April’s WASDE report bearish on corn and neutral on soybeans
By KRISS NELSON
Todd Hultman, DTN lead analyst, labeled the World Agricultural Supply and Demand Estimates (WASDE) report released last week a “formality” and that there usually aren’t a lot of surprises given in the estimates in April.
“But that doesn’t mean numbers don’t change,” he said. “Most of the changes we are going to see are related to the March 1 grain stocks estimates we got on March 29.”
The April report, Hultman said, includes numbers that are entirely related to the old crop season.
“We are just talking about 2018-2019. There is no mention of new crop season in this particular WASDE report,” he said. “We will get those new estimates in May, in just a month from now.”
The March 1 grain stocks report was a very important indicator of demand and that pushed through to ending stocks estimates in the most recent WASDE report, Hultman said.
Old crop ending stocks estimate for corn
The corn ending stocks estimate was increased to 2.035 billion bushels (bb) which is up from 1.835 bb in March.
“That was expected because in the March 1 corn stocks report, we had higher than expected supplies of corn tallied in that particular report,” he said.
U.S. supply and demand estimates
None of the estimates on the supply side for corn changed, according to Hultman.
“We are still looking at a 14.42 billion bushel crop for the 2018 season,” he said.
However, it was a different story on the demand side.
“We did have changes in all three demand components for corn today coming from that March 1 stocks total,” he said.
For the demand of feed use, the estimate was reduced in corn from 5.375 bb to 5.3 bb.
“That was a bit of surprise,” he said. “I think most of us know feed demand for corn has not held up so well this year.”
The demand for corn to be used in ethanol was reduced 15 million bushels (mb) to 5.5 bb for the year and the corn export estimate was also reduced down to 2.3 bb.
“All three of our grains continue to be at risk of lower export totals as the season goes on,” said Hultman. “Put those lower demand estimates together, we have a 200 million bushel increase in the ending stocks estimate today. We are very close on the heels of where we were a year ago.”
World corn ending stocks estimate
The world ending stocks estimate for corn came in at 314 million metric tons (mmt), which is also an increase from last month.
The increase, according to Hultman, is due to crop estimates from Brazil and Argentina being higher, which translates to slightly higher export estimates for those countries as well as a slight increase in the export estimate for Ukraine.
“Basically the top three competitors for U.S. corn all have slight increases in their export estimates this month,” he said. “Obviously that is bearish for our corn and part of the reason USDA downgraded our export estimate for the U.S.”
The new corn export estimate from the USDA is 2.3 bb.
“To keep up with this total, the U.S. is still going to need to shift 50.8 million bushels a week,” he said. “Frankly we have not been doing that at that pace. Maybe 30 to 35 million bushels would be more reasonable. We have not been consistently shipping 50 million bushels of corn at this point.”
He said the new export estimate for corn is at a risk of being adjusted lower.
“Total corn export commitments are where they typically are this time of year,” he said. “They are at 2.074 billion bushels. That puts us 226 million bushels below USDA’s estimated pace, so that is why I say corn exports are still at risk for being adjusted lower and that means ending stocks of corn are at risk of being adjusted higher before we get to the end of this season.”
Hultman said the U.S. soybean ending stocks estimate saw a slight reduction to 895 mb.
“That was perhaps a pleasant surprise, or at least soybeans can sneak by with a neutral number today,” he said.
There was 2 mb increase in the estimate of soybean feed demand.
“I have to wonder if that’s related to anticipation of maybe some corn acres not getting planted and having to go to soybeans,” he said.
Hultman said both the soybean crush and soybean export estimates were unchanged this month.
“Crush continues to do well and there were no changes for soybeans in the production or supply side,” he said. “We are just looking at little tweaks in demand and we have a 5 million bushel reduction in the ending stocks estimate in soybeans right now.”
The 895 mb comes in under 22 percent of annual use, he added.
“Typically soybeans are closer to the 10 to 15 percent area, but not after the tariff situation we have had with China and still continue to have with China,” Hultman said.
World soybean ending stocks estimate
Also in the case of the world ending stocks estimate for soybeans, Hultman said there was a very slight increase in those numbers, going from 107.2 to 107.4 mmt.
“Remember, this is an ending stocks estimate in terms of the Northern Hemisphere,” he said. “In terms of the Southern Hemisphere it’s an Aug. 31 estimate, which is kind of like checking out supplies mid-season, so it’s a bit of a hybrid of measurements the USDA takes here.”
Crop estimates for Brazil were slightly higher, from 116.5 mmt to 117 mmt, while Argentina’s saw no change.
“That crop is about 80 percent harvested by now,” he said. “I would guess it certainly has started to be exported.”
USDA’s estimate of China’s soybean imports were unchanged at 88 mmt.
“There’s no significant reduction yet in this old crop estimate of China’s soybean imports,” he said. “We mention that because of the African swine fever situation going on. It will be interesting to see what USDA has about that in the May estimates, which will include new crop estimates. That is one of the things we will be talking about in a month from now.”
How are soybean exports doing?
Hultman said with the unchanged U.S. exports at 1.875 bb weekly shipments are going to have to be right around 35 mb in order to achieve that number.
“They have been running close to that,” he said. “The question is, can they maintain that for the next four to five months until we get to the end of August? That may be tougher to do with more exports being shipped out of Brazil and more meal being shipped out of Argentina. We will have to see whether or not we can keep this up.”
The total commitment of soybean sales and exports is projected to hit 1.71 bb, according to Hultman, which is about 169 mb below pace.
“The ending stocks estimate still has a risk of finishing higher this season the way exports are going right now, and of course a lot of this can depend on what the U.S. works out with China,” he said. “If a deal can be worked out and if there are some company purchases that go a long with that deal, that can help these numbers, but as you know, those are all remaining ifs at this moment and we have been listening to this story a long time without any significant change yet.”
Hultman said the soybean crush remains one of the brightest spots for U.S. soybeans.
“If we take the May futures prices of soybean meal and soybean oil and run them through the formula of how much would be produced of crushing bushel of soybeans, we get an increase of 18 percent value which is a very healthy incentive historically,” he said. “One of the better returns the soybean crush as shown over the past 18 years. It’s not as high as the lofty 23 percent peak we saw a year ago, but still very profitable and very good support for the U.S. soybean crush. That is one thing that continues to help the soybean market out.”
The current situation
“We have to mention the current situation because 2019 is not your typical year because it is very difficult to say just how this planting season is going to turn out especially in the case of corn,” Hultman said.
With the USDA planting estimates of 92.8 million acres, Hultman said that would be a big corn crop coming in at roughly 3 million acres over a year ago.
The soybean acres are estimated to be 84.6 million acres.
“I think that is too low,” he said. “I think we are going to see more soybean acres and some of that is going to come from the abandonment of corn that doesn’t get planted on time.”
Wheat acres are projected to be 45.8 million acres, the lowest total in over a century.
“Of course the bad news for corn and soybeans is that low total of wheat acres makes more available for corn and soybeans and perhaps some other things,” he said. “But right now, as I say, it’s all a theory. We still have planting to go yet and we certainly aren’t there.”
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