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The Demand Bull Moves Forward

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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USDA will release its latest supply and demand estimates at 11 a.m. CDT Wednesday, May 12. (USDA logo)

On Wednesday, May 12, USDA will release its latest supply and demand estimates at 11 a.m. CDT, this time including estimates for the new 2021-22 season. Largely an exercise in early guessing, the report will probably not do much to ease the market's worries about tight corn and soybean supplies.

CORN

While May World Agricultural Supply and Demand Estimates (WASDE) reports influence traders and prices, it is important to keep in mind the estimates are often a far cry from how the new season actually turns out. Over the past 24 years, the R-squared correlation between USDA's ending stocks-to-use ratios and final average farm prices has been less than 20% in May.

The last time we played this game, USDA said China would have 7.9 billion bushels (bb) of surplus corn at the end of 2020-21 and would be an importer of 276 million bushels (mb). That is a lot less than the 904 mb of corn China has committed to from just the U.S. in 2020-21. Even now, as July corn is trading over $11 per bushel on China's Dalian exchange, USDA is still trying to tell us China has 7.7 bb of surplus corn -- a bold claim that lacks credibility.

Given the shortcomings, Dow Jones' survey of analysts expects USDA to estimate 1.26 bb of U.S. ending corn stocks for 2020-21, the lowest in seven years and based on a 15.07 bb crop. An ending stocks number of 1.354 bb is estimated for the new 2021-22 season. Given the recent explosion of $7 cash corn bids around the country, the old-crop stocks estimate is probably too high, but without a monthly grain stocks report, the market has little hard evidence until June 30.

Tossing out the lowest and highest entries in Dow Jones' survey, new-crop ending-stocks estimates range from 1.233 bb to 1.508 bb with plenty of uncertainty around the success of the U.S. crop in 2021 and China's demand. One thing that seems reasonable to say is Wednesday's new-crop estimate will be limited by the 91.1 million acres found in USDA's March planting survey -- a number that should be too low in this high price environment.

Dow Jones' analysts expect USDA to reduce its estimate of world ending corn stocks from 283.8 million metric tons (mmt) to 279.4 mmt in 2020-21 with plenty of attention on South American crop estimates. With much ado about the recent stretch of hot and dry weather for Brazil's pollinating second corn crop, analysts expect USDA to lower its estimate of Brazil's corn production from 109.0 mmt to 103.4 mmt or 4.07 bb. Several private estimates have fallen below 100.0 mmt.

For Argentina, USDA is expected to slightly increase the corn crop estimate from 47.0 mb to 47.4 mb. The Buenos Aires Grain Exchange recently estimated the crop at 46.0 mb.

For the new 2021-22 season, world ending corn stocks are expected to show a modest increase to 284.1 mmt, a very early guess in a long season. The U.S. crop is just being planted and South American crops won't be planted until fall. Regarding China, I already explained disappointment with USDA's ending corn stocks estimate, but the gap between China's production and expected use will have some interest. In April, USDA estimated China's production deficit at 28.33 mmt or 1.12 bb for the current 2020-21 season.

SOYBEANS

Ever since the February WASDE report, USDA has estimated U.S. ending soybeans stocks at 120 mb in 2020-21, also the lowest in seven years. Out of the analysts in the Dow Jones survey, 19 of the 20 expect USDA to stay within 10 mb of the same April estimate. As mentioned in previous reports, we'll also keep an eye on the soybean import estimate as another possible sign of how tight the market is getting.

For 2021-22, analysts expect USDA to estimate U.S. ending soybean stocks at 132 mb, still a historically tight level. Given the constraint of using the March planting estimate of 87.6 million acres, production will be limited to roughly 4.4 bb, which is 175 mb less than demand in the current season. USDA will need to reduce soybean demand estimates to show ending stocks above zero.

USDA's estimate of world soybean stocks in 2020-21 is expected to stay roughly unchanged at 86.9 mmt. Keep in mind, the estimate is a combination of ending stocks for Northern Hemisphere production and midseason stocks in the Southern Hemisphere. In April, USDA estimated Brazil will have 90 mb of soybeans left at the end of its current season on Jan. 31, 2022, and Brazil's FOB soybean prices are already trading near this year's high.

Recently, there has been talk of a higher soybean crop estimate for Brazil. Dow Jones expects a slight increase in USDA's crop estimate to 136.1 mmt, the first 5.0 bb soybean crop in history. Argentina's soybean crop estimate is expected to slip from 47.5 mmt to 46.7 mmt. A lower number is possible as the Buenos Aires Grain Exchange estimates Argentina's crop at 43.0 mmt or 1.58 bb.

In the new 2021-22 season, Dow Jones' survey expects USDA to show 88.8 mmt of world soybean stocks, a small increase from the current season. It is too early in the season to have much price impact, but traders will be interested in USDA's new estimate of China's soybean imports, now at 100.0 mmt in 2020-21.

WHEAT

For several months now, wheat traders have been focused on new-crop wheat prospects while USDA attention remained fixed on the old-crop season. Wednesday's report will give an early glimpse of what USDA expects in 2021-22 and Dow Jones' survey expects U.S. ending wheat stocks to decline from 849 mb in 2020-21 to 762 mb in 2021-22. If true, it would be the lowest ending wheat stocks in seven years.

Spring wheat currently has the most significant drought concerns, and that topic will be covered in NASS' all-wheat production estimate in Wednesday's Crop Production report. NASS is expected to show all-wheat production at 1.877 bb in 2021, up from 1.826 bb last year. Winter wheat production is expected to increase from 1.171 bb in 2020 to 1.259 bb in 2021. Dow Jones' survey expects 716 mb of hard red winter wheat production, 308 mb of soft red winter wheat and 231 mb of white winter production.

Outside of North America, crop conditions are mostly favorable in the major wheat regions. Dow Jones' survey expects world ending wheat stocks to increase from 295.1 mmt to 299.4 mmt in 2021-22, still a plentiful scenario but slightly below the 2019-20 record of 300.04 mmt. As with corn and soybeans, there is a lot to learn about wheat in the new season and plenty of time for Wednesday's numbers to change.

With grain markets already nervous, Wednesday's new estimates will give markets plenty to respond to. Thanks to tighter-than-normal supplies, it won't take much for prices to have a big response, depending on what USDA says.

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Join DTN's webinar at noon CDT Wednesday, May 12. There will be a lot of numbers in this report and I'll try to explain the pros and cons, point out any surprises and compare USDA's estimates to the market's latest clues. Register here for Wednesday's WASDE report webinar: https://ag.dtn.com/…

U.S. PRODUCTION (million bushels) 2021-22
May Avg. High Low 2019-20
Corn 15,071 15,215 14,809 14,182
Soybeans 4,441 4,663 4,398 4,135
All Wheat 1,877 1,976 1,769 1,826
Winter 1,259 1,396 1,100 1,171
U.S. ENDING STOCKS (Million Bushels) 2020-21
May Avg High Low Apr
Corn 1,260 1,361 1,135 1,352
Soybeans 118 130 105 120
Wheat 849 877 821 852
U.S. ENDING STOCKS (Million Bushels) 2021-22
May Average High Low
Corn 1,354 1,622 1,100
Soybeans 132 200 110
Wheat 762 941 644
WORLD ENDING STOCKS (Million metric tons) 2020-21
May Avg High Low Apr
Corn 279.4 285.3 275.0 283.9
Soybeans 86.9 90.1 84.6 86.9
Wheat 295.1 302.0 292.0 295.5
WORLD ENDING STOCKS (million metric tons) 2021-22
May Avg. High Low
Corn 284.1 295.1 269.3
Soybeans 88.8 94.0 78.7
Wheat 299.4 320.0 283.7
WORLD PRODUCTION (million metric tons) 2020-21
May Avg High Low Apr
CORN
Argentina 47.4 50.0 46.0 47.0
Brazil 103.4 106.0 100.3 109.0
SOYBEANS
Argentina 46.7 48.0 44.5 47.5
Brazil 136.1 138.0 134.5 136.0

Todd Hultman can be reached at todd.hultman@dtn.com

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Todd Hultman