May WASDE report gives little insight into new marketing season
By KRISS NELSON
The USDA’s World Agricultural Supply and Demand Estimates (WASDE) for May could be considered bearish for corn and neutral to possibly bullish for soybeans.
It is also the first report that offers crop estimates for the 2020/2021 cropping season which officially begins in August.
“It is just a start of a long conversation that we will continue to have throughout the season,” said Todd Hultman DTN’s lead analyst.
The difficulty of last fall’s harvest is still looming and potentially affecting the accuracy of final numbers.
Hultman said USDA National Agricultural Statistics Services has decided to conduct a second survey of production in the northern states and announced they will be conducting that second survey this month in North Dakota with those findings to be released in the June’s WASDE report.
“After all the wondering how big the crop was and what USDA would say for the corn crop in the current season, today’s survey only dropped that estimate by 29 million bushels to 13.66 billion bushels. That is USDA’s official crop estimate right now for last year’s corn crop. That is pending one more survey coming from North Dakota,” said Hultman.
Changes in the old crop estimates came from the feed demand area, which went up 25 million bushels (mb) to 5.7 billion bushels (bb). Ethanol demand estimates were lowered, once again to 4.95 bb.
“As you know, ethanol production has had a big drop off due to coronavirus related measures and people not driving near as much as we typically do,” said Hultman.
The ending stocks estimate, Hultman said only changed by 6 mb to 2.098 bb.
USDA is expecting 97 million acres of corn will be planted this spring. But Hultman isn’t so sure that is the case.
“That is a big question mark,” he said. “Because of the economics of corn and the outlook of corn prices has dropped pretty severely since the March survey was taken from USDA, we can’t be quite as confident we are actually going to see 97 million acres planted. I mention that because obviously that is a big factor in the initial crop estimate.”
USDA, Hultman said is looking at a possibility of a 16 bb corn crop in the new crop season, based on those 97 million acres.
“From my perspective, that is estimated very high and perhaps too optimistically here,” he said.
Feed demand is up 350 mb from the current season estimate of 6.05 bb.
“That seems fairly optimistic considering what is happening in the livestock industry,” said Hultman.
Ethanol demand estimate is up 250 mb from the current situation.
“Evidently they are looking for this to be a short term problem as far as driving demand goes and that could be fairly reasonable,” he said.
USDA is calling for 375 mb more in exports in the new crop season with 2.15 bb of exports predicted.
“That could be pretty aggressive especially considering both Brazil and Argentina are on track for a pretty decent corn crop,” said Hultman. “To my mind, those demand estimates right now look a little optimistic – a little high to me.”
Those potentially higher export numbers kept the ending stocks to use estimate down to just 3.3 bb. However, 3.3 bb should be considered a high number, Hultman said as it is the most ending stocks number seen since the 1980s.
“It is a bearish looking supply and demand table we have today for U.S. corn,” he said. “That is going to continue to be a challenge and how the numbers actually turn out will have a lot to do with how long coronavirus remains a problem and affects the economy.”
World estimates for corn
USDA, Hultman said is now estimating 50 million metric tons (mmt) of corn production in Argentina and 101 mmt for Brazil.
“We have heard a lot of talk of dry weather. Analysts were expecting a small crop estimate from USDA today, but frankly, looks like the corn crop is doing well in Brazil despite the dry weather,” he said. “101 ties the old record high for Brazil’s corn crop.”
World ending stocks for the current season are estimated just under 315 mmt, which Hultman said is more than what was expected as the season continues there is plenty of corn available.
As far as the initial estimates for the new crop season of 2020/2021, Hultman said there is not much we can learn about that season right now, other than USDA’s early ending stocks estimate is nearly 340 mmt.
“That was above the average guess of 324 million metric ton. Keep in mind, while the U.S. is getting planted and things are going well here, Brazil and Argentina are still five months away from planting this new crop,” he said. “This is a very, very early estimate for the new crop situation in corn and doesn’t really tell us too much right now to be honest.”
The current estimate for ending stocks to use ratio in corn, Hultman said is 15%. Historically, a 15% ending stocks to use ratio brings a national average of cash prices for corn around $3.50 a bushel.
“That is roughly where the average is right now, even though the cash corn prices, themselves are trading down more at $2.90 a bushel,” he said. “The season average looks like it is going to come into play at $3.50 or less by the time we get to the end of August. That seems to be holding up fairly stable.”
An early estimate of 3.3 bb for the 2020/2021 crop gives an ending stocks to use ratio of 22%.
“That is far out on the high of historical norms,” said Hultman. “22% ending stocks to use ratio is a little less than what was expected today, but it points to an average national cash price right around $2.50 a bushel. As you can see, that is obviously heavily bearish early on and that’s how the conversation is starting for the new corn crop this year.”
Current export numbers from USDA of 1.725 bb, Hultman believes to be a little out of reach.
“Corn, at its current commitment pace is about 52 million bushels below, but in spite of that, USDA increased the export estimate to 1.774 billion bushels, bumping it up 50 million bushels, obviously looking for a strong finish before Brazil’s corn crop comes on and starts competing, which is usually in the month of July,” he said. “USDA looking a little optimistic ending on the exports for corn this season.”
The production estimate for soybeans grown in 2019 came in at 3.557 bb, down 1 mb. The crush estimate had little change at 2.125 bb and the soybean exports came in at 1.675 bb.
“That is a 100 million bushel drop in the current season export estimate and that’s not surprising,” said Hultman.
Ending stocks were increased by 100 mb from 480 mb up to 580 mb.
For the new crop season, Hultman said we are actually seeing a lower ending stock estimate of 405 mb for soybeans.
“USDA is looking for a more bullish scenario in the new crop season and it starts up at the top at the planting estimate,” said Hultman, which came in at 83.5 million acres from the March survey. “Just like the 97 million for corn might be overstated, the 83.5 here might be understated. It’s just a matter of how many switched intentions from wanting to plant corn to now being willing to plant more soybeans. That is the big question that we won’t really have a good answer to until we get to the June 30 acreage report. But, for now, it gives us probably a lighter than expected crop estimate.”
The initial estimate from USDA, for the soybean crop this year is 4.12 bb, which is up from last year.
“Of course, last year was a horrible year in terms of soybean production and planting conditions,” said Hultman. “There’s a modest increase in the soybean crop estimate, it may actually be bigger in reality when we get a better handle on what the planting estimate is.”
The crush estimate for the new crop season is only expected to increase 500 mb and the export estimate is expected to increase 375 mb up to 2.05 bb.
“Now, given the trade dispute with China and how big of a role China would have to play in this part, we have to say that’s assuming trade relations stay open or workable with China,” said Hultman. “As you know right now, they’re quite touchy. We are still wondering if China will live up to phase one commitments or at least hit somewhere close. All that has yet to be seen. There’s plenty of risk in that demand estimate but there’s also reason to believe China does need soybeans.”
Hultman said we are looking for about 405 mb more of total demand in the new crop season.
“What we saw in the current season, I would say that is slightly optimistic, but it’s at least a starting point in the conversation for now, and that’s kind of the purpose of the May WASDE report,” he said.
The 405 mb gives an ending stocks to use ratio of 9%.
“That’s a little tighter situation than we have seen in sometime, or certainly since the tariff dispute started,” said Hultman.
World estimates for soybeans
The world ending stocks estimate for 2019/2020 basically stayed the same as a month ago, right around 100 mmt.
“We look at this because the South America crops are still in progress especially in Argentina, they aren’t quite harvested yet,” said Hultman.
Hultman said USDA increased the estimate of China’s soybean imports from 89 mmt to 92 mmt in the current season’s report.
“We have been hearing about strong, aggressive buying from Brazil and I think that is a sign that China’s appetite is strong and ferocious as ever for soybeans and unfortunately, Brazil has been the early beneficiary of that,” he said.
Much like corn, the new crop world estimates for soybeans, Hultman said isn’t going to be too relevant for a while.
The early estimate for world ending stocks for soybeans in the new crop season is 98 mmt, which Hultman said is down a couple million mmt from the current season.
“Brazil and Argentina are still five months away from planting their soybean crop, so this season still has a long way to go, but that’s our early glimpse of the new crop world estimate for soybeans,” he said.
What cash prices can be expected with these estimates?
Hultman said the old crop season saw ending stocks increase from 480 mb to 580 mb which comes out to 15% of annual use. That ratio brings a cash average price of $8 to $8.50 a bushel for an expectation.
The new crop season, Hultman said is showing a much more bullish 95 ending stocks to use ratio.
“That puts us up over $10. That’s a much healthier soybean market if that were to come true,” he said. “It is going to depend on keeping healthy trade open with China and take some advantage of export opportunities we can get.”
The export scenario right now for soybeans is 1.775 bb.
“USDA lowered that by 100 million bushels and I say for good reason,” said Hultman. “The current export commitment pace was 1.54 billion bushels. We were over 200 million bushels below pace and we are only going to the end of August. I think it is quite reasonable for USDA to lower that export estimate for the current season today.”
The real opportunity for U.S. exports, Hultman expects, is to come later this summer into the fall.
“That’s when we have a better window of opportunity with China and less competition from Brazil,” he said. “That’s where we would expect to do better on the exports, but for now, in the current season, it is hard to see a lot of improvement in this current situation.”
As far as soybean crush, Hultman said we have been seeing very enticing crush premiums. However, they are beginning to drop slightly. Currently they are at 16%, which happens to be down from previous premiums of 20% or higher.
“That’s the reason we have been enjoying a strong crush demand the past few years,” said Hultman. “Now, at 16% it is still enticing. It’s still encouraging crush, but we are getting back down closer to the 10 year average around 14%, it is just not quite as enticing as what we enjoyed the past couple years.”
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