Quarterly stocks report
By KRISS NELSON
The quarterly stocks report and planted acreage update was released on June 30.
According to DTN senior analyst Darin Newsom, the corn market is appearing bearish, while he said he would like to go out on a limb and label the soybean market as bullish right now.
“Looking at the corn numbers, I call them bearish. We had larger than expected ending stocks and the acres were also larger than expected, but right now the key is weather. That’s what is driving this thing and will continue to drive this thing until we see an actual shift in the weather pattern,” he said. “With soybeans, stocks are smaller than expected. We’re expected to see ending stocks still around the 400 million bushel (mb). I think it could get smaller and that all depends on the pace of exports over the last couple of months. Acres were less than expected, but those most likely are expected to go up, but that doesn’t necessarily mean a bearish situation.”
U.S. grain stocks for corn, as of June 1, came in at 5.225 billion bushels (bb).
Those numbers, Newsom said, came in a little above average of what was previously predicted.
“I have said those quarterly stocks needed to come in at 5.15 bb to be on pace with the USDA’s June projected ending stocks number, so the fact that we are showing 5.225 bb, following three quarters where he had extraordinary demand, doesn’t really bode well with the USDA’s current ending stocks estimate for the 2016-17 marketing year,” said Newsom. “It all stems from the quarterly stocks and now we are three-quarters of the way through and we just didn’t use as much as corn as we needed to, to comfortably say we are still on track with the USDA’ s projection.”
However, he added this number is not a surprise and is also a record large June 1 quarterly stock number.
“The fact we came in at 5.225 bb is record large, as you can see, is not a surprise,” he said. “Maybe the only issue looking at quarter three stock’s number is the fact that this, again, is we came in above what it needed. It is not necessarily what was guessed, not necessarily record stocks, or any of this, but it is that we came in above what is needed in the June 1 quarterly stocks figure of 5.15 bb, that’s where the problem came in. That’s why the market, or at least the initial reaction of the quarterly stocks number for corn leans bearish.”
Newsom said quarter three demand for corn was actually strong, but needed to be a little bit stronger.
“We needed to be better than 3.5 bb of stocks disappearing in the third quarter to keep us on track and not having our U.S. ending stocks number growing any larger,” he said.
Although the quarter one to quarter three demand for corn was good, Newsom said the issue is that export shipments, although running ahead, what is needed each week to stay on that pace with the USDA’s projected demand has been narrowing.
“The fact that we are slowing these shipments down and we are starting to lose ground at this time like last year and if we continue to see that over the balance of the fourth quarter, that’s where the estimate of that we’re going to see such a stronger demand of ’16- ’17 over ’15- ’16, maybe that doesn’t necessarily play out,” he said.
Newsom said he is projectng U.S. ending stocks for corn to be just short of 2.4 bb. This projection, he said has come down because of that stronger than usual quarterly demand, but that is still larger than the USDA’s ending stocks prediction.
“We’re about 92 mb off. It’s not huge, but it is important when you look at the projected ending stocks use of 16.4 percent, and that is burdensome to the market,” he said.
Due to the large ending stocks that are on hand, and taking a look at all of the aspects involved, Newsom predicts that the market looks overpriced.
“That is something that corn is going to have to fight through over the next few months,” he said, “What’s interesting today, really, with the release of this report, is we crossed that threshold basically moving from any residual concern we have over old crop and immediately turn our attention to new crop, because these old crop ending stocks now become new crop beginning crops. This report, in the corn market, probably lasted maybe 10 seconds.”
The lacking of effect of the report onto the corn market, Newsom said, is traders are already back to watching the weather.
“Commercial selling is hitting the old crop, as it should,” he said. “But new crop corn market is actually seeing some commercial buying and it has nothing to do with the acres number, but everything to do with weather. We have already flipped the page from old crop to new crop and this report is already gone and we’re focusing our attention back to weather.”
There is such a variety of opinion of what reality looks like and what the USDA estimates normally are, Newsom said of the quarterly soybean report.
Newsom said the soybean quarterly stocks report for June 1 came in at 963 mb. The average pre-report estimate was on the high side up around 1.119 mb.
“The 963 mb is a large number, but not a cumbersome number, or at least not judging by the market’s initial reaction,” he said.
Much like corn, Newsom said soybeans also had strong demand during the third quarter.
“It looks to be about the second largest demand that we have on the record books,” he said.
That strong demand did help, but Newsom pointed out, it is the third quarter where U.S. shipments really losty ground from what comes out of South America, predominately Brazil.
“For this year, yes, our shipments have slowed. It’s just going to happen, but we are still running well ahead of last year,” he said.
The USDA, according to Newsom is projecting a 6 percent marketing year to marketing year increase and shipments are actually running 20 percent ahead of those estimates.
“We’re not losing ground from last year, but we are holding steady at that 20 percent ahead of last year’s mark to meet this year’s export demand projections. It’s a pretty solid number. If we can continue this, I think it projects some very interesting developments for old crop soybeans down the road,” he said.
When it comes to old crop soybeans, Newsom said he believes all eyes have to stay on the pace of demand.
“That’s the telling sign,” he said. “If we continue to run 20 percent of last year, we are going to easily out distance the USDA’s projection.”
But for that to happen, he added, the shipments of old crop soybeans must continue and keep an eye on the last couple of month’s unshipped sales.
“What we want to see are those whittle away so we’re not faced with the possibility of large cancellations coming in to the new year, we need to use up and ship as much of those old crop sales as we can to take potential pressure off of the new crop demand market,” he said.
As far as ending stocks in soybeans, Newsom concluded there are still a lot of factors to watch within the soybean market.
Planted acres update
“Here’s where all of the fireworks were supposed to come in,” Newsom said of the planted acreage report.
There were expectations, he said, of larger soybean acres over corn and that was not the case, as corn acres actually saw the increase at 90.9 million acres.
This, he said, does not appear to have affected the market.
“Traders have already moved on,” he said. “They are already looking at weather. They realize these acreage numbers are nothing more than guesses.”
Newsom said it could be October, November, or possibly not even until next January before final acreage numbers are calculated.
“The acreage numbers by no means are set in stone right now, we could still see soybeans coming in larger than corn, and that’s not all bad and not at all bearish if we do,” he said.
In the meantime, the idea, Newsom said, there are still more corn acres planted than what was expected and probably would weigh on the market if the weather decided to cooperate as it has, the last four years.
Newsom said the soybean acreage number of 89.51 million acres is up only slightly from the March 31 prospective planting numbers.
“We were looking for something around 90. There was chatter out there possibly 92, which would have been above the high side of the estimates, and we just didn’t change it,” he said.
After the report, Newsom said there was an upward rally of the bean market which the report had something to do with as did other factors, including weather.
There was a lot of discussion of the possibility of more soybean acres planted in 2017 than corn acres, which Newsom said would have been the first time this has happened since 1983. He added that final acreage counts will not be available until later this fall or possibly at the new year, so this scenario could still happen.
With the potential of more soybean acres versus corn acres in the U.S., Newsom said it is time to look at world demand.
The world demand for corn, he said, in the last 40 years, has grown from 360 metric ton (mt) to over a billion mt.
“That’s an incredible demand,” he said.
World soybean demand, he further explained, as grown from 60 mt upward towards 400 million mt.
“Just look at the numbers, look at the shear size,” said Newsom. “That world corn demand is saying we gotta have more acres, we gotta have more production, more this and more that, but what if we put this on a level playing field? What if we studied percent change over the last 40 crops? Does that change the perception of what crop needs to see more acres to meet the growing world demand,”.
U.S. corn acres, he said, have gone up only about (7) percent since the 1976-77 marketing year while soybeans acres have increased by 78 percent.
The U.S. yield is roughly the same, he said, with both crops basically doubling over the last 40 years.
“Here is the interesting aspect. Here’s why I don’t think a larger soybean number is as bearish as everyone else does,” he said. “World demand has grown almost 450-percent. Corn, it’s gone up about 200 percent, so, global soybean demand shows needs for more soybeans. It’s very simple so the fact that the U.S. may plant a larger area to soybeans is not reason enough to make it as bearish as everyone wants to make out.”
Newsom said he is very interested in those final acreage numbers and still stands his ground that he will not be bearish on soybeans as a lot of others are at this point.
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