A Closer Look at Exports

By Alan Brugler, DTN Contributing Analyst

Thursday was a USDA report day, so some big price moves were anticipated. It also turned out to be a major risk-off day, with prices under pressure for grains, livestock, equities and Treasuries. Friday was a federal holiday -- Veterans Day -- so some of this flight to cash might have been three-day-weekend planning, even though the commodity markets were open.

USDA made some changes to the U.S. grain balance sheets, as you know by now. Ending stocks are kind of the bottom line or net of changes. USDA bumped up corn ending stocks 45 million bushels (mb), increased soybean ending stocks 25 mb and raised wheat 14 mb. So, it is anticipating more leftovers in all three major crops, and it made cuts to the projected full-year cash average price for two of them. The wheat average was trimmed a dime to $7.20, and the corn average was also cut 10 cents from last month to $4.85. So, what will it take to turn things around?

Stores cut prices when they need to increase volume and clear inventory. That's pretty much what corn and wheat have been doing, with the former re-testing the early harvest lows (and taking them out). While bulls will take increased consumption any way they can get it, exports are the express route to a fix. You don't need to wait for the construction of a new biofuel refinery or herd expansion. Exports have the highest price elasticity -- i.e., they are most responsive to price changes. To keep things simpler, we will focus on corn and soybeans for the balance of this discussion.

USDA raised projected U.S. corn exports 50 mb on Thursday after perceiving a larger supply and trimming the cash average price a dime. Exports are looking better than a year ago but are still sickly versus the years with big Chinese imports. As of Thursday's weekly Export Sales report, U.S. export commitments were 31% larger than last year at the same time but only 38% of the full-year forecast. They would typically be 45% of the forecast by this date.

Is there room in the world numbers for the U.S. to catch up or exceed the projection and give prices a boost? Maybe. A big jump in overall world import trade is built into the forecast, going from 172.21 million metric tons (mmt) in the year just ended to 189.87 mmt for 2023-24. China has already been increased from 18 mmt to 23 mmt year over year. Small increases have been dialed in for the EU and South Korea. Mexico is seen as unchanged, with the well-advertised GMO restriction capping food-grade imports.

Soybeans are in a little different situation. USDA raised production but left consumption unchanged Thursday. The bull argument for soybeans is the tightness in soy oil ending stocks -- USDA cut that projection to 1.577 billion pounds on Thursday -- and expanding renewable diesel production capacity requiring more feedstock. USDA doesn't usually count crush from plants that aren't yet producing, but it knows they are under construction and already sees a new high for crush in 2023-24 at 2.3 billion bushels (bb). It takes a long time to build a crush plant, so any short-term boost to prices again relies on export growth.

To a degree, we expect growing crush demand to just replace some of the exports for whole beans. Beans have to buy more exports only if there are delays in the crush expansion or further upward revisions to the supply side. They do need to keep the 1.77 bb of exports expected by WASDE. You spell that "China," which USDA expects will be the delivery point for 59% of all global soybeans leaving their country of origin in 2023-24. USDA increased projected Chinese 2023-24 crush use by another 1 mmt on Thursday and also revised its previous year ending stocks downward. China is more dependent on U.S. supplies December through March as South America reaches the end of its local marketing year. You see that in the increased number of daily sales announcements. Thursday's price break on very little change in the U.S. balance sheet should encourage more such buying at a time of year when the Chinese already want to do so.

Projected world soybean ending stocks are still comfortable at 114 mmt, but that number is contingent on Brazil and Argentina producing a billion bushels more than they did last year. USDA has the two countries down for 211 mmt versus the Argentine drought-reduced 2022-23 production of 183 mmt. The difference of 28 mmt is 1.028 billion bushels in a single year! If those countries undershoot that target by 10% (102 mb) because of reduced acreage or poor weather reducing yields, the U.S. runs out of export soybeans, or somebody in the world has to use less. U.S. ending stocks are estimated at 245 mb, and minimum pipeline supply is around 160 mb. That only leaves about 85 mb in potential export growth, and a likely $14.50-$15.50 handle on U.S. cash prices if those are shipped out compared to the $12.90 USDA currently estimates.

Alan Brugler may be contacted at alanb@bruglermktg.com.

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