday after USDA makes new export estimates, based on how they see the agreement impacting trade in 2020 for each commodity.
On Feb. 6, USDA's Office of the Chief Economist (OCE) posted a document online that offered comments as to how phase one will be incorporated into Tuesday's World Agricultural Supply and Demand Estimates (WASDE) report.
Read the document here: https://www.usda.gov/…
One point made clear is that the office of the U.S. Trade Representative has not released the part of the Jan. 15 agreement that shows China's specific purchase commitments for each ag product, and so that will not be a part of USDA's forecasts on Tuesday. As OCE wrote, "Publicly available information and data pertaining to the Agreement will be reflected in USDA's (WASDE) report beginning in February 2020."
In other words, USDA will have to make its best guesses about exports after reading the same text we've been reading. I cannot say for sure, but judging from OCE comments on key differences between the scope of the trade agreement and the February WASDE report, I suspect OCE is preparing to issue smaller adjustments to export estimates than many might think, given China's $36.5 billion commitment to U.S. ag purchases in 2020.
As is typically the case with February WASDE reports, we do not expect any changes to the production side of the ledger. The new surveys for five northern corn states are not expected until early spring. For U.S. estimates, the main attention will be on the three demand categories of feed demand, ethanol and exports. The first two categories are likely to be steady and export demand may see a modest increase.
Total U.S. corn export commitments have increased of late to 897 million bushels (mb), but the better chance for an increase in USDA's corn export estimate is likely to come from its new assessment of China's ag purchases. Part of the increase should come from China's agreement to meet the Tariff Rate Quota (TRQ) of 7.2 million metric tons (mmt) or 283 mb for corn. With a $36.5 billion total target for 2020, even more corn purchases seem likely, but it is difficult to guess just how much more China will buy. As the OCE reminds, the WASDE report is only for 2019-20 but the trade agreement commitments cover then entire calendar year.
Turning to Dow Jones' survey of analysts, USDA's estimate of U.S. ending corn stocks is expected to be reduced slightly, from 1.892 billion bushels (bb) to 1.856 bb. Given the lack of expected changes on the production side, I am leaning toward the under on the ending stocks estimate as even a modest export bump should be able to take corn stocks below 1.8 bb.
The one thing that hasn't changed about this year's February WASDE report is the anticipation of South America crop estimates. Dow Jones' survey expects a slight reduction in Brazil's corn crop estimate, from 101.0 mmt in January to 100.8 mmt (3.97 bb) in February. Similarly, Argentina's corn crop estimate is expected to be trimmed from 50.0 mmt to 49.8 mmt (1.96 bb). The survey expects world corn ending stocks to be reduced slightly, from 297.8 mmt to 297.5 mmt (11.71 bb).
Of all the U.S. crops, soybeans have the most to gain from the phase-one agreement, but the analysts in Dow Jones' survey expect only a small reduction in USDA's estimate of U.S. ending soybeans stocks, from 475 mb to 448 mb on Tuesday. As with corn, soybeans' production estimate is likely to remain fixed. Crush demand should be steady to possibly a little higher with most of attention on the export estimate.
In the baseline year of 2017, soybean purchases represented 51% of China's U.S. ag purchases. Given the agreement's $36.5 billion commitment for calendar year 2020, it is difficult to expect soybeans to still represent over half of total purchases, but even a smaller share could have bullish impact if purchases meet the definition of China's "commercial considerations."
The catch for Tuesday's report is that Dow Jones' survey is expecting Brazil to harvest a 123.8 mmt (4.55 bb) soybean crop and those new-crop soybeans are already cheaper on a FOB basis than soybeans at the U.S. Gulf. As usual, the best chance for U.S. soybean purchases from China will likely take place in the final four months of 2020, leaving little incentive to expect much change in USDA's export assessment for 2019-20.
I also expect a small reduction in USDA's ending stocks estimate for soybeans, but of all the numbers in Tuesday's report, this one has the largest potential for surprise.
Dow Jones's survey expects USDA's estimate of world soybean stocks to increase slightly, from 96.7 mmt to 97.2 mmt (3.57 bb). Argentina's crop estimate is expected to be tweaked slightly higher, to 53.1 mmt (1.95 bb).
Going by Dow Jones' survey, expectations for a reduction in U.S. ending wheat stocks are slight Tuesday as analysts expect the estimate to fall from 965 mb to 953 mb.
As with corn, China has agreed to a Tariff Rate Quota of minimum purchases, which in the case of wheat, amounts to 9.64 mmt (354 mb). It is difficult to say how much of that might happen in the current season before the end of May, but I would not be surprised to see an "8" in front of USDA's new ending stocks estimate for U.S. wheat on Tuesday.
On the international scene, Australia's drought and wildfire problems are well known, and another small reduction is possible for Australia's crop estimate. Russia's situation is also interesting since the government has talked about restricting exports. For the most part, no big changes are expected in Tuesday's world numbers for wheat. Dow Jones' survey expects USDA's estimate of world ending wheat stocks to be slightly reduced from 288.1 mmt to 287.2 mmt (10.55 bb).
With surprises possible in Tuesday's WASDE report, join us for a post-report webinar at noon CST as I talk about USDA's latest estimates and what they mean for corn, soybean and wheat prices. I am also glad to try to answer any related questions you may have. Register now at:
|WORLD PRODUCTION (million metric tons) 2019-20|
|U.S. ENDING STOCKS (Million Bushels) 2019-20|
|WORLD ENDING STOCKS (million metric tons) 2019-20|
Todd Hultman can be reached at email@example.com
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