USDA’s May report neutral for corn; neutral to bullish for beans
By KRISS NELSON
The USDA’s World Agricultural Supply and Demand Estimates and Crop Production reports, released on May 10, brought a few surprises.
But as Todd Hultman, DTN grain marketing analyst, advised, when it comes to any new crop estimates, there is a long ways to go, as planting in most areas has just begun.
“It’s a little tough to give them much weight just yet until we get further into the season,” he said.
Hultman is calling May’s report from the USDA “neutral for corn.”
“With U.S. estimates, overall, were close to expectations,” he said. “The world new crop stocks were less than expected, but we will have to see if time can live up to that. And U.S. export demand was unchanged, so the USDA is staying firm with that aggressive export estimate for corn.”
He added new crop production estimate for corn is the corn estimate for the new crop season, and is based on a prediction of a 14 billion bushel (bb) crop.
“Personally, I think that is a little low of a total to start with,” he said. “We don’t have our plantings quite figured out yet. They can still be around 90 millions acres or a little above. Then, of course, the yield is always going to depend on weather and how the crop season goes.”
Looking further into the new corn crop season, the USDA is showing less feed demand at 5.37 bb, but is looking for a little higher ethanol demand at 5.625 bb. Exports are expecting to be a little less with 2.1 bb.
Average farm price with the new crop season is being estimated at $3.30 to $4.30 a bushel.
“We might laugh a little at how wide of a range that is,” said Hultman. “But at least I will give them (USDA) some points for acknowledging the uncertainty of the new crop numbers and reminding us that, yes, we do have a long ways to go before we know much more about this season.”
He added old crop season corn is showing ending stocks of 2.182 bb, a number that is unchanged from last month.
World crop corn estimates are made up of the old crop season and are also including South American numbers, where Brazil is currently growing its second corn crop.
Brazil, according to Hultman, has a production estimate of 87 million metric tons (mmt) which is down 5 mmt from April.
In the case of Argentina, its corn crop estimate stayed unchanged at 33 mmt. The drought that country has been going through this year, Hultman said, is factored into that estimate.
The world ending stocks for this current season came in just under 195 mmt, which Hultman said was expected, but is still down 3 mmt.
He attributed the drop to being a result of Brazil’s smaller corn crop.
The forecast for Brazil continues to look mostly dry which, according to Hultman, is something that he will continue to monitor and could come into play for future estimates.
As far as new crop ending corn stalks, the USDA is starting with that estimate of 159 mmt. That’s a drop from the current 195 mmt and is also much less than what the market was expecting, according to Hultman.
“It’s quite a bullish surprise,” he said. “With new crop ending corn stocks, to reach out that far for world production and world demand, we’re reaching a long ways.”
Current year-to-date shipments are just under 1.3 bb and the, according to Hultman, the USDA claims we’re on our way to a 2.225 bb estimate for the current season.
“The one thing I need to say about this, is that corn shipments have picked up fairly well in the past month,” he said. “This pace has been continuing to improve the last three to four weeks and there is still a possibility we can come in very close to the USDA’s estimate and, by all means, the drought that is currently being experienced in Brazil is helping to encourage more corn exports from the U.S. Anyone concerned about supplies has a little more motivation to turn to the U.S. right now.”
New ending stocks estimate for the old crop season is 530 mb, with a 20 mb increase in the soybean crush estimate.
“We’ve been talking about the crush incentive being very strong this year,” he said. “And that comes from meal and bean oil prices together, especially this year, because of Argentina’s drought.”
New crop soybean numbers are being estimated at 4.28 bb, which Hultman said is down just slightly from last year, but also in line with what the market was expecting.
“The USDA is expecting 5 million bushel more of crush than what we’re seeing this year, and they’re expecting 225 million bushels more of exports in the new crop season than what the USDA is predicting this year,” he said. “It seems a fairly optimistic estimate that the USDA expects China to be back in the U.S. markets in the new crop season. We will have to see how that plays out. As of right now, those trade talks remain in limbo.”
The ending stocks estimate for the new soybean crop season was made at 415 mb. This, Hultman said, was helped by a fairly large increase in the total demand estimate of 4.42 bb.
“The USDA is trying to tell us, in the new crop season, we are going to have a lot of demand to live up to so it is very important for this year’s crop to come through as expected,” he said. “On the other hand, we might say that those demand estimates are optimistic, but at this point, time is going to have to prove it one way or another. It is very difficult to predict this early in the year.”
Price estimates for new crop soybeans are $8.75 to $11.75.
“Like corn, it’s a wide range,” said Hultman. “Kudos, I guess, to the USDA for at least acknowledging there is a lot of uncertainty in this brand new May estimate.”
Old crop ending stocks for the world were up slightly to 92 mmt. Hultman said Brazil had an increase from 115 mmt last month to 117 mmt, another record-high estimate.
Argentina’s soybean ending stocks numbers were reduced to 39 mmt, which, Hultman said, helped to offset the increase seen with Brazil’s numbers.
New world ending stocks estimate for the new crop season are estimated at 86.7 mmt for next year. Hultman said that’s about an 3.5 mmt drop they are expecting for next years.
“China’s appetite for soybeans continues to be very strong and aggressive, or at least that’s how the USDA is seeing it for the new crop season head,” he said.
Hultman said soybean export numbers remain unchanged from April’s numbers at 2.06 bb.
“That is a bit of a surprise, as we see our soybean export pace is not on track with those 2.06 billion bushels right now,” he said. “This has been a real critical number all year and I contend it continues to be an important number, and the question is, we are going to be able to maintain old crop soybean prices at the levels they are at with lower export pace we have seen this year.”
He continues to see a potentially bearish concern in the old crop soybean market because chances are those ending stocks numbers will probably go higher. If it does, he said it will have a bearish influence on new crop stocks.
“Fundamentally, I still think old crop soybean prices are going to be under pressure as we move forward,” he said.
Of that current export estimate, Hultman said the U.S. has shipped just over 1.6 bb.
“If we look at the four year average pace for soybean shipments, that projects out to just 1.8 billion bushels of exports,” he said. “So, in other words, we’re 215 million bushels short of USDA’s ending stocks estimate, so it’s possible instead of 530 million bushels of ending stocks as the USDA estimates, we could have something closer to 780 million bushels of ending stocks or somewhere in between, depending on how things go.”
He said this is an issue because soybeans are not in the same situation as corn – shipments have not picked up their pace the last several weeks.
The crush margins, Hultman believes, are just as strong as they were a month ago.
“These are some of the best incentives for processors to crush soybeans that have been seen since the early 2000s,” he said. “There is a 24 percent return on the crush. That’s extraordinarily high and it’s one of the things that we have been going for soybean prices this year. Helping U.S. demand and, of course, we saw that 20 million bushel increase in the crush estimate today from the USDA. That continues to be one bullish factor that has helped offset the lower export pace we have seen this year.”
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