I know it's my own fault, but another WASDE report has come and gone, and I'm feeling like Charlie Brown after Lucy pulled the football away again. Why didn't USDA raise its estimate of U.S. corn exports? Arghh!
Okay, to be honest, I've been around long enough to know USDA estimates aren't required to make sense, but of all the things in February's World Agricultural Supply and Demand Estimates, this one seems the least defensible.
As of Groundhog Day 2017, USDA shows 819 million bushels of corn already shipped in 2016-17 with another 802 mb of sales on the books. Total the two numbers and we find corn exports and sales up 67% from where they were a year ago at this time. However, USDA's export estimate for all of 2016-17 is up just 17% from last season's 1.898 billion bushels. Why the big gap?
Playing USDA advocate, we could say USDA is erring on the side of caution and, after all, we don't know how Mexico, the biggest U.S. corn customer, is going to respond to President Donald Trump's attempts to reform NAFTA. On the other hand, NAFTA is not going to be renegotiated overnight, and the current export season only has a little more than six months left.
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It could also be said USDA is reluctant to hike its export estimate while Brazil's crops are doing well. Brazil's government just estimated its corn crop at 87.4 million metric ton on Thursday, up from last year's 67.00 mmt. But that argument also doesn't go very far. Even in a good year, Brazil's corn exports don't typically pick up until July, which means that U.S. corn exports still have at least four more months of active business.
One year ago at this time, USDA showed 490 mb of corn shipped, which means that 1.408 bb of corn were shipped in the final 6 3/4 months of the season. This year, 819 mb of USDA's 2.225 bb estimate have already been shipped, meaning USDA expects no more corn will be shipped from this point on than what we saw last year.
But if we compare the two years, 2016-17 clearly has the more bullish edge. This year, Brazil's real is 27% more expensive, leaving U.S. corn prices with a significant export advantage that was not there a year ago.
The February issue of Grains: World Markets and Trade from USDA's Foreign Agricultural Service shows FOB corn prices at $168 a ton in the U.S. in early February, significantly below FOB prices around $180 a ton in Brazil and Argentina. USDA noted that Argentina's forward prices from March onward are competitive with the U.S., but until they become cheaper, U.S. exports are likely to remain active.
Granted, acknowledging a 200 mb increase in corn exports would not make a big dent in USDA's 2.32 bb of ending stocks and the impact on prices would likely be small. But with cash corn prices in the low $3s, even small changes matter and the evidence is there. For 2016-17, USDA's ending corn stocks estimate is too high.
Todd Hultman can be reached at firstname.lastname@example.org
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