Concerns for corn demand linger
By KRISS NELSON
The USDA released their April World Agricultural Supply and Demand Estimates (WASDE) report last Thursday.
Typically known as a more non-eventful report, with little new features to report in the month of April, this year was an exception.
“This year, is much different as you know with the coronavirus going on there are a lot of concerns about demand, especially in the corn market and the ethanol situation,” said Todd Hultman, DTN grain market analyst. “The big question of the day, heading into this report, is just how much demand has disappeared?”
Hultman said USDA didn’t have the total answer to that question at this time, but provided at least their clues on how they see things are progressing thus far.
The U.S. ending stocks estimates for the three major crops: corn, soybeans and wheat all came in higher than expected.
“We are seeing a bearish tone and again, of course, concerns about corn,” Hultman said.
New ending stocks estimate for corn is 2.09 billion bushels (bb). That represents, Hultman said 15% of annual use and is up 200 million bushels (mb) from the March estimate.
How did we get there?
“No. 1 was feed demand, surprisingly was actually increased in this report by a 150 million bushels,” he said. “To their credit, I did have a customer call me earlier this week, and say ‘I think that feed demand estimate should be higher because we do have higher cattle numbers, higher hog numbers, higher poultry’ and he was correct about that in at least USDA’s eyes, so we did get a bump in the feed demand estimate.”
Hultman said many may be wondering how that can be due to the big collapse in cattle and hogs prices.
“That may show up in the numbers in the feed demand in six months to a year down the road, but right now, that livestock population is still there,” he said.
The big change came in ethanol demand.
Last month’s estimate of 5.4 bb was reduced to 5.05 bb.
“If you know anything about yesterday’s inventory report, we saw the lowest ethanol production on record reported for last week,” he said. “We also saw gasoline demand reported down 48% from a year ago last week. So, the big drop is the driving habit. There’s big bearish pressure coming to ethanol prices from OPEC’s decision, and by the way, OPEC is meeting as we are doing this webinar, we don’t have an official announcement of that meeting yet, but there are lots in the works, lots of concerns, obviously for corn demand moving forward and today’s estimate does bring us back above the two billion bushel total for ending stocks.”
What does this all mean for U.S. Corn prices?
The 15 % estimated annual ending stocks to use ratio, Hultman said has a history of a targeted average price right at about $3.40 for a national average cash corn prices.
Last Wednesday, Hultman said the price was $3.04, which is about 35- to 36-cents under that national average.
“I would also caution that, obviously, there could be more demand reductions ahead which seems likely at this point, given the ethanol situation that corn is facing and we are also talking about the possibility of increased corn acres this spring when we get to planting time,” he said. “There’s a lot of headwinds for corn in today’s report.”
Corn world estimates
The world estimates for corn increased the ending stocks estimate from 297 million metric tons (mmt) up slightly over 303 mmt.
“That’s more than expected,” said Hultman. “That’s a bearish increase in today’s report and where did it come from? It came largely from the drop in U.S. demand.”
USDA increased the ending stocks estimate for soybeans from 425 mb up to 480 mb. Hultman said this increase came from two changes: soybean crush and exports.
“On the crush side of things, they increased the demand estimate by 20 million bushels, but on the export side, they reduced the estimate of soybean export demand by 50 million bushels,” he said. “We got a slight reduction there for demand overall and that gave us a higher ending stocks estimate of 480 million bushels which equates to 12% of annual use.”
How do these estimates stack up in terms of soybean prices?
With the new 12% ending stocks to use ratio, when looking at history, it has a rough average expectation, Hultman said of $9.20 for cash soybeans.
“That’s down somewhat from where it was,” he said. “The current DTN soybean index prices is at $8.09. We are still roughly a dollar below where we would expect soybeans to average their cash prices in this particular supply situation. But, of course, the big concern here keeping prices down, is the effects of coronavirus and just how this all is going to play out. As we look at it strictly from a supply situation standpoint, soybeans are undervalued, but the market has its own outside concerns and those are weighing very heavy at the current time.”
Soybean crush continues to be a bright spot for U.S. soybean demand, Hultman said.
“If you follow soybean meal prices, you know we have seen a big drop in the past two weeks, but it really hasn’t changed the enticement of a crush premium 17% increase is one of the highest incentives we have seen in the past couple decades and continues to be one bullish factor for soybeans and a reason we did see a slight increase in USDA’s crush estimate,” he said.
Soybean world estimates
USDA’s world ending stocks estimate for soybeans dropped two mmt from 102.4 mmt down to 100.4 mmt. This drop, Hultman said came from lower crop estimates for both Argentina and Brazil.
The import estimate for soybeans for China was increased from 88 mmt to 89 mmt.
“I find that interesting because we have been very concerned about what kind of impact coronavirus will have on China’s demand for soybeans in particular,” he said. “And, there have been concerns that it would be dropping this year, perhaps they wouldn’t need as many soybeans and so forth, but here’s the case where the import estimate is being increased. There has been talk about soybean supplies being rather short around China, so that continues to be an interesting story to follow.”
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