Jan 14, 2020
At Farmers Business Network℠, we believe that the January 10 WASDE report was neutral to slightly bearish for corn and soybeans as the pre-report estimates were looking for larger reductions in the production and ending stocks figures than the USDA reported. We believe that the USDA’s all-wheat and by-class ending stocks figures were neutral and in line with the pre-report estimates.
We believe that the USDA’s reported corn supply and demand figures relative to the pre-report expectations presents a bearish/neutral outlook for corn. The USDA reported the 2019/20 corn production of 13.692 billion bushels (BBU) compared to the pre-report estimate of 13.513 BBU and the government’s 13.661 BBU estimate in December. The changes in production along with the adjustments increase of 230 MBU of domestic demand takes the USDA’s 19/20 carryout to 1.892 BBU or -18 MBU from the December WASDE. The ending stocks figure of 1.892 BBU compares to the pre-report estimate of 1.757 BBU.
The USDA reported their national corn yield at 168.0 BPA and harvested acres at 81.5 million acres (MA). This compares to the pre-report estimates of 166.2 BPA and 81.350 MA. The USDA reported yields at 167.0 BPA and harvested acres of 81.815 MA in the November WASDE report.
Note: The USDA did not conduct or publish an updated corn yield or acres survey for the December WASDE, so the January figures are compared against the USDA’s data from the November Crop production report.
Normally, the USDA’s corn yield and harvested acres figures in this report are considered to be the government’s final production numbers of the marketing year. To accommodate the slow harvest pace in Michigan, Minnesota, North/South Dakota and Wisconsin, the USDA announced that the government will “re-contact” individuals that had not harvested corn in December in the “early spring” for harvest updates. The USDA further stated that if new data warrants any production changes, the government will adjust the related variables at a future date.
The government reduced the national yield from the November Crop Production report for Nebraska, North Dakota, South Dakota and Mississippi. Yields in Kansas and Nebraska were left unchanged from the November report. Corn yields were raised in Iowa, Illinois, Indiana, Minnesota, Ohio and Wisconsin. The USDA generally raised the final corn yields in most secondary and tertiary corn producing states, which we believe was instrumental in helping push the final yield figure higher from the November report.
The USDA lowered export demand by 75 MBU from December as lackluster export sales for most of the marketing year have been a source of concern. The USDA lowered FSI demand by 20 MBU and left the corn for ethanol use figure unchanged from December. Feed and residual demand was raised by 250 MBU. The USDA’s December Cattle on Feed and the Quarterly Hogs and Pigs reports, combined with weekly broiler egg sets and chick placements were all at or close to record levels.
With the 2019/20 ending stocks number declining by 18 MBU from December to 1.892 BBU, the USDA’s ending stocks were 135 MBU higher than the pre-report estimate of 1.757 BBU. We believe that the 1.892 BBU ending stocks number is not tight and is the sixth largest carryout since 2000. The 1.892 BBU carryout is psychologically important as the figure is below the 2 BBU level for the first time in three years.
Pre-report estimates for CONAB, Brazil’s national statistics agency and private forecasters, are estimating Brazil’s corn production at 96-99 MMT. The USDA’s production estimate is unchanged from December and tied with the 101 MMT bumper crop from last year. Argentina’s production is left unchanged at 50 MMT and is 1 MMT below the 51 MMT bumper crop last year. Last year, Argentina and Brazil combined produced a record 151 MMT corn crop. The January report made no changes from December to China but raised Ukraine’s export estimate by 500,000 MT to a record 30.5 MMT.
At FBN, we view the report as neutral to slightly bearish prices because the current ending stocks for U.S. corn is neither tight nor loose. We believe that USDA’s cutting export demand while adding to the feed and residual demand is correct and aligns with the data. With the supply side of the 19/20 corn crop “in the books,“ the market will now shift focus to the demand side of the balance sheet along with developments in Brazilian and Argentine corn production and exports.
We believe that the USDA’s reported soybean supply and demand figures relative to the pre-report expectations present a neutral to slightly bearish outlook for soybeans. The USDA’s reported 19/20 soybean production figure of 3.558 billion bushels (BBU) compared to the pre-report estimate of 3.512 BBU was bearish. The changes in production along with no adjustments in the demand side of the equation leaves the USDA’s carryout steady at 475 MBU. This compares to the pre-report estimate of 424 MBU and unchanged from the 475 MBU reported in the December WASDE.
The USDA reported their national soybean yield at 47.4 BPA and harvested acres at 75.0 MA. This compares to the pre-report estimates of 46.6 BPA and 75.462 million acres (MA). The USDA reported yields at 46.9 BPA and harvested area of 75.462 MA in the November WASDE report.
Normally, the USDA’s soybean yield and harvested acres figures in this report are considered to be the government’s final production numbers of the marketing year. To accommodate the slow harvest pace in Michigan, North Dakota and Wisconsin, the USDA announced that the government will “re-contact” individuals that had not harvested soybeans in December in the “early spring” for harvest updates. The USDA further stated that if new data warrants any production changes, the government will adjust the related variables at a future date.
Overall, the USDA’s final soybean yield figures in Illinois, Iowa, Nebraska, Ohio, Indiana and Wisconsin were raised from December, while yields in Michigan, Minnesota, and North/South Dakota were lowered and Missouri was unchanged. Across the Delta, yields were mixed.
The USDA made no changes to their crush or export demand figures in the January report. The government left soybean meal and soybean oil demand static from the December report as well.
Despite the incremental 8 MBU increase in production from December, the 475 MBU carryout is realized by a slight increase in beginning stocks for the 19/20 marketing year and a decline of 5 MBU in imports. The 475 MBU carryout is the fourth largest stocks on record but 438 MBU below last year’s 913 MBU figure.
Pre-report figures showed that CONAB estimated Brazil’s soybean bean production from 121.7-124.3 MMT. Last year, Brazil produced a 117 MMT crop, which was the second largest production on record. At 121 MMT, the 2017/18 crop is the largest on record. Pre-report estimates pegged Argentina’s soybean crop at 49.59 MT, which is a hair below the 50 MMT from last year. The USDA left Argentine and Brazilian soybean supply and demand estimates intact from December at 53 MMT and 123 MMT, respectively. The government also left Chinese imports unchanged.
We believe that the USDA’s treatment of the supply and demand side of the balance sheet presents a fundamentally neutral/slightly bearish report. At 475 MBU, ending stocks are 438 MBU lower than the 2018/19 marketing year, but the number is still accommodating. With the supply side of the 19/20 year “in the books,” we shift our attention to the demand side of the balance sheet and the upcoming Jan. 15 signing of the Phase 1 trade agreement between the U.S. and China.
The pre-report analyst estimates were looking for a slight 5 MBU decline in the all-wheat carryout to 969 MBU. Given the incremental changes to the ending stocks, we believe the report was largely neutral for U.S. wheats. The USDA estimates a 965 MBU all-wheat carryout as the all-wheat feed and residual figure was raised by 10 MBU to 150 MBU. The government made incremental changes to the by class ending stocks figures from December. The USDA also lowered HRW exports from December by 5 MBU, which is offset by a 5 MBU increase in durum exports. HRS domestic use rose by 5 MBU while SRW domestic use was cut by the same amount.
Overall, we believe at FBN that the changes to the USDA’s foreign balance sheets were incremental, and at the moment do not represent material impacts for the U.S. The USDA cut Russian exports by 1 MMT but offset some of this loss by raising Ukraine exports by 500,000 MT. EU exports were raised by 2 MMT, but no changes were made to Argentine or Canadian exports. The government lowered Australian wheat production by 500,000 MT and reduced the export figure by 200,000 MT.
As expected, we believe that the USDA’s reported WASDE was a neutral event for the U.S. wheats. With all eyes focused on the government's 2020/21 winter wheat seedings report, we believe that the estimated HRW and SRW ending stocks have become a focus for the trade. We still remain focused on the export pace from Russia and the Black Sea and are interested to see how the newly implemented export tariffs on Argentine wheat exports can shape and influence U.S. wheat exports and the HRW balance sheet in upcoming months. Lost export volume from Australia along with the possibility of the Phase 1 trade agreement between the U.S. and China, which will provide export opportunities for the U.S., are also a focus for FBN.
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Jan 14, 2020