USDA Reports Review

The March 2022 World Agricultural Supply and Demand Estimates (WASDE) report had few major surprises in it. However, with wheat already trading near limit lower prior to the report, that long liquidation continued following the mildly bearish wheat portion of the report, sending wheat to limit down. The corn and soybean parts of the report were considered mostly neutral to even a little bit friendly to both, but corn, soybeans, and soybean oil joined wheat to fall, with soybean meal the lone exception. Falling South American production levels and declining Black Sea exports were the key factors affecting trade.

Let's look at some of the changes in both U.S. and world numbers on the WASDE March 9 report, starting with corn:

CORN

Prior to the report, traders were looking for a modest 66-million-bushel (mb) cut to U.S. ending stocks. However, USDA raised corn for ethanol usage by 25 mb, to 5.350 billion bushels (bb), and raised U.S. corn exports by 75 mb, to 2.5 bb, taking up some of the slack of lost Ukraine corn shipments as ports remain shut down. That sent U.S. ending stocks to 1.440 bb, or about 36 mb below where traders had expected. The rise in exports was directly related to the situation in Ukraine, and many analysts would argue that even further export increases are likely in coming reports. The season average farm price for corn was raised 20 cents per bushel, to $5.65 per bushel.

On the world side, the trade seemed focused on South American changes. The WASDE chose not to revise Brazilian corn production lower and dropped Argentine production by just 1 million metric tons (mmt), to 53 mmt (2.08 bb), less than traders had expected. Perhaps more significant was the sharp drop in Ukraine exports, by 6 mmt (236 mb), offset somewhat by a 3 mmt (118 mb) increase in feed use in Ukraine. With traders looking for a 2.4 mmt drop in ending stocks of corn, they got just a 1.2 mmt drop, to 301 mmt (11.85 bb).

May corn futures were down 11 cents pre-report and closed down 20 cents. There are likely further increases in U.S. corn exports coming down the pike if the Russia-Ukraine war is ongoing.

SOYBEANS

As in corn, USDA was inclined to raise U.S. soybean exports, but this time because U.S. beans are the cheapest and China has been knocking on the door just about every day. U.S. soy sales will likely continue to grow, as the U.S. makes up for steadily falling Brazilian production. The season average soybean price was increased by 25 cents, to $13.25 per bushel, while soymeal price was raised $10 per short ton (t), to $420/t, and bean oil price was raised by 2 cents on the prospect for higher bean oil usage for biodiesel.

The world soybean balance sheet had some significant changes, with the anticipated, but greater-than-expected, fall in Brazil's production from 134 mmt (4.91 bb) to 127 mmt (4.67 bb). Argentina's production fell by a lower-than-expected 1.5 mmt, to 43.5 mmt (1.6 bb). Expectations are for a further drop in South American production. In addition to Argentina and Brazil, Paraguay and Uruguay were dropped by a combined 1.6 mmt, bringing the total South American production loss to nearly 10 mmt (367 bb) in one month.

Traders and private analysts see Brazil's final production falling closer to the 122- to 125-mmt level, with even a few sub-120 mmt (4.4 bb) projections out there. For Argentina, there are some analysts with a number closer to 40 mmt (1.47 bb). Other notable world changes had world crush falling 5 mmt (184 mb) because of slower crush in China and lower South American supplies, and China soybean imports falling by 3 mmt, to 94 mmt (3.45 bb), to account for poor crush margins, and low supply. As an aside, sunseed crush in war-torn Ukraine is projected to fall by 2.2 mmt, due to the inability to export products. May soybeans were trading 12 cents higher prior to the report and ended up closing down 18 cents.

WHEAT

Wheat traders, following Tuesday's volatile round-tripper, were continuing to liquidate long positions, showing down close to 80 cents on Kansas City May just ahead of the report. The slightly bearish makeup of the report sent wheat down the daily limit, where it stayed for the balance of the day. On the U.S. side, wheat imports were dropped by 5 mb, and wheat exports were dropped 10 mb, to 800 mb. It sure seems strange that we are dropping exports at a time when Russian and Ukrainian wheat is not moving freely, and combined, they are responsible for 29% of world wheat exports. However, as it has been for most of the year, U.S. wheat exports have underperformed, with both sales and inspections well behind expectations. U.S. ending stocks of wheat were expected to fall by 15 mb, but instead rose by 5 mb, to 653 mb. The season average price on wheat was raised by 20 cents, to $7.50 per bushel.

On the world front, we had some significant changes, with Ukraine and Russia wheat exports dropped by a combined 7 mmt (257 mb). That had to be totally expected by the trade. However, what may not have been expected is the rise in Australian production by 2.3 mmt to a record-large 36.3 mmt (1.33 bb), and a combined increase in Australian and Indian wheat exports of 3.5 mmt (129 mb), in effect offsetting some of the Black Sea shortages. Australia's exports, at 27.5 mmt (1.01 bb), would be record large. India's 8.5 mmt (312 mb) export total would also be record large. Ukraine's exports were dropped by 4 mmt (147 mb), while Russia's were dropped by 3 mmt, to 32 mmt. Ukraine had wheat feed use increased by 1 mmt.

The trade, according to Dow Jones, had been looking for global wheat ending stocks of 278 mmt, little changed -- instead, those stocks came out at a higher-than-expected 281.5 mmt (10.3 bb).

CLOSING THOUGHTS

The 2022 March WASDE was not a huge market-mover, though it did offer a few surprises. The market seemed to be focused still more on Russia-Ukraine and the uncertainty of that, rather than the usually mild March WASDE. Some talk early on Wednesday of diplomacy between Germany's leader and Russian President Vladimir Putin gave some hope to the markets, sending crude oil sharply lower, despite more sanctions on Russian oil, and gave ag commodities a bearish tone.

One would expect that the typically conservative USDA will have further South American production cuts to come in the April report, and, should the war continue, we can expect further hikes in U.S. corn exports. However, as for Wednesday, the markets, led by wheat, appear to be in liquidation mode.

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

Follow him on Twitter @mantini_r

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