USDA Reports Review

The USDA Production and World Agricultural Supply and Demand Estimate (WASDE) reports for July 2021 shifted the focus from corn and beans to wheat futures. While the corn and soy numbers were mostly neutral to a bit bearish, both U.S. and world wheat production and ending stocks proved to be more bullish than trader expectations. The focus was clearly on spring wheat, as that crop has been decimated by the ongoing drought.

Here's a breakdown of the reports by commodities.

CORN

Incorporating a 1-million-acre (ma) higher harvested number at 84.5 million acres (ma), and leaving the record 179.5-bushel-per-acre (bpa) yield from June untouched, USDA's July report reflected a corn production number that was 175 million bushels (mb) higher than in June, at 15.165 billion bushels (bb). That also figured about 157 mb higher than the Dow Jones pre-report survey had estimated. In addition, USDA raised both feed and residual use and exports, by 25 mb and 50 mb, respectively. One would also expect corn for ethanol usage to rise by possibly another 50 mb or more as America heads back to the streets post-pandemic.

Ending stocks for corn in 2020-21 were dropped to 1.082 bb, 25 mb below the June report. Ending stocks for 2021-22 rose to a higher-than-expected 1.432 bb -- up 75 mb from June. With many private analysts having already cut corn yield to well below that number, it is likely we'll see ending stocks move lower from here.

On the world front, corn 2020-21 ending stocks fell modestly to 279.86 million metric tons (mmt), slightly higher than the average trade estimate, while 2021-22 world ending stocks rose to 291.18 mmt (11.46 bb) from 289.4 mmt in June. In the 2020-21 crop year, Argentina production rose by 1 mmt to 48.5 mmt (1.90 bb) and Brazil's production slid lower by 5.5 mmt to 93 mmt (3.66 bb). Traders had anticipated a bigger drop in Brazil's corn crop; following the freeze event of over a week ago, we are likely to see that number move lower. Many private analysts have slashed Brazil to under 90 mmt (3.54 bb) at this point. Prior to the report, December corn was trading up 11 cents per bushel -- December finished the day 16 cents higher.

The report was generally regarded as bearish corn, but the market refused to listen.

SOYBEANS

For soybeans, U.S. production and yield were left untouched compared to June, at 4.405 bb and 50.8 bpa. Soybean ending stocks in both crop years stayed unchanged at 135 mb and 155 mb, when the trade had expected the 2021-22 stocks to fall. The 4.405 bb production number is up 270 mb from a year ago. There were few changes on the U.S. supply and demand table for soybeans; that was construed as bearish initially, but the market recovered.

Globally, WASDE pegged Brazil's soybean production at an unchanged and record-large 137 mmt (5.033 bb), while leaving Argentine production at an unchanged 46.5 mmt (1.70 bb). The net effect was to raise 2020-21 ending world stocks to 94.5 mmt (3.47 bb). To arrive at that number, Brazil stocks were raised 3.3 mmt and Argentine stocks were revised higher by 2.15 mmt, while China soybean imports were reduced by 1 mmt to 102 mmt (3.75 bb).

The report for soybeans was considered mildly bearish. However, the futures market still gained, with November closing up 21 cents after trading up 12 cents prior to the report.

WHEAT

While corn and soybeans generally steal the thunder of each USDA and WASDE report, the July WASDE clearly shifted the trade focus to the wheat futures markets -- Minneapolis specifically. As the Northern Plains, Northwest and Canadian Prairies look to return to a hot-and-dry outlook for the next two weeks, Monday's report gave further impetus to the bull move.

All wheat production fell by a greater-than-expected 152 mb from June to 1.746 bb, with much of the credit given to other spring wheat and white wheat, both of which have baked under drought conditions. Pre-report surveys had the average trade estimate at 1.835 bb. Hard red winter wheat rose to 805 mb from 771 mb in June; that figured about 13 mb higher than the trade had guessed. Soft red winter wheat also jumped to 362 mb -- a 27 mb gain from June. White wheat fell from 202 mb to 198 mb, down 48 mb from a year ago. The real surprise was other spring wheat, which fell to 345 mb -- a full 99 mb below the average trade estimate and 241 mb below last year. Hard red spring wheat production, at a paltry 305 mb, figures 42% below last year -- reported to be the lowest since 1987-88.

USDA also lowered feed and residual use by 10 mb to 170 mb and slashed exports by 25 mb to 875 mb. Yield for wheat fell to 45.8 bpa from 50.7 bpa, with harvested acres declining by 700,000 acres to 37.4 ma. Ending stocks for 2021-22 fell to just 665 mb -- the lowest carryout since 2013-14. Hard red winter wheat ending stocks fell to 369 mb from 426 mb, hard red spring wheat stocks fell by 116 mb to 119 mb and white wheat fell by 19 mb to 51 mb. Soft red wheat stocks rose 20 mb to 105 mb. Durum ending stocks fell to a meager 20 mb from 28 mb last year.

On a global basis, ending stocks plunged by a larger-than-expected 5.1 mmt to 291.7 mmt (10.7 bb) for 2021-22 -- the average trade estimate was 295.8 mmt (10.87 bb), so the stocks figured 4 mmt below that. Some notable world wheat production changes: Russia fell by 1 mmt to 85 mmt, and Kazakhstan declined by 1 mmt to 13 mmt, and Canada fell by 500,000 mt to 31.5 mmt. Australian wheat production rose by 1.5 mmt to 28.5 mmt, while Ukraine rose by 500,000 mt, and both the EU and UK each rose by 700,000 mt.

Kansas City September was trading up 5 cents before the report, and finished 21 cents higher, while Minneapolis was up 15 cents and closed up 43 cents to a new closing high.

With the July WASDE report out of the way, trader will likely again shift the focus to weather ahead and demand.

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

Follow Dana Mantini on Twitter @mantini_r

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