February WASDE report a ‘much anticipated report’
By KRISS NELSON
The recent federal government shutdown has caused the agricultural commodity markets to be full of speculation while awaiting final crop numbers and an export update from the USDA.
Last Friday, the USDA released its World Agricultural Supply and Demand Estimates (WASDE) for the first time since December.
In examining the report, Todd Hultman, DTN grain market analyst, said corn is neutral to bullish and soybeans neutral.
“This has been a much anticipated report,” he said.
Along with the February WASDE report came the final yields for corn and soybeans in the U.S.
Hultman said the USDA corn crop estimate for 2018 is 14.42 billion bushels (bb) and a base yield for corn at 176.4 bushels an acre.
Harvested acres were trimmed down slightly from 81.8 million acres to 81.7 million acres.
“These numbers were slightly less than the expectations,” he said. “Of course, everyone probably remembers the wet fall harvest conditions our producers had to contend with this year and it is directly related to that.”
There were some slight changes in demand.
“Probably no surprise to anyone, the demand for ethanol was reduced by 25 million bushels. We went to 5.6 from 5.75 million bushels,” he said. “If you have been reading our daily comments, you know that profit margins at the ethanol plant have really been suffering this year. And demand for ethanol has been down. We are starting to see that in the production pace of ethanol.”
He added feed estimates for corn also fell from 5.5 million bushels (mb) to 5.375 mb.
“I don’t think that is due necessarily to any less feed demand in general,” Hultman said. “I think we are getting more competing supplies, for instance from sorghum where exports have been down as China has not been importing the normal amounts of sorghum they have previously.”
The ending stocks estimate for corn dropped slightly from the December estimate of 1.78 down to 1.735 bb, putting the U.S. slightly under 12 percent of annual use.
Corn export numbers remained unchanged. The USDA kept those numbers at 2.45 bb despite the actual export pace for corn has been running higher.
So far this year, Hultman said corn exports are up 19 percent and, if this pace continues, that would put the U.S. on track to export 2.9 bb but the reality is with the case of corn exports, they will more than likely moderate moving forward.
“It’s still important to note that corn exports are doing well and there is a chance for future exports estimate increases in future WASDE reports,” he said. “We could have good news ahead, or bullish news for corn ahead when it comes to export demand.”
The USDA increased its world ending stocks for corn slightly from 308.8 to 309.8 million metric ton (mmt).
“Those numbers didn’t change too much except for a sizable increase for Argentina’s corn from went up from 42.5 to 46 million metric ton,” he said.
There was also a slight increase for the Ukraine’s ending stocks for corn, whereas Brazil’s corn crop stayed unchanged at 94.5 mmt.
For Dec. 1 grain stocks, the USDA found 11.95 bb of corn on hand. That number is less than what was expected, as Hultman said the trade was looking for 12.1 bb.
These numbers, he added, show there was a record demand for corn in the first quarter of this 2018-2019 season.
Hultman said “4.86 billion bushels of use in the first quarter of the current season is the most we have ever seen and we have to say thanks to the good exports. And, of course, part of that was related to last year’s lower corn crop’s production we saw in South America.”
“The fact that the Dec. 1 corn stocks were less than expected was a very good sign and I think also tails with the fact we have had a very good export pace – which I think is better pace than the USDA is giving it credit for – so far in the figures.”
Hultman is calling the February WASDE soybean report neutral overall.
“U.S. ending stocks did not change much, the crop estimate came down a little bit,” he said. “But there was a bullish surprise on the world side which came largely as a revision to a previous year for us and the USDA did acknowledge Brazil is going to have a smaller crop this year.”
However, when you look at the total of Brazil and Argentina’s acres, Hultman said producers are still looking at a very big harvest and there are going to be a lot of soybeans to compete with in the year ahead.
The new crop estimate for soybeans came in at 4.544 bb, while the new yield estimate came down from 52.1 to 51.6. This, Hultman said, can be attributed to the poor fall harvest conditions as well. Harvest acres also came down slightly from 88.3 to 88.1 million acres.
He said the two main drivers of soybean demand are crush and exports. Both of those saw minor changes in the February WASDE report.
“Crush was increased 10 million bushels and crush margins continue to be profitable for soybeans,” he said, “so that helped them increase their demand pace there.”
However, it’s a different tune being sung when it comes to soybean exports.
“When we look at soybean exports, they have not been keeping up with expectations and the USDA reduced their export estimate by 25 million bushels today,” said Hultman. “That’s a bit of a surprise to me.”
The surprise, Hultman said, doesn’t come in the fact that the export numbers were reduced, but rather that the USDA released that number due to the fact there is such a back log of export sales data.
“One of our concerns moving forward is that when we get the updated version of the export sales data and it includes the recent Chinese purchases we have been hearing about,” Hultman said, “we are still going to be looking at some very high ending stocks estimates.”
Ending stocks estimates are a little lower but came in fairly close to expectations.
The USDA’s estimated ending stocks came in at 910 mb.
“That is still a very high total and still the highest we have seen on record breaking the old 2006-2007 record,” he said. “We are still facing a lot of ending soybean stocks.”
The one factor Hultman said still in play is the trade talks with China.
He believes the world ending stocks estimate for soybeans brought a surprise, coming in under 107 mmt.
“This is where there was a bullish surprise today for the soybean market,” he said. “The ending stocks estimate from the USDA dropped from 115 down to just below 107 million metric tons.”
Part of this was due to a revision of the earlier season. Hultman said they made an adjustment that started out with lower beginning stocks in today’s report. The other part of today’s improvement for soybean world numbers came from Brazil’s crop estimate, where USDA lowered its harvest total from 112 to 117. That’s a fairly conservative estimate for Brazil, according to many of the private crop estimates that has been seen lately.
Another point to note on the world estimates for soybeans, Hultman added, is that the USDA dropped China’s estimate of soybean imports in this current season from 90 to 88 mmt.
“That had been widely talked about,” he said. “Some were even looking for China’s imports to drop to 85 million metric tons, but the USDA came down to 88 million metric tons.”
How are soybean exports doing?
Hultman said that is very hard to tell due to the fact that data is only updated through Dec. 27. Those numbers are expected to be updated on Feb. 22 when USDA is holding its ag summit.
“That will be a busy day, but until then, this is what we know. Current soybean shipments as of the 27th of December are down 40 percent from a year ago,” he said.
Total export commitments are down 24 percent from a year ago.
“We are still lagging last year’s pace by quite a margin,” he said.
Since the last report on the Dec. 27, Hultman said producers have been hearing quite a bit about China’s purchases and the general estimate or rumor seems to be that China as bought 10 mmt which is just less than 370 bushels.
But that is a far cry from the country’s usual U.S. soybean purchases.
“We are still going to struggle, I think, to make that export estimate this year and that’s one of the concerns we have moving forward about soybean supplies,” he said.
One of the brighter spots Hultman feels farmers have going for soybean demand is soybean crush.
This is due largely to Argentina being out of business for awhile since they had a drought early last year.
“We have picked up a lot of that business and it certainly helped,” he said.
The soybean stocks Dec. 1 report came in at 3.74 bb, which Hultman said was slightly higher than the trade was looking for.
“Trade was looking for 3.69 billion bushels, so, once again, we are seeing that this basically shows that we had some very sluggish demand in the first quarter of this current season,” he said. “Demand came out at 1.33 billion bushels for the first quarter. That is the lowest we have seen in six years.”
He believes the demand indicators for soybeans are not very strong, despite seeing better export activity since December, with China getting more involved in the market.
“Those trade talks mean so much to the future of soybean prices and it is hard to guess which way it is going to go,” he said.
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