USDA Reports Review

The February USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports provided few surprises, as there were only minor changes to report, and, as expected, USDA was conservative in its reduction of South American soybean and corn crops. Following the reports' release, the markets seemed to revert to weather-watching once again, surging to strong gains.

Let's take a look at some of the changes in both U.S. and world numbers in Wednesday's WASDE report.

CORN

While typically the focus of any USDA and WASDE report, the February reports held little fanfare for both U.S. and world corn traders. Starting with the U.S. ending stocks level, with the Dow Jones survey projecting a trade estimate of 1.515 billion bushels (bb), the report featured an unchanged 1.540 bb. There was no change in U.S. corn exports, which many assumed would be a no-brainer with the ongoing drought in both southern Brazil and Argentina. There were no changes to the domestic balance sheet at all.

On the world front, traders were laser focused on changes to South American production. Traders had expected Brazil's crop to be lowered by 2 million metric tons (mmt) to 113 mmt (4.45 bb). Instead, production was dropped just 1 mmt to 114 mmt (4.49 bb). USDA was even more conservative regarding Argentine corn production, choosing to leave it unchanged at 54 mmt (2.12 bb), compared to expectations for a decline of close to 2 mmt, due to the ongoing drought in both areas. The global balance sheet included only minor changes, with an increase in Canadian imports of 500,000 metric tons (mt), a minor increase for Iran and a reduction in exports for Paraguay. With the trade looking for a decline in world corn stocks of nearly 3 mmt, the reduction was a more modest 900,000 mt to 302.2 mmt (11.9 bb).

Both March and December corn futures had each scored new contract highs prior to the report and went on to make higher highs after the WASDE. The report was mostly neutral to bullish for corn.

SOYBEANS

Domestic soybean changes only involved crush, with USDA raising domestic crush by 25 million bushels (mb) to 2.215 bb, while leaving exports unchanged. It's easy to see why exports were not changed despite the South American drought, as U.S. export sales and shipments are still down 24% versus a year ago. U.S. ending stocks were dropped by 25 mb to 325 mb, a bit higher than the trade had expected. The season average price for soybeans was raised by 40 cents per bushel to $13. The season average soymeal price was increased by $35 per ton to $410, while soybean oil's average price was boosted by 1 cent per pound to 66 cents.

On the global front, traders were looking for a decline of 6 mmt (220 mb) on Brazilian bean production and 2.3 mmt (84 mb) on Argentine soy production. However, USDA was far more conservative, dropping Brazil by 5 mmt to 134 mmt (4.92 bb) and Argentina by just 1.5 mmt to 45 mmt (1.65 bb). The Paraguay soybean crop was dropped by 2.2 mmt to 6.3 mmt (231 mb). That compares to 8.5 mmt a year ago, as Paraguay has been in the path of the worst of the drought conditions. Other notable world revisions were a decline of 3 mmt (110 mb) each in both China's crush and imports numbers to 94 mmt (3.45 bb) and 97 mmt 3.56 bb), respectively. The net effect was to lower world soybean ending stocks to 92.83 mmt (3.4 bb) from 95.2 mmt in January. That still figured 1.5 mmt higher than the average trade estimate.

While the report was considered to be neutral to slightly bullish for soybeans, both March and November beans had already made new contract highs prior to the report and extended those gains even further later in the day. With private crop scouts and analysts already well under WASDE on both Argentine and Brazil production, traders feel that there will be more bullish cuts to come.

WHEAT

While there were few significant changes expected in the February WASDE for wheat, some traders had suspected that with the wheat export pace anemic to date, there was potential for wheat exports to be lowered. That's just what USDA did, dropping exports by 15 mb to 810 mb. In addition to that, food use and seed use were lowered by a combined total of 5 mb, sending ending U.S. wheat stocks 20 mb higher to 648 mb. It was also notable that hard red winter stocks rose by 11 mb, while white wheat stocks rose by 5 mb. The season average farm price was increased by 15 cents to $7.30 per bushel.

On the world wheat supply and demand outlook, there were a few notable changes. Due to the ongoing drought in the Middle East, combined Iraq and Syria production fell by 1 mmt (37 mb). Argentina and India had increases in exports. For Argentina, exports were moved up by 500,000 mt to account for Argentina's record crop, to 14 mmt (514 mb). India exports were increased by 1.75 mmt to a record-large 7 mmt (257 mb). Canada's feed usage was increased by 1.7 mmt to 4.5 mmt (165 mb), while China's feed usage of wheat was lowered by 500,000 mt to 35 mmt (1.29 bb). The net effect of these changes was that world ending stocks of wheat fell to the lowest level in five years, to 278.2 mmt (10.2 bb), down from 280 mmt in January and more than 10 million tons below last year.

FINAL THOUGHTS

The February WASDE report held few surprises, with the market seemingly focused on both South American weather and the Russia-Ukraine situation. Corn and the soy complex continued on the bullish path we have seen of late, with new contract highs established in old- and new-crop corn and soybeans and in soy meal. The trend is your friend.

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

Follow Dana Mantini on Twitter @mantini_r

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