USDA Reports Review

The USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, released on Friday, Oct. 9, featured a much sharper fall in U.S. and world soybean stocks than traders had expected and a greater-than-expected decline in harvested acres of both corn and soybeans, sending both markets surging to further gains. U.S. wheat stocks fell about as expected, with hard red winter (HRW) wheat responsible for much of the fall, but world ending stocks unexpectedly rose to another record-large total on the second-largest Russian wheat crop ever.

CORN

With the Dow Jones trade survey looking for an average corn production estimate of 14.8 billion bushels (bb) and a 177.6-bushel-per-acre (bpa) yield, the October WASDE instead pegged production at 14.722 bb. While yield fell only 0.1 bpa from September, the 178.4 bpa yield would still be record large, with the corn crop the second largest on record. Production was down 178 million bushels (mb) from September, with ending stocks, at 2.167 bb, slightly higher than the trade estimate of 2.13 bb and 336 mb below the September number. The big change came in harvested acres, which fell much more than expected by 1 million acres from September and a full 800,000 acres below the trade estimate, at 82.5 million acres. Domestic demand was also lowered, with a 50 mb drop in corn for ethanol usage, and a 50 mb fall in feed and residual. There was no change in U.S. corn exports. China corn imports were also surprisingly left unchanged at 7 million metric tons (mmt) when, in fact, China has already booked well over 9 mmt of U.S. corn thus far.

Objective yield data revealed the fourth-highest number of ears in the 10 primary states on record. Corn was 87% mature as of Oct. 4, and 25% of the crop had been harvested at the time. The average seasonal corn price was raised by a dime to $3.60 per bushel.

On the world front, global corn ending stocks fell by 6.3 mmt to 300.5 mmt (11.8 bb). Pre-report trader estimates had that number pegged at 299.7 mmt. In addition to the decline in U.S. corn production, Ukraine's corn crop fell by 2 mmt to 36.5 mmt, as drought has gripped that nation.

Corn futures, which had been trading 5 cents higher just before the report was released, ended the day up a solid 8 cents higher in the December contract, at $3.95. There is little doubt that commodity funds, which ended with a sizable corn long, added to that bullishness.

SOYBEANS

Already on a relentless march higher, the soybean market received another big boost from the October WASDE report. Soybean production fell more than expected by 45 mb from the September report to 4.27 bb, while soybean yield remained unchanged at a record 51.9 bpa. The big changes came as harvested acres were slashed by a greater-than-expected 700,000 acres from September to 82.3 million acres and as exports were raised by 75 mb to account for the huge China buying program. The result was U.S. soybean ending stocks falling to a tight 290 mb, which is 170 mb lower than in September and a full 70 mb below the average pre-report estimate. The soybean crop is the fourth largest on record.

On the global front, world ending stocks fell by a larger-than-expected 4.9 mmt from September to 88.7 mmt (3.26 bb). The trade estimate prior to the report was for a 90.9 mmt ending stocks number, so the actual was 2.2 mmt below that. The soybean average seasonal price was raised by 55 cents per bushel to $9.80. Notable world changes were a 1-mmt increase in both China imports and China crush to 100 mmt (3.67 bb) and 99 mmt, respectively.

November soybeans, prior to the report release, were trading 15 cents higher and by close they finished 15 1/2 cents higher, at $10.65 1/2. November beans at one point were $2.15 per bushel above the early August low.

Managed money funds, who have steadily added to a growing net long, likely bought again on report day. Friday's Commodity Futures Trading Commission (CFTC) Commitment of Traders report indicated a near record net long in soybeans of 232,000 contracts that rivals the record long in the drought year of 2012.

WHEAT

October's WASDE report sent a mixed message to wheat traders, with a report that could be described as overall neutral to even a little bearish. U.S. ending stocks for wheat fell by 42 mb from September to 883 mb. This is the first time in five years that the U.S. carryout has been under 1 bb. Contributing to the lower ending stocks was a 0.4-bpa fall in yield to 49.7 bpa and a 10 mb increase in feed and residual since September. A look at the wheat by class numbers shows HRW wheat ending stocks falling by 51 mb to 334 mb and soft red winter (SRW) by 6 mb, to 102 mb. The average seasonal price for wheat was boosted by 20 cents to $4.70 per bushel.

It was on the world front that the most significant changes occurred. With traders expecting a fall of 2.5 mmt in world ending stocks, those stocks rose by 2.1 mmt to another new record-large carryout of 321.5 mmt (11.8 bb). Instrumental in that surprise was a lofty 5-mmt increase in Russia's crop to 83 mmt (3.04 bb) compared to WASDE's 78-mmt estimate a month ago. Russian wheat production is the second-largest crop ever.

Somewhat offsetting changes were a drop of 1.5 mmt in Ukraine production to 25.5 mmt due to drought, a fall of 1 mmt in Canada production to 36 mmt and a 500,000 mt fall in Argentina's crop to 19 mmt.

Also of interest is a rise in Russian exports by 1.5 mmt to 39 mmt -- the second largest ever. Strangely enough, even though WASDE did not raise China's corn imports, it raised wheat imports by 500,000 mt to 7.5 mmt.

Kansas City December wheat, which was trading 7 3/4 cents higher before the report, finished up 6 3/4 cents for the day, at $5.35 1/2. The recent wheat market strength has been fueled by extreme drought in southern Russia and even parts of eastern Ukraine, but there may be rain headed that way late next week.

REPORT TAKEAWAYS

The big takeaway from the October USDA Crop Production and WASDE reports is the continued tightening of the balance sheet of both the corn and, more importantly, soybean markets. Soybean ending stocks have now moved from a burdensome 909 mb in 2018-19 to Friday's 290 mb ending stocks number.

With the decline in stocks and the huge ongoing China demand, more focus should now be put on South American weather. The other side of that coin is that, with good weather and soybeans in reals at a record high, the Brazilian farmer is likely to plant an enormous crop of soybeans. Right now, with good weather, the Brazilian ag company CONAB is forecasting a record-large 133.7 mmt soybean crop, or about 9 mmt higher than this year!

One thing to keep in mind is that, as bullish as the nonstop fund-buying is short term, watch out when they liquidate. However, for now, the bulls are certainly in control.

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

Follow Dana Mantini on Twitter @mantini_r

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