Corn, soybean stocks tighten
By KRISS NELSON
There were a few bullish surprises with the Nov. World Agricultural Supply and Demand Estimates (WASDE) report released earlier this month.
“We did expect a bullish report for soybeans, definitely, as export sales have been very strong for soybeans and supplies are getting historically tight, but what we did not expect was how far USDA would bring down the estimate of ending corn stocks — that was today’s real surprise and adds to the bullishness of soybeans as well,” said Todd Hultman, DTN lead analyst.
The ending stocks estimate the USDA has for corn is now just about 1.7 billion bushels (bb).
“The market was expecting 2.05 and they are both lower than last month’s estimate of 2.17 billion bushels,” said Hultman. “This is the first time in four years that we are finally getting a little distance from the 2 billion bushel mark – it’s a bullish influence for our corn price.”
There was a reduction in the crop estimate and an increase in the demand estimate — particularly for exports in corn.
“That two sided approach is what brought the ending stocks down more than expected,” he said. “Earlier in the year, we were looking at a carry of 3 billion bushels or more — so this is really a game changer for corn and prices are reflecting that.”
What does this lower supply mean for prices?
Hultman said USDA estimates an average farm price this season of $4 a bushel.
USDA is estimating an 11.5% ending stocks to use ratio. Historically, there can be a target area of $4.10 to $4.20 a bushel for that particular supply estimate.
“That certainly helps give the market better support for where it’s traded recently and actually gives us a little more upside potential these days,” said Hultman.
USDA also gave a new yield estimate for corn at 175.8 bushels to the acre down from 178.4 last month. This reduction in yield gives a production estimate of 14.51 bb.
The feed demand estimate was reduced 75 million bushels (mb). This is most likely due to the anticipation of higher corn prices.
The demand estimate for ethanol stayed unchanged at 5.05 bb — that is down roughly 7% from pre-coronavirus levels.
“That continues to be a reasonable estimate at this point,” said Hultman.
Hultman said USDA is now predicting 2.65 bb of corn will be exported this year.
“That is up from last month’s estimate of 2.325 billion bushels — a 325 billion bushel increase in the export estimate is nothing to sneeze at,” he said. “That is quite a bullish view. I think there might be a little skepticism with this, but there is so much about China that we don’t know it is hard to argue against this point of the season. This is up 49% from a year ago — that is a big jump and a lot of it is due to unexpected demand from China.”
Commitments, which are export sales on the books plus the amounts of corn we have already shipped so far this season, thus far, total to 1.31 bb.
“We have a big head start — that is up 179% from where we were a year ago,” said Hultman. “We have never seen this much export activity this quickly in the season for corn before. That definitely kind of leans towards USDA’s higher export. Whether we actually get to that 2.65 number we won’t know until later in the season — honestly, it may be a bit of a challenge, but a lot of it is going to depend on how much China needs.”
USDA dropped the world corn ending stocks estimate from just over 300 million metric tons (mmt) to roughly 209 mmt, which, Hultman said was less than the trade was expecting.
World corn production came down 14 mmt and much of that was explained by a drop in Ukraine’s crop estimate, which was adjusted from 36.5 mmt down to 28.5 mmt.
USDA brought the ending stocks estimate for soybeans down to 190 mb — lower than the 239 mb the trade was expecting.
“U.S. supplies are getting extremely tight in USDA’s view — I think we’re going to find that it’s even tighter than that,” said Hultman.
There was a slightly lower yield estimate of 50.7 bushels to the acre — which was down from 51.9 bushels to the acre in October.
“That was enough to bring the crop estimate down to 4.17 billion bushels, which is down 98 million bushels from last month’s estimate,” he said.
Hultman said another surprise in the Nov. WASDE report was that USDA did not increase the export estimate for soybeans. It was kept unchanged at 2.2 bb.
“Those sales have been so strong right now,” he said. “I think it is going to be very difficult for that export sale number to stay where it’s at. It makes the soybean situation probably even tighter than the 190 million bushels that USDA is showing today.”
Soybean commitments to date, Hultman said are 2.2 bb.
“That is a healthy increase,” he said. “When we look at the sales on the books already, we got 1.78 billion bushels on the books. That’s over 80% of the export estimate for the entire year. That is up 172% from a year ago. Given that, plus China’s level of demand, which we still don’t know – but it doesn’t look like it is going to stop and the fact that Brazil is out of soybeans, basically, until their next crop comes in probably February or so, it makes this a very, very dangerous situation in terms of soybean supply.”
What do these types of supplies mean when we look at the history of cash U.S. soybean prices?
The ending stocks to use ratio is down to just 4.2%.
“It’s dangerously tight, I don’t know how else to put it,” said Hultman. “This market is dangerously tight and that could be some serious problems for end users for soybeans in the U.S. moving forward — that is a big concern. Something we had no clue would happen when we look back six months ago. It’s phenomenal the way circumstances have changed so quickly and largely due to very aggressive buying from China.”
The statistical estimate for the average cash soybean price is roughly $12.50.
“We have traded much higher than that in the past,” said Hultman. “This is a high anxiety market. It has heavy speculative involvement. With supplies this tight and weather also a factor, I think we just can’t really say, with any certainty what the upward potential could be on this market.”
The average farm price estimate USDA has, Hultman said is $10.40 a bushel.
“I believe that is just far too low and not indicative of what this market could do,” he said.
World soybean supply estimates came in at 86.52 mmt.
“That was a little bit less than what was expected,” Hultman said.
China’s import estimate for soybeans was unchanged at 100 mmt.
“That is slightly higher than a year ago, but that’s an estimate that also could be changed in future days,” he said.
Soybean crush continues to be positive.
The return of crushing a bushel of soybeans is 17.7%.
“That is still historically favorable — well above average when it comes to crush incentive,” said Hultman. “Not only do we have a very strong export environment, we have a strong environment for domestic soybeans — that is making things even more difficult as far as maintaining our soybean supply levels.”
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