A bearish report for August WASDE
By KRISS NELSON
Although we are in a drought and a derecho hit a large portion of Iowa earlier this month, the USDA said in their August World Agricultural Supply and Demand Estimate (WASDE) report we are still looking at a large corn and soybean harvest.
“I don’t think that is a surprise to anybody and not necessarily a surprise to the market,” said Todd Hultman, DTN lead analyst.
The effects of the derecho storm, Hultman added were not included in the August WASDE numbers as USDA did their surveying ahead of time.
U.S. crop estimates for the new corn crop, Hultman said came in at a record high of 15.28 billion bushels (bb). That was higher than the average trade expectation and is up from the 15 bb estimated last month.
Yield estimates for corn are at 181.8 bushels to the acre, increased from 178.5 bushels to the acre in July.
“That is also a record yield estimate if that happens to come true,” he said.
This is the second year where field data was not collected by USDA in August.
“That practice, of going out and getting field data does not happen until the September WASDE report,” he said. “This particular report is basically counting thousands of surveys sent out to producers across the country and it is also based on satellite imagery and other tools that USDA has at their hands. There is still a level of credibility here to this large effort they try to make. “
Feed demand estimate for corn is up 75 million bushels (mb) up to 5.925 bb. The new crop export estimate was also increased 75 mb.
“A couple of little demand increases help moderate the big crop estimate that we see,” said Hultman.
These numbers all combined give us a U.S. ending stocks for corn estimate of 2.76 bb, which is up from last month’s 2.65 bb estimate.
“But, it is slightly less than what the trade was expecting,” he said. “Even though we have a record corn crop anticipated, we are looking at a slightly lower than expected ending stocks estimate.”
The average corn cash price with these numbers looks to average $3.10 a bushel in the new crop season, which is down from last month’s $3.35 a bushel.
“That is much closer to the estimate we have been saying all along,” said Hultman.
History over the last 23 years, with the current ending stocks to use ratio at 19% sits at about the $2.50 to $3 a bushel range.
“That’s about what we would expect for average cash prices in the new crop season somewhere averaging probably in the upper $2’s in that situation,” he said. “A big ending stocks estimate for corn at 2.76 billion bushels we did stay shy of 3 billion bushels today. That is still a lot of corn and still weighs heavy on our prices. We still continue to expect harvest pressure as we move towards the fall.”
World corn crop estimates
Hultman said USDA’s estimate of world ending corn stocks increased roughly 2.5 million metric ton (mmt) up to 317.5 mmt.
“That was actually less of an increase than expected,” he said. “U.S. production accounted for most of the increase – seven million metric tons just from the U.S. alone. That increase was moderated by the increase in the estimate in the world corn demand.”
The world estimate for corn demand was increased from 1.16 bb up to 1.165 that helped moderate the higher crop estimate from the U.S., Hultman said.
Will the increased demand scenario come true?
“That will be another question the market is going to have to prove in the days ahead,” he said. “That may be a tough case for the market to do. Especially with a world economy inflicted by coronavirus and driving that activity down, ethanol usage down and that sort of thing. The demand side of the market remains questionable. Especially the higher export estimate from USDA.”
USDA increased the old crop export estimate 20 mb.
“That was a little bit surprising because corn exports are actually below pace right now and we only have a few weeks left in the season,” he said. “USDA, for some reason, is expecting a pick up in current corn exports at the moment. That seems a little hard to understand where Brazil is just coming online with more competition from down south and they had a very big crop this year.”
The CONAB, which is the Brazilian equivalent of USDA increased their corn estimate for Brazil up to 102 mmt a new record corn crop for Brazil.
“In this case, USDA seems to expect we are going to get some exports here in the next four weeks. We will see if that holds out true or not,” said Hultman.
Corn prices, at the time of the report, Hultman said remained under bearish pressure, with commercial demand suggesting support not too far away.
For soybeans, USDA is predicting record yields at 53.3 bushels to the acre and a production estimate of 4.42 bb.
On the demand side, Hultman said they saw a slight increase to both soybean crush and exports. Crush was increased 20 mb and exports estimates increased 75 mb.
“I have a big question mark on the export estimate being that large in 2021,” he said. “We are going to have to see some kind of significant change with China to achieve that type of high export estimate,” he said. “I just don’t see anything to give us confidence yet that much business is going to be there in 2020 and 2021. That remains a big concern that ending stocks could be much higher in the new crop season than today’s estimate suggests.”
USDA estimated the ending stocks for the new crop season at 610 mb, which is up significantly, Hultman said from 425 mb a month ago, which drops the average price estimate from $8.50 a bushel down to $8.35.
Ending stocks estimate for old crop soybeans is 615 mb, which is 5 mb less than what was predicted in July.
World soybean crop estimates
USDA’s ending world stocks estimate was increased, Hultman said slightly for August from 95.08 mmt to 95.36 mmt.
“That total was actually less than expected, which may be a bit of surprise considering the big U.S. soybean crop that is being expected,” he said.
The production estimate is up from 112.5 mmt to over 120 mmt.
“That is a big production estimate to add to the world numbers,” he said. “We have some interesting adjustments being made.”
There was a revision made in beginning supplies, Hultman said that has to go back at least two years, if not further.
“We see a sharp drop there from almost 100 million metric tons down to roughly 96 million metric tons roughly a four million metric ton drop,” he said.
China’s import estimate of soybeans increased from 96 mmt to 99 mmt.
“As you may know, there’s been strong interest from China for our new crop soybean exports this year,” said Hultman. “It’s off to a very strong start and up quite a bit from a year ago. China continues to show strong soybean demand interest and that’s the one thing that is helping offset this years’ larger crop.”
World demand estimates increased slightly over four million metric tons in the August report.
“You take the revision that we had from at least two years ago and also we have a demand increase in the current season, and that has helped offset a lot of the larger crop total that we are expecting from the U.S.,” said Hultman. “That is why there wasn’t much change in this month’s world numbers.”
How do these numbers look for the new crop season for cash soybean prices?
The new ending stocks total in soybeans of 610 mb equates to an ending stocks to use ratio of 14%.
“With that level, in the past, we see an average somewhere between $7 and $8.50,” said Hultman. “The statistical center price of what we would expect for the new crop season puts us at about $8.50 national average on cash soybeans. It is still a very tough bearish market here.”
Hultman added this all doesn’t mean soybeans can’t trade higher than that.
“Because it is an emotional market and there will be volatility and swings throughout the year, depending on what happens, this is what we would expect, roughly, for a cash average based on USDA’s estimates,” he said.
The export estimates in the old crop season, which is now ending stayed at 1.65 bb, with a shipment projection 14 mb above pace.
“It looks like we will have a good chance coming in at least close to that shipment total by the time we get to the end of August,” said Hultman. “Even though old crop interest for soybean exports has not been very strong.”
Phase one agreement
We are nearly through the first year of the phase one agreement with China. Their purchase level was supposed to be of $36.5 billion.
Are they fulfilling the end of the agreement?
“The latest data from the U.S. Census Bureau came out in early August, and the first six months of the year, China has made $7.3 billion of purchases so far in this calendar year versus $6.8 billion a year ago. The purchases are about 6% up from a year ago, but, we are still a long ways from $36.5 billion.”
New crop sales of soybeans to China, totals 556 mb up from 134 mb a year ago.
“I think that is part of the reason USDA increased their soybean import estimate for China today,” he said.
Soybean crush, in July began to dip back to its old 10 year average.
“We got a bit of a bounce since then,” said Hultman. “Year to date, the soybean crush is up 4 percent from a year ago. There is room for about 20 million bushel increase. USDA fulfilled 5 million bushels of that in today’s report. There is still room for a slight increase in crush demand. That has been the one positive for soybean demand this year.”
Hultman said that although exports for the old soybean crops don’t appear to be doing very well, there are market signs there is a tight demand situation going on.
“That is a bit encouraging, helping to support prices right now,” he said.
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