‘There is still plenty of risk in this market’
By KRISS NELSON
The Dec. World Agricultural Supply and Demand Estimates (WASDE) isn’t a report that many pay much attention to, but this year, that was a different story.
“Typically, the Dec. WASDE is a mere formality and in fact, last year at this time the corn and soybean numbers didn’t even change,” said Todd Hultman, DTN lead analyst. “This year, we have a little different situation going on and there’s a lot of concern about just how tight ending soybean stocks are going to get.”
The corn estimate was kept unchanged for ending stocks at 1.70 billion bushels (bb); which results in an 11.5% annual use ratio.
“That is actually the lowest ending stocks to use ratio in seven years,” said Hultman, adding the average farm price estimate also kept right on the $4 mark –just as it was a month ago.
“There’s a lot of variation in the relationship between corn supplies and the prices that they actually trade in real life,” he said. “There is still a wide variety of probabilities here at play.”
The ending stocks estimate for world estimates, Hultman said fell from 291.5 to 289 million metric tons (mmt).
“There were a couple of adjustments — the main one came from the increase in export demand for China. China’s import estimate was raised from 13 to 16.5 million metric tons. Their demand estimate was also raised the same amount and that helped bring down the ending stocks in this report,” he said.
As far as other corn producing countries, 1 mmt was reduced from Argentina’s crop estimate, while Ukraine offset that with a 1 mmt increase.
“Ukraine has also dealt with dry conditions this year, but USDA chose to bump their crop estimate back up 1 million metric tons,” said Hultman.
Hultman said we have been seeing and talking about China’s strong interest in corn this year as well as a strong interest for export demand for corn in general, with Mexico also being a prominent player.
Corn export commitments stayed unchanged at 2.65 bb.
“That is up almost 50% from a year ago,” said Hultman. “After 14 weeks, our total export commitment sales are 1.56 billion bushels. We seem to be well on pace to reach it so far, but we are going to have to ship a lot of corn.”
The most bullish thing corn has going for it is that the U.S. is still expecting more exports to come along.
“The one concern we do have moving forward, is should any disappointment of surprise happen, or should prices stumble for any reason, there is a lot of non-commercials out there that may have to liquidate. That could always trigger a big of a correction as we work through this year — something to watch,” he said.
Hultman considered the soybean numbers the highlight of the Dec. WASDE report.
“Ending stocks estimate were reduced 175 million bushels and that increased its average farm price to $10.55 a bushel. That seems very conservative to me,” he said.
This was reduction of 15 mb.
“A lot of us were looking for an increase in the export estimate today, but actually, the increase came on the crush estimate for demand,” he said. “I think the shock of the day was that soybean exports were not increased.”
What does the new 175 mb of ending stocks estimate look like in terms of what to expect for price?
“That translates to 3.9% ending stocks to use ratio. That is among the tightest, I think it is the tightest ending stocks to use ratio we have seen for this situation in at least 20 years,” said Hultman. “Supplies are extremely tight and that points to a statistical average price of roughly $13 a bushel.”
Cash prices on Dec. 10, the day the WASDE report was released were near just $11 a bushel.
“The market is not quite giving it all that much bullish attention just yet,” said Hultman. “When you get to supplies this tight, it becomes a very dangerous, emotional and volatile chart. We have seen prices before in excess of $15 a bushel when supplies were this tight as USDA estimated. I call it a very dangerous end of the market in terms of it is almost impossible to predict prices. It is very emotional based — 100 million bushels one way or the other could make a big difference.”
World soybean estimates came down slightly to 85.6 mmt for an ending stocks estimate. The only tweak of the day, Hultman said was with Argentina — their soybean crop was decreased 1 mmt. Brazil’s estimate came in unchanged at 133 mmt.
“We will continue to work through a sketchy situation where there has been late planting in Brazilian soybeans and they have had some beneficial rains come through — but lighter than normal amounts so far in this season,” he said.
China’s soybean import estimate was kept unchanged at 100 mmt.
“In Dec., typically these estimates don’t change too much because we are still pretty early in the crop season for both Brazil and Argentina,” said Hultman.
As far as soybean exports, that was also kept unchanged at 2.2 bb.
“Here we are, after 14 weeks and we have total soybean sales signed up of 1.4 billion bushels. That is almost twice as much as a year ago– that is also 88% of the entire export estimate and we still got the lion’s share of the season left in front of us,” said Hultman. “I think it is fair to say, most private analysts are expecting an ending stocks estimate much tighter than a 175 million bushels and it’s because of this export situation.”
The crush totals, Hultman said have been running very good.
“So far, the first two months of the new season, the crush is up 5% from a year ago. A 15 million bushel increase was definitely justified and if that maintains that pace as the season goes, we are going to run out of soybeans so it is going to be hard to maintain that pace,” he said. “It is just another factor that is keeping pressure on that supply situation.”
Currently, Hultman said China’s soybean needs are close to being met.
“They have been a very strong, very active buyer. We have seen their purchase totals come down in recent weeks, it does look like demand is starting to wane a bit from China,” he said. “That doesn’t mean the soybean situation is any less bullish, it doesn’t take a lot more exports from China to keep soybean supplies tight.”
Hultman said he would caution that China has over 1.1 bb of soybean sales on the books with the U.S. right now.
“It would be no problem for them to cancel one million bushels here or there and that would have a drastic change on our ending stocks estimate total,” he said. “There is still plenty of risk in this market. Plenty of uncertainty about what we might run into moving forward.”
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