June WASDE report brings more interest than usual
By KRISS NELSON
The June World Agricultural Supply and Demand Estimates (WASDE) report is not typically one that too many get excited about.
But this year, due to the challenging spring planting season, that has changed.
Todd Hultman, DTN market analyst, provided his comments on the report when it was released last week.
“This is probably one of the more interesting WASDE reports that I think we will ever discuss,” he said. “Typically in the month of June, we get a mirror reflection of what USDA said in May.”
Hultman added it was hard to predict how the USDA would respond to what has been happening this spring.
“The report had the potential to frustrate a lot of us because USDA doesn’t have the tools for a lot of measurement yet when it comes to measuring planted acres or what yields might be,” he said.
The highlight of the report was on corn. U.S. ending stocks estimate in the new crop season for corn, it dropped from 2.48 billion bushels (bb) in May to 1.675 bb.
“That is a significant drop in corn’s ending stocks in the new crop season and I have to tip the hat to USDA for actually making a very decent reduction in which I think no one will argue,” Hultman said. “It puts us much closer to the reality of what the situation is. These numbers have the potential to go lower further down the road.”
He added the new crop ending stocks estimate for world corn stocks also had a significant drop from 314.7 million metric ton (mmt) in May down to 290.5 mmt.
“This marks the third consecutive year we are going to see lower ending corn stocks and obviously a lot of that drop coming from the lower corn production estimate for the U.S.,” he said.
As far as old crop season for corn, Hultman said one adjustment worth noting was the export estimate.
“In the current year, that was reduced from 2.3 to 2.2 billion bushels,” he said. “That is actually in line with where we saw exports going. The 2.2 billion bushel estimate is a good adjustment and puts corn closer to the reality of how exports are going.”
Because of that 100 million bushel (mb) reduction in the export estimate, there was a slight increase in the ending stocks estimate to 2.19 bb for the current season of corn.
New crop season estimates
The new estimate on corn planting acres is now at 89.8 million acres, which is a 3 million acre reduction.
“I think you are going to agree a 3 million acre reduction estimate is a slight beginning to describe what is happening out around the country as far as corn planting difficulties go,” Hultman said. “There is plenty of room for this number to come down lower.”
What Hultman described as a “more significant hit” to the production estimate came from what USDA is predicting in yields.
Yield estimates for corn dropped from 176 bushels to the acre down to 166 bushels to the acre.
“USDA is making serious acknowledgment here that the late planting conditions – the wet fields across much of the Midwest and especially right now the eastern Midwest – will have a significant yield impact,” he said.
But field observations won’t be available until Sept. 1.
“I applaud USDA here that they would go ahead and go out on this limb and put us closer to what I think more reasonable expectations are,” he said.
With those two factors together, Hultman said there is a production estimate of 13.68 bb for the new crop season, which is down from 15 bb in last month’s estimate.
“That’s a big drop, and of course, it’s going to have a big reduction on the bottom line,” he said. “As we already mentioned, instead of 2.48 billion bushels of ending stocks we are looking at 1.675 billion bushels of ending stocks.”
The feed demand estimate was also reduced by 300 mb, which Hultman said is an acknowledgment from USDA that the lower ending stocks are going to bring about a higher price, which in return could have an impact on feed demand.
World corn estimates
For the current 2018-2019 season, Hultman said world corn estimates came in at 325.4 mmt, which is very close to where it was a year ago.
However, there was a big change in the new crop season’s world corn estimates.
“Ending stocks estimate dropping from 314.7 million metric tons to 290.5 million metric tons. That’s a sizable reduction and, of course, it’s related to the reduction in U.S. corn production,” he said. “Brazil and Argentina crops won’t be planted until this fall, so they’re really not a significant factor yet for the new crop estimates. This is mainly based on the U.S. and perhaps upcoming changes for the Ukraine.”
“In this corn market, the demand factors are up in a far second place to how production fares this year,” he said. “Anything we talk about in demand is going to be kind of a small point B, compared to a big point A which is what’s the crop actually going to come in at?”
For the current season, which has three months left, USDA reduced its export estimate down to 2.2 bb.
“To maintain that, we are going to need weekly shipments of about 38 million bushels of corn, which is fairly doable the way things have been going,” he said. “The total commitment projection, if you include outstanding sales plus exports, we’re on pace for about 2.12 billion bushels. So we still are a little shy of that corn export estimate by almost 80 million bushels, but actually very close.”
Current season soybean exports were reduced by USDA to 1.7 bb from 1.775 bb last month.
“That was actually a fairly small reduction and there is room for that number to go lower,” he said.
To meet that estimate, that will require weekly shipments of about 30 mb of soybeans.
“We have not quite been reaching that level lately,” he said. “It has been more like in the low 20s each week.”
As far as the new crop season, soybeans are having many of the same issues as corn this year due to weather, but the USDA didn’t make much recognition of that.
“Soybeans are also having planting difficulties just as corn is and soybeans are also slow emerging this spring just as corn is,” Hultman said, “but in the case of soybeans, we see that USDA made no changes to the planting estimates or the yield estimates and the production estimate stayed the same at 4.15 billion bushels.”
With three months left in the old crop season, Hultman said to remember this has been a year we have been in a trade war with China.
“That topic is not moving forward,” he said. “We see no progress on it, so once again, we’re facing another new season where it’s going to be very difficult to predict just what soybean demand is going to be and that will be an ongoing challenge until we finally get that issue resolved.”
China’s soybean import estimate was reduced another mmt down to 85 mmt.
“I think it started the year around 90 to 92 and now we are down to 85,” he said. “China appears to be finding a way to import soybeans while we’re going through the trade dispute.”
The new crop estimates for soybean world ending stocks also saw very little change; it was 112.7 mmt, which is down slightly from 113.1 mmt.
Will U.S. soybean crush numbers remain strong?
“One bright spot for soybeans has always been U.S. soybean crush through the trade war and the loss of exports,” he said. “U.S. crush has been one thing that has done remarkably well. We see, based on July futures contracts, the crush premium – as a percent of July soybeans – is still at a very high enticing price. Just almost 23 percent return for crushing your soybeans and selling meal and bean oil instead of the soybean itself. That continues to fuel a very healthy pace of crush demand.”
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