USDA Reports Review

Corn, Soybean, Wheat Futures Rise Friday Despite Bearish USDA WASDE Report

Dana Mantini
By  Dana Mantini , Senior Market Analyst
This 60-minute chart of November soybeans shows the sharp rally that ensued shortly after the USDA report release Friday. (DTN ProphetX chart)

The USDA World Agricultural Supply and Demand Estimate (WASDE) for September 2021 provided few major surprises. However, as expected, it was mostly bearish -- and even more bearish than many had anticipated. But that didn't seem to matter, as all three primary markets rallied well off the lows, with November soybeans finishing 24 cents above the low. It was sort of a sell-the-rumor-buy-the-fact-type reaction.

Here is a look at some of the changes in both U.S. and world numbers in the USDA WASDE Sept. 10 report, starting with corn:

CORN

Upon the release of WASDE report, the corn bears got all they wanted, plus some. Corn yield was increased by a greater-than-expected 1.7 bushels per acre (bpa) to 176.2 bpa -- just slightly below the 176.6 bpa yield in 2018, which was record large. That was higher than the Dow Jones survey average trade estimate of 175.5 bpa. In addition to that, production was raised to 14.996 billion bushels (bb) and 246 million bushels (mb) above the August WASDE. Harvested acreage was raised by 600,000 acres -- a bit less than expected. That resulted in ending stocks increasing to 1.408 bb compared to 1.242 bb in August. Corn production would be the second largest on record. The ending stocks number was boosted in part by a higher carry-in, as old-crop exports and corn for ethanol were lowered. Total new-crop usage was 150 mb higher, with feed and residual and new-crop exports both increased by 75 mb. As expected, Eastern Corn Belt corn fared much better, with Illinois, Indiana and Ohio all recording record yields, with Illinois' 214 bpa leading the pack.

On the world front, corn ending stocks came out much higher than the trade had expected at 297.63 million metric tons (11.7 bb). The average trade estimate was 285.7 million metric tons (mmt), and the August number was 284.6 mmt (11.2 bb). The U.S. crop made up a large portion of that increase, accounting for 6.3 mmt (248 mb) of that. China corn production was raised 5 mmt to 273 mmt (10.7 bb), and China feed usage for corn was increased by 3 mmt to 214 mmt (8.42 bb). China's corn imports were left unchanged at 26 mmt (1.02 bb). Brazil's old-crop corn was lowered by 1 mmt to 86 mmt -- just above CONAB's 85.7 mmt number.

The corn market had traded close to unchanged to a penny lower prior to the report. However, when the obviously bearish report came out, December corn plunged to a new recent low at $4.97 1/2. From there, and in sympathy with soybeans, December came roaring back to close 20 cents above that low. The most logical explanation is that the market had built in much of the bearishness in the past few days. The impending restoration of Gulf shipping lanes and export activity no doubt helped corn to recover.

SOYBEANS

As in corn, the trade had built in a bearish bias ahead of the September WASDE report as November beans has lost ground ahead of the release. As expected, the bean yield was increased by 0.6 bpa to 50.6 bpa, and production rose by 35 million bushels from August to 4.374 bb. Those were both higher than the trade had anticipated. As in corn, and pretty much expected, were the record yields in Illinois, Indiana and Ohio. Also, as expected, North Dakota was poor, at just 25 bpa. South Dakota's yield logged in at 38 bpa. In addition to that, imports were lowered by 10 mb, crush lowered by 25 mb, and exports were raised by 35 mb. Unexpected by the trade was the lower planted and harvested acreage, with harvested down 300,000 acres. Following the premature release of the FSA acreage enrollment numbers Wednesday, most had expected an increase in seedings.

The net effect of the changes was to increase soy ending stocks to 185 mb, 30 mb higher than in August, and 7 mb higher than the pre-report estimate. Part of the increase can be attributed to old-crop stocks increasing by 15 mb due to a lower crush. The season average farm price was lowered by 80 cents per bushel to $12.90.

On the world front, traders had expected only a slight increase in world ending stocks, with the average estimate 96.9 mmt compared to 96.2 mmt in August. WASDE put ending stocks at 98.9 mmt (3.63 bb) -- a 2.7 mmt increase. There were no changes to China, with imports still called a record-large 101 mmt (3.7 mb).

Soybeans had been trading higher prior to the report release, with November up 7 cents at report time. The numbers were clearly bearish at the time and November plunged to a new low, before recovering and finishing 16 cents higher and 24 cents above the morning low. It was certainly a bullish response to what must be referred to as a neutral to bearish report.

WHEAT

On the domestic side, there was little expected on the wheat portion of the September WASDE report, with the Dow Jones trade estimate looking for a slight decline in U.S. ending stocks to 619 mb from 627 mb in August. The actual ending stocks number came out at 615 mb -- 12 mb under August. The only notable change was a drop of 10 mb in wheat imports. The ending stocks number figures to be the lowest in eight years. A few by-class tweaks had both spring wheat ending stocks and soft red winter stocks each falling by 5 mb to 111 mb and 99 mb.

It was on the global front that there were some more significant changes. World supplies were up 7.1 mmt (261 mb). Australia's wheat crop was increased by 1.5 mmt to 31.5 mmt (1.157 bb), and India's wheat production rose by 1.5 mmt to 109.5 mmt (4.02 bb), and China's wheat crop rose by 900,000 mt to 136.9 mmt (5.03 bb). Canada and Argentina crops were reduced by 1 mmt and 500,000 mt, respectively. China feed usage of wheat was raised by 1 mmt to 36 mmt. The net effect of all the changes was that world ending stocks rose by 4.2 mmt to 283.2 mmt (10.4 bb), when the trade was looking for a slight decline.

Prior to the report, wheat was trading lower, with Kansas City December down 5 cents. Wheat markets finished mixed, with Chicago and Kansas City lower and Minneapolis finishing 6 1/4 cents higher and more than 17 cents above the lows.

FINAL THOUGHTS

The September USDA Crop Production and WASDE reports turned out to be even more bearish for corn and soybeans than traders had expected. However, the markets, for the past week, seemed to be building up for the bearish result. The corn and bean markets were terribly oversold and likely due for a bounce. For wheat, there were few major changes, but wheat also has been beat up as of late. Now, the focus will turn to the restoration of Gulf export capability, the Sept. 30 stocks report and demand, especially from China.

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

Follow Dana Mantini on Twitter @mantini_r

Dana Mantini