Latest USDA supply and demand numbers led by drought conditions in Argentina
By KRISS NELSON
The USDA Supply and Demand Report addressed some of the last numbers of the old crop season.
DTN market analyst Todd Hultman said report, released April 10, is considered an “in between report” from just coming off acreage estimates and a grain stocks report released on March 29.
“Everyone is eager to talk about the new crop season, but in April the USDA only addresses the old crop season,” he said.
Hultman said the only significant change in corn for this month came in with feed demand numbers.
“USDA dropped feed demand estimates by 50 million bushels to 5.5 billion bushels,” he said. “This is a modest drop in demand and gave us a slightly higher corn ending stocks estimate of 2.18 billion bushels, which was very close to expectations.”
For world ending stocks estimates for corn, the month’s estimate of 199.2 million metric ton (mmt) slipped down to 197.8 mmt.
This drop, Hultman said, can be accounted for numbers coming out of Argentina and Brazil. Argentina’s crop came down three mmt from 36 mmt to 33 mmt and Brazil’s estimated numbers came down from 94.5 mmt to 92 mmt.
He said numbers for the world demand estimate dropped as well, with a 5 mmt decrease.
Current corn shipments, to date, are 954 million bushels (mb).
“When we look at the pace of the previous four years, that puts us just over an annual estimate of 1.9 million bushels,” he said, adding there is still a possibility of close to 317 mb reduction in the ending stocks figure because of corn shipments.
“There is one reason to be a little optimistic about corn exports and that is because last year at this time, we were facing a situation where Brazil and Argentina had very large corn crops, so the second half of the season saw the increase in competition from South America and this year we’re getting smaller crops from both Brazil and Argentina, so we should see better than normal export pace compared to a year ago,” Hultman said. “It will still be a challenge as whether or not we meet USDA’s goal on that export estimate.”
As far as the corn markets are concerned, Hultman said one of the surprises he has seen is how well cash corn has done this year.
“When we go back and look at how much larger than expected the harvest was in the fall time and how it really took a long time for corn prices to start to pick up in the winter, it has really been helped by Argentina’s drought this year,” he said. “That has been a gift.”
He added there seems to be a bullish sentiment among non-commercial traders.
“The speculators of the corn market are carrying some of the most sizable net long positions on record for corn right now,” said Hultman. “That’s an aggressive bullish stand from non-commercial traders. A long as corn prices continue to hold steady or rise, that’s fine. But the concern is if at some point, something turns corn prices south. Then we have a large non-commercial position in there that will be under pressure to be liquidated, so that is very much of a concern to watch moving forward. So far, the corn market has been fairly well supported both by Argentina’s drought and expectations of a decent demand here in the second half of the current season.”
Last week’s USDA estimates for soybeans came in at 515 mb for ending stocks, down 5 mb from March’s report.
“And, quite frankly, it was a surprise it wasn’t larger, as we just came off a grain stocks report on March 29 that showed soybean demand at 6 percent in the first half of the current season,” Hultman said.
The USDA has estimated total soybean demand to be down just 1 percent for the entire year.
“They’re, for some reason, expecting pretty aggressive demand for the second half of the year,” he said, “and of course some of that can be attributed to Argentina.”
Hultman further noted that the ending stocks estimate was helped by a 10 mb increase in the soybean crush estimate.
“That’s not a big change, but we have seen a consistent increase in soybean crush as the crush incentives have stayed very high this year,” he said. “Even though exports have not done so well.”
Hultman believes the crush incentive has been some good news for soybeans this year and has also been among the highest producers have seen since 2002.
“What I mean by crush incentives is what’s the total return of what you get from crushing a bushel of soybeans into soybean meal and bean oil,” he said. “If we go by May futures prices right now, there’s basically a 22 percent return on crushing that soybean meal, which is one reason we’ve seen our crush estimates increase lightly the past few months.”
“That has been one favorable sign of domestic demand for soybeans. That has helped us get a right out of some export loss we have seen this year,” he added. “It hasn’t covered all of the loss, but been somewhat of a help. It’s some positive news on the soybean demand side coming from the U.S.”
This is also directly related to the drought in Argentina. According to Hultman, Argentina is the world’s largest exporter of soybean meal.
The USDA kept its export estimate for soybeans unchanged to 2.065 bb.
Hultman said the USDA is not addressing anything as far as trade disputes with China.
World ending stock estimates for soybeans were reduced this month from 94.4 to 90.8 mmt, which came in part largely due to the reduction in Argentina’s soybean crop, which is now being estimated at 40 mmt, down 7 mmt from a month ago.
“This seems to be a reasonable drop and certainly in line with what we have been talking about,” Hultman said. “This has been very tough on Argentina’s crops.”
At the same time the USDA is downgrading Argentina’s crops, Hultman said Brazil’s soybean estimates have been bumped up another 2 mmt from 113 to 115 mmt.
“That gives them another new record high crop if that estimate holds up,” he said.
Although Brazil is looking at a record harvest, Hultman said there is still a chance of a very slim carryover of soybeans at the end of the year, largely because of very aggressive buying from China and the continuation of China to try to favor Brazil’s purchases over the United States.
Recently, Argentina has been cited as one of the export buyers of U.S. soybeans, according to Hultman.
“That is something we almost never hear about,” he said. “Makes you wonder about their ending stocks estimate, the availability of soybean supplies within their country, that is causing them to make an export purchase from the U.S.”
“Maybe they just needed a one trick pony and we may never see that again, but it makes you wonder if Argentina’s soybeans have been crossing the border and being sold in Brazil,” Hultman added. “Those are questions to keep an eye on.”
The USDA marked Argentina’s ending stocks from 498 mb to 414 mb – the lowest Argentina’s ending stocks estimate has been in quite some time, according to Hultman.
So far, the USDA export estimate for soybeans is 2.065 bb and soybean shipments are totaling 1.53 bb.
“If we look at the usual pace of how the crop season goes, that would lead us to an annual export total of just under 1.8 billion bushels,” he said. “We’re still about 267 million bushels shy of the USDA’s estimate on that. And of course, with the trade dispute in China – as you know, they just proposed a 25 percent tariff on U.S. soybeans last week – a lot has gone on since then.”
Hultman said President Donald Trump responded with an even higher proposed tariff on our side, but on Monday, China’s president, Xi Jinping, came out and gave a talk on trade and seemed to make some concessions leaning towards the U.S. way.
“A lot of this comes down to the treatment of intellectual property rights,” he said. “China’s president said they will try to do a better job of enacting those laws which protect intellectual property rights of foreign firms. If they can make that happen, that may ease this whole tariff tension, but that’s still a big if right now.”
He said it might be in a rough way, but said producers can aim for an early July peak in cash soybean prices.
“June to early July is a time when you want to start considering getting out of your old cash soybeans or nothing else,” he said. “Be out by the Fourth of July because the tendency then is for it to go lower.”
Hultman said producers are seeing some of the highest prices of the year for soybeans.
“It’s remarkable seeing soybean prices as strong as they are given all of the trade tariff talk that’s been swirling around the markets,” he said. “As far as trader positions are concerned, a non commercial trader can see a pretty aggressive bullish holding right now from speculators in the market. That could be a potential concern if something would turn the trend, but right now, I don’t see that happening.”
“So far soybean prices have held up remarkably well given all of the concerns that we are seeing in the market right now.”
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