The February World Agricultural Supply and Demand Estimates (WASDE) report on Thursday offered few surprises. While traders were focused on changes to both Brazil corn and soybean production, the resulting numbers turned out to be a major disappointment. In the U.S., ending stocks were raised for corn, soybeans, and wheat, leading to a slightly bearish report. However, the markets moved little, except for wheat, which was already under pressure before the report's release. USDA seems to be slow walking any drop in Brazilian production compared to other crop analysts.
Here is a closer look at some of the changes in both U.S. and world numbers for corn, soybeans and wheat in the latest WASDE report:
While there were few expectations for any major changes to the U.S. corn balance sheet, the 10-million-bushel (mb) reduction in food, seed and industrial usage was probably a bit unexpected, raising ending stocks by 10 mb to a still-comfortable 2.172 billion bushels (bb). The season average corn price was left unchanged at $4.80 per bushel.
Traders were more curious as to what changes USDA might make to Brazil's soybean and corn production estimates following heat and dryness and early disappointing soy yield results. However, USDA chose to only drop Brazil soy production by 1 million metric ton (mmt) to 156 mmt compared to the pre-report Dow Jones estimate of 153 mmt. At 156 mmt, USDA is already 6.5 mmt higher than the Thursday morning soybean estimate from CONAB -- Brazil's answer to USDA. Other crop scouts and analysts are even more pessimistic than CONAB. USDA chose to lower Brazil's corn production close to Dow Jones' average estimate of 124.3 mmt, dropping it by 3 mmt to 124 mmt (4.88 bb). However, as in soybeans, CONAB's new corn estimate on Thursday morning was still more than 10 mmt (394 mb) lower than that, at just 113.7 mmt (4.47 bb). USDA, expected to increase the Argentine corn estimate, chose to leave that alone at 55 mmt (2.16 bb). It is likely that in future reports we could see further reductions in Brazil corn production.
Other world changes for corn featured an offsetting decrease in Brazil corn exports to 52 mmt (2.04 bb) and an increase in Ukraine (23 mmt) corn exports, each by 2 mmt. Corn imports by the European Union were lowered by 500,000 metric tons (mt). Other changes were minor. In world ending stocks, traders were expecting a slight drop to 324 mmt, but USDA instead pegged that number at 322.1 mmt (12.68 bb) -- down 3.2 mmt from a month ago. That is still 22 mmt (866 mb) higher than last year due to Argentina's drought last year. Corn fell to another new contract low shortly after the report and closed with losses for the fifth time in the past six days.
Traders were expecting little change to the U.S. soybean balance sheet, although some traders were looking for a cut in U.S. exports due to the slow pace of sales and shipments. They got more than they bargained for, with USDA choosing to lower U.S. soy export sales by a hefty 35 mb to 1.720 bb. That translated right to the bottom line, raising the U.S. soy ending stocks by 35 mb to 315 mb. The change was certainly legitimate with U.S. soy sales down 19% from a year ago, and with the U.S. having lost the competitive edge to South America.
As mentioned above, on the world front, USDA has chosen to gradually lower Brazil soybean production compared to other forecasting outfits. The less-than-expected 1-mmt drop in production to 156 mmt (5.73 bb), is still 6.5 mmt (239 mb) above Thursday morning's new estimate from CONAB and close to 10 mmt (367 mb) higher than some other estimates from reputable firms. The Argentine crop was left alone at 50 mmt (1.83 bb). That is understandable with the crop in great shape until the extreme heat and dryness in the past few weeks. The ongoing wetter change in the Argentine weather pattern has a chance to revive that crop, and hence the decision to leave it alone. Perhaps the most notable change on Thursday was a revision in the 2022-23 Brazil soy crop, with USDA raising that 2 mmt to a record-large 162 mmt (5.95 bb) based on the enhanced shipping pace in the past year. That led to a 1.7 mmt higher carry-in stocks number for 2023-24. The higher stocks in both Brazil and the U.S. were responsible for the 1.4-mmt jump in world ending soy stocks at 116 mmt (4.26 bb) compared to 114.6 mmt in January. Overall, the report was slightly bearish for soybeans, and beans finished lower for the day.
On the U.S. domestic side, with traders expecting wheat ending stocks to remain near unchanged, the 10-mb reduction in U.S. food use was a modest surprise and sent ending stocks up by the same amount to 658 mb. There were no other changes, with the season average wheat price left alone at $7.20 per bushel. There were only minor tweaks in the by-class category, with hard red winter ending stocks 5 mb higher at 279 mb, soft red winter wheat up by 4 mb, and white wheat ending stocks up by 1 mb.
On the global side for wheat, there were several minor changes, with the net effect a reduction of 700,000 mt in world ending stocks to 259.4 mmt (9.5 bb). That is the lowest since 2015-16. Argentina's wheat production rose by 500,000 mt to 15.5 mmt (569 mb), while Brazil had a 300,000-mt decline in production matched by the EU's 300,000 mt lower estimate. EU imports were increased by 1 mmt, while China's wheat imports dropped 500,000 mt to 12 mmt (441 mb). In the wheat export category, Brazil exports fell by 300,000 mt, Argentine and Australian exports rose by 500,000 mt each, while Ukraine's wheat exports rose by 1 mmt to 15 mmt (551 mb). The net impact to wheat was slightly bearish to mostly neutral, but wheat was under pressure before the report and slid to a sharply lower close by the end of the day.
It seems obvious at this point that USDA is far more optimistic on Brazil corn and soy production prospects than many other crop scouts and analysts, and even Brazil's own answer to USDA -- CONAB. Granted, there is still plenty of growing weather yet to see, but it is realistic to assume that USDA, at some point, will be forced to lower production even more. With traders looking for only minor changes in the domestic supply and demand situation, perhaps the cut in soybean exports was a bit more than expected, but certainly justified. We will now go back to trading South American weather.
For Thursday, March corn finished down a penny at $4.33 1/4, March soybeans rose 4 1/2 cents to close at $11.93 1/2 on the heels of a dynamic bean oil rally, and Kansas City March wheat plunged to close 17 1/2 cents lower at $7.01, with reasons for the weakness on Thursday somewhat of a mystery. On another note, March soybean oil appears well on the way to a weekly reversal higher with one day left.
Dana Mantini can be reached at firstname.lastname@example.org
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