USDA’s initial look at 2017-2018 crops
By KAREN SCHWALLER
The United States Department of Agriculture’s initial look at the 2017-2018 crop shows the corn futures market up slightly and soybean futures down slightly.
DTN Senior Analyst Darin Newsom said it doesn’t mean the corn market is bullish, and it doesn’t mean the soybean markets are bearish. It just means they are staying the course.
The report shows U.S. corn ending stocks near pre-report expectations, with world ending stocks mixed. It showed U.S. ending stocks for soybeans as smaller than expected, with world ending stocks larger than expected.
“I call it the ‘OCD versus the NCSD,'” Newsom said.
He explained “OCD” means “old crop demand,” because when the May report comes out, all the talk is centered around new crop production, “and in all honesty, they’re not going to change that much. ‘NCSD’ would mean “New Crop Supply and Demand.”
Newsom added the only change from the ending stocks number from the USDA February outlook through the May report is that old crop ending stocks have changed.
“It means new crop beginning stocks change and the ripple affect goes on,” he said, adding that old crop ending stocks change because of demand.
Newsom said old crop corn was down about 25 million bushels from the April estimate, and soybeans came in at 435 million bushels, just below the average pre-report estimate, and ten million bushels below the April estimate.
“When you look at the old crop ending stocks numbers, there is nothing overly traumatic,” said Newsom. “There’s a reason why the markets didn’t get overly excited – we saw about 10 seconds of trade interest in these reports.”
The corn supply and demand chart showed the only change in estimates was on the demand side for Food and Seed, which was up 25 million bushels.
“Watching the pace of U.S. corn exports, we’re running way ahead of USDA’s April projections going back to last October,” Newsom said. “We’ve been sitting at 2.225 billion bushels for quite some time, and going back to the beginning of the market year in September, export demand is running ahead of pace because Brazil ran out of corn last year. It opened doors for the U.S. to ship more corn than expected.”
He added the fact that the USDA left its demand projection unchanged raises questions, including a contra-seasonal slow-down in corn export shipments, meaning corn and soybean shipments were strong over the first half of the marketing season, and soybeans are strong to still gaining ground, where corn is starting to lose ground.
“Even though we’re still running well ahead of projections in corn, the 2.225 (billion bushel exports) number says there’s still concern that the gates are going to slam shut and we won’t move much more corn over the balance of the market year,” he said. “At some point exports are basically going to drop off to almost zero.”
He attributed this to the possibility of world demand going back to South America, and if so, it may have to do with issues including border skirmishes and currency values.
Newsom said of soybean supply and demand, demand was off 15 million bushels in crushings, exports were raised 25 million bushels, and everything else was left unchanged. Total demand was increased by 10 million bushels and ending stocks decreased by 10 million bushels. Ending stocks to use dropped slightly.
“I think the anticipation was that we would see more of a decrease in ending stocks and a larger increase in total demand in this May report. It could come later,” Newsom said. “History would tell us that USDA is still running high on ending stocks because it is underestimating demand.”
The number of acres planted to corn acres remained unchanged, along with harvested acres, production, yield and imports. Beginning stocks were down from the March report, as was total supply. The demand side showed feed and residual down slightly from the March report, food/seed and ethanol up slightly, exports down slightly and total use increased. The table showed ending stocks down from the March report, and stocks to use down to 14.8 percent, compared to 16.3 percent in March estimates.
The average cash corn price is pegged at $3.40, 10 cents per bushel lower than earlier estimate reports.
Newsom said the market is going to have to deal with five years of record high corn production.
“It’s going to be very hard to get these markets to rally unless we see this production number pulled back over time,” he said. “This doesn’t seem like a bearish situation … but we are going to have to keep our demand strong.”
The soybean side showed planted acres down very slightly, harvested acres and yield estimates unchanged, production very slightly increased, beginning stocks down considerably from the March report, imports unchanged and total supply down from the March report.
Soybean demand tables showed crushings and exports up slightly from March, seed increased, residual down and total use up slightly. U.S. soybean ending stocks came in at 480 million bushels, considerably higher than USDA’s early outlook, but considerably lower than the March estimate. Stocks to use came in at 11.3 percent, up from the early outlook report of 10 percent, but lower than the March estimate of 12.8 percent.
The average soybean cash price comes in at $9.30 for May, 30 cents per bushel lower than the early estimate report.
Newsom said U.S. soybean production has also seen five years of record yields, yet ending stocks have not seemed to stay as bearish, due to strong global demand, particularly from China.
“Barring any trade war … it seems we are shipping a lot of soybeans and should continue to do that over the last part of the ’16-’17 market year, and going into the ’17-’18 year,” said Newsom.
He added he expects corn production to decrease worldwide this growing season, and said projections for continued corn demand growth will be a positive for the upcoming corn market.
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