USDA’s monthly reports for October 2020 included smaller stocks for corn, soybeans and wheat for the U.S. versus a month ago. USDA trimmed production prospects for U.S. corn and soybeans mostly thanks to large drops in acreage. Corn acres were down 1 million while bean acres were off 700,000, which gives plenty of support to the bull story that the market has been trading for the past six weeks.
Production revisions for the 2019 corn/soybean crops also were included but were minor. All wheat production was revised lower, and 2019/20 wheat ending stocks were revised lower as well.
Carryout stocks fell to 2,167 MBU from last month’s 2,503 MBU mark. While that was above the trade estimate of 2,113, lower acreage helps set the stage for more production downgrades on yields. FBN believes Iowa yields could underperform based on where USDA’s estimates are today. Furthermore, USDA left corn exports unchanged, and FBN thinks there is a good case to see more upside here on bigger Chinese purchasing and a limited competitive position from South America. For Brazil and Argentina, corn production estimates from USDA paint a lofty target in light of early-season dryness and a firmly entrenched La Niña weather pattern. FBN expects futures prices to move solidly into $4 territory on the current outlook.
Carryout stocks of 290 MBU were well below trade estimates of 369 MBU and last month’s reading of 460 MBU. A 700,000-acre drop in acreage was one reason for the cut, but a 75 MBU increase in exports helped reduce stocks as well. Still, yield sits at a fairly lofty level of 51.9 bushels per acre. FBN’s yield estimate is lower at 51.1, and we think there is room for the yield number from USDA to come down slightly. USDA did maintain the Brazil and Argentina production for 2020, but raised Chinese imports by 1 MMT to 100 MMT. The key now is whether South America’s slow soy planting will persist for the next few weeks and open up more export opportunities for U.S. bushels. FBN looks for dryness to linger and the South American crop to be delayed, helping lift March futures.
The wheat balance sheet was less supportive than corn and beans. While U.S. carryout was reduced to 883 MBU versus the September estimate of 925 MBU, the world carryout grew thanks to increased Russian production. USDA added 5 MMT to the Russian crop to bring it to 83 MMT, which easily surpassed minor downgrades in Argentina, Canada and Ukraine crops.
Corn and beans are well supported moving into harvest, and fundamental values based on balance sheet estimates point to still higher prices. For wheat, it will likely take its cue from the broader market and continue to be influenced by the weather outlook for winter wheat plantings in the Northern Hemisphere.
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