Final corn and soybean production estimates released by USDA
By KRISS NELSON
Like it or not, USDA has released their final corn and soybean production estimates along with the January World Agricultural Supply and Demand Estimates (WASDE).
“It has been a long awaited report by many of us to see what USDA would say in January,” said Todd Hultman, DTN grain market analyst. “We have come through a long season of very adverse weather starting with planting conditions in the spring and fall harvest conditions not much better. It’s been a difficult crop for USDA to assess. There has been a lot of conflict, I think, and concern, around USDA’s corn estimates, especially throughout the year.”
Hultman said one number many producers and traders were anticipating was a lower crop estimate – and that did not happen.
USDA’s new corn estimate balance sheet for 2019/2020 brought a reduced corn planting estimate from 89.9 million acres to 89.7 million acres. Harvested acres were also reduced 300,000 acres down to 81.5 million acres.
But, along with those reductions, came a higher yield estimate for the 2019 crop from 167 bushels to the acre to 168 bushels to the acre.
“Put that all together and you get a slightly higher production estimate this month at 13.69 billion bushels compared to what we were looking at 13.66 billion bushels in the December estimate and also the November estimate,” he said.
Hultman said this is has been one of the most confusing corn estimate adjustments that he has had to explain in quite some time.
“Here’s where things start to get a little bit strange,” he said. “When it came to the December 1 corn stocks number, they were slightly less than expected at 11.39 billion bushels. USDA, I think has a little bit of a problem here that they found less corn on hand than anticipated, so how are they going to explain that?”
Hultman said that issue brings attention to the feed and residual category of the report.
“In this month’s report, they increased their estimate of feed and residual demand by 250 million bushels up to 5.525 billion bushels,” he said. “Now, I don’t think that is going to be explained by some large, unexpected increase in feed demand. I think it has to do with some adjustment coming from the December 1 corn stocks report. It seems to me, that USDA is saying we don’t exactly know how to categorize the difference just yet, so yes, there is disappointment, perhaps throughout the country that the corn crop estimate was increased slightly, but we can’t forget what they have done to residual demand to somewhat make up for that.”
Hultman said USDA also reduced the export estimate in this month’s report.
“That is no surprise to us,” he said. “We have all known and talked about, for a long time, that corn exports are not off to a good start this year.”
The export estimate was reduced 75 million bushels (mb) down to 1.775 billion bushels (bb). Together this brings a slightly lower ending stocks estimate for corn of 1.89 bb with an ending stocks to use ratio of 13 percent.
“That increases the anticipation of the average cash price, on a national basis, from about $3.50 to roughly $3.70 a bushel now. It gives corn prices a little bit of support where we are at, but it does not support a lot higher price.”
As far as USDA’s estimate for world ending corn stocks, they were reduced from roughly 301 million metric tons (mmt) down to just below 298 mmt.
“Where did the adjustment come from? It came largely from a 6 million metric ton increase in USDA’s estimate of world demand,” said Hultman.
Hultman said there is little argument that January’s WASDE report for soybeans can be labeled neutral.
“Soybeans are a little easier to explain today,” he said. “There weren’t a lot of big changes in the U.S. balance sheet from USDA for soybeans.”
As with corn, Hultman said there was a slightly higher crop estimate with USDA putting soybean production at roughly 3.56 bb. Also, as with corn, there was a lower planting estimate of 76.1 million acres down from 76.5 million acres last month.
Harvested acres were also reduced by 600,000 acres to 75 million acres.
“But, also, like corn again, they gave us a slightly higher yield estimate of 47.4 bushels an acre for soybeans in the 2019 season,” he said.
For soybean demand, Hultman said there were no changes, leaving us looking at the same ending stocks estimate of 475 mb which works to be a 12 percent of ending stocks to use ratio.
“When we look at the history of where prices trade when USDA is estimating a 12 percent ending stocks to use ratio, we’re looking at the same price probabilities that we saw just a month ago,” he said. “Actual prices can have a wide range, and in the past have traded between $6-$11 when USDA has estimated 12 percent ending stocks to use. But, the average price we would expect in this scenario is $9 even on cash.”
Hultman pointed out this is strictly about USDA’s estimate and there could be some significant changes in the price expectations depending on how much U.S. soybeans China is willing to purchase in the Phase 1 agreement.
“There is still a lot of bullish potential here, depending on how the trade negotiation works out and it looks like we will have some interesting news in the week ahead,” he said.
Soybean exports, Hultman said, for the 2019/2020 season, are still down roughly two percent from a year ago.
Soybean crush, Hultman said is still showing some promise.
“As we look at the crush premiums based on the March futures contracts, soybean crush is still looking very enticing still encouraging good crush demand,” he said.
USDA did not change its crush demand estimate in the January WASDE report, however, nor did they change the export estimate.
“As we look at this, the value of soybean oil and soybean meal crushed, is showing roughly a 17 percent premium to the value of the soybean, and, as you might know, soybean oil has had quite a rally lately and that’s really been one of the contributing factors to a return of a positive crush premium,” he said.
For the December 1 soybean stocks, USDA, when they did their tally across the country, came up with 3.25 bb, which Hultman said was slightly more than what analysts were expecting to find.
First quarter demand for soybeans is 1.23 bb.
“That’s better demand than what we saw a year ago, but it’s still not as good as what we saw six years previous to last year,” he said. “Obviously, we are still taking a hit from the trade war situation with China, but again, a possible agreement is getting ready to be signed in the next week.”
As far as world numbers, USDA’s estimate of world soybean stocks increased slightly from 96.4 to 96.7 mmt.
“That’s basically unchanged for the month,” he said. “Looking at the usual suspects, the crop estimates for Brazil and Argentina were unchanged this month. They didn’t touch that at all. We’ve heard slightly higher crop estimates from private consultants, but USDA kept their number the same today at 123 million metric tons for Brazil.”
USDA also kept the import estimate for China the same at 85 mmt.
A neutral report
“When I look at today’s report, at first, I was going to label the corn estimate bearish because I know seeing that higher crop estimate from USDA was disappointing to many, but, when we weigh everything together, USDA did reduce the ending corn stocks, and that was even after they reduced the export estimate. That was a positive for corn, to see a lower corn stock estimate,” he said. “If there was a surprise in today’s report, it would be that December 1 corn stocks came in less than expected. That forced that bullish adjustment we saw in the feed and residual category for corn.”
Hultman said there could be a follow up report in the future when it comes to 2019 corn production.
“It has been such an unusual year I feel USDA is struggling to understand just what this crop is this year,” he said.
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