USDA Reports Review

The May 12 USDA World Agricultural Supply and Demand Estimates (WASDE) and Crop Production reports appear to have stair-stepped down the loss in demand due to COVID-19 restrictions in the ethanol and livestock sectors -- but we could see further bearish revisions down the road. However, the bearish crop production forecast for 2020-21 may also be overly optimistic when using March's 97-million-acre survey and a yield of 178.5 bushels per acre (bpa).

While the report revealed only bearish data for both corn and wheat, the soybean market has a glimmer of hope. Any adverse weather and ramped-up Chinese buying could send beans higher, as both U.S. and world balance sheets tighten further.

CORN

Using USDA's March planting intentions data, U.S. corn production assumes that 97 million acres of corn will be planted. There are many who feel that, ultimately, corn acreage would be less due to price weakness since early March. Yield is assumed to be at trend, at 178.5 bpa, giving us the largest corn crop ever at nearly 16 billion bushels (bb). Although USDA was careful to be conservative on demand losses related to COVID-19 restrictions, the resulting ending stocks number of 3.318 bb was slightly lower than the trade estimate but the largest carryout since 1987-88.

USDA was optimistic that demand would return in 2020-21, as they raised feed, seed and industrial (FSI) by 245 million bushels (mb), raised exports by 375 mb from the revised 2019-20 ending stocks and have ethanol usage rebounding by 250 mb from the revised 2019-20 ethanol use of just 4.950 bb. The average farm gate price was lowered 40 cents per bushel from 2019-20 -- the lowest since 2006-07.

On the world front, corn ending stocks rose by 25 million metric tons (mmt) (984 bb) to 339.6 mmt (13.36 bb), which is up 25 mmt from the revised 314.7 mmt ending stocks for 2019-20 and nearly 37 mmt (1.45 bb) higher than the April stocks number. While Brazil and Argentine production levels were left unchanged for 2019-20, Brazil's 2020-21 production assumption is a record-large 106 mmt -- up 5 mmt. China corn imports are pegged at a large 7 mmt (276 mb), likely figuring some phase-one trade deal purchases.

Clearly, the U.S. and world remain awash in corn supplies, especially considering the moving target of demand destruction related to COVID-19 restrictions and its possible future complications. Both the U.S. and world balance sheets have taken on a much more bearish posture. However, the corn futures reaction on Tuesday was not what one might have expected, with July corn finishing report day 3 3/4 cents higher.

SOYBEANS

While the corn and wheat production and stocks data left little to be bullish about, Tuesday's report may have provided a slight glimmer of hope for soybean farmers.

Using the March soybean planting intentions of 83.5 million acres, soybean production for 2020-21 was pegged at 4.125 bb. That is up 568 mb from last year. Bearish was the fact that soybean exports for 2019-20 were lowered by 100 mb, which sent ending stocks to 580 mb, up 100 mb from April. However, for the 2020-21 crop year, exports were increased by 375 mb over the revised export number to 2.050 bb. Crush was increased slightly, putting ending stocks for 2020-21 down to 405 mb. The average farm gate price was lowered by 30 cents to $8.20. One note of caution: It is possible that ultimate bean acres are higher, with some projecting another 1.5 million acres from March intentions.

World soybean production for 2020-21 rose to 362.8 mmt, up 26.6 mmt from 2019-20. Although Brazil came out a bit higher than expected at a record 124 mmt and Argentina was unchanged at 51 mmt for 2019-20, USDA raised both to 131 mmt and 53.5 mmt, respectively, for 2020-21. These two crops have not been planted yet.

World ending stocks for soybeans had a pre-report estimate of 104 mmt, but instead came in at 98.4 mmt -- down 1.9 mmt from a year ago. Also, China soybean imports were increased by 4 mmt to 96 mmt.

The soybean futures reaction to Tuesday's WASDE was mild, to say the least, with the July contract finishing the day just 3 cents lower and the new-crop November contract falling just 1 1/2 cents. The fate of soybean prices over the next few months will likely be tied to weather and Chinese demand for U.S. beans.

WHEAT

Wheat production for 2020 was projected to be 1.866 bb; that is down 3% versus last year's 1.920 bb and was in line with trader expectations. Winter wheat is projected to be 1.255 bb, down from 1.304 bb last year. Hard red winter was projected at 733 mb, about 21 mb below the average trade estimate and 100 mb lower than the previous year. Soft red winter was nearly 298 mb, compared to just 239 mb the year before. White wheat was little changed from 2019-20. U.S. ending stocks fell 69 mb from 2019-20. Much of the drop was attributed to a decline in feed and residual, as cheap and plentiful corn supplies cut into wheat feed demand. Exports were also lowered by 20 mb to 950 mb.

There were major changes on the world front, with foreign wheat production up a huge 23.2 mmt (852 mb). World wheat production was pegged at a record-large 768 mmt (28.2 bb). Some notable production numbers were Australia at 24 mmt (882 mb) compared to their drought-ravaged crop of just 15.2 mmt last year. Russia production was pegged at 77 mmt, over 3 mmt higher than a year ago, and they are expected to be the leading exporter of 35 mmt. EU wheat production fell by 12 mmt due to late-season dryness. World ending wheat stocks jumped by 5% to a new record-large 310.1 mmt (11 bb), with China accounting for 52% of that total. The world ending stocks number is up over 17 mmt (625 mb) from the April number.

Chicago and Kansas City new-crop July wheat futures closed report day down 2 3/4 and 5 3/4 cents, respectively, while Minneapolis July ended up 2 1/4 cents higher.

Dana Mantini can be reached at dana.mantini@dtn.com

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