Little change in March WASDE
By KRISS NELSON
The March World Agricultural Supply and Demand Estimates (WASDE) from USDA showed very little change for February, but still shows evidence of some very bullish markets.
Todd Hultman, DTN lead analyst believes the ending stocks for corn estimate should be heading lower in future WASDE reports to come and described the soybean market has “extremely bullish” with some of the tightest soybean supplies on record.
On the U.S. balance sheet for corn, the USDA kept with the 1.5 billion bushel (bb) ending stocks to use estimate as well as the 2.6 bb export estimates.
The 1.5 bb is an ending stocks to use ratio of 10% of annual use. The statistical center for cash corn prices comes to about $4.50 a bushel.
With cash corn prices, at the time of the report, trading around $5.35 a bushel, rather than the $4.50 USDA figures it should be, Hultman said it can be viewed in two ways.
“Either the market is trading too high or the market, perhaps, sees a tighter corn situation at work here than what USDA is estimating,” he said. “I think the truth is somewhere in the middle, but I tend to lean more toward the notion that corn stocks, I think, are tighter than what USDA is currently estimating. Maybe 1.2 to 1.3 billion bushels is probably a more reasonable estimate.”
World corn estimates
World ending stocks were increased from 286.5 million metric tons (mmt) to 287.7 mmt. China’s import estimate remained at 24 mmt.
“Many in the marketplace are still thinking perhaps it is 27 as to much as 30 million metric tons when all is said and done, but USDA kept that unchanged at 24,” said Hultman.
There were not changes to Argentina, Brazil or Ukraine’s estimates, however there was a slight reduction, Hultman said in Russia.
“Overall, there was not a big shakeup in the world estimates for corn in this month’s report,” he said.
As far as weekly corn sales to China, Hultman said the biggest spike we had was at the end of January when 230 million bushels (mb) were purchased.
“That was quite the stellar performance, but the pattern has been very sporadic,” he said. “We went almost three and a half months before we had those big sales reported and then we had another few weeks of quiet reports and we got a little more with 40 million bushels reported to China in the most recent weeks.”
Hultman said there is nothing particularly telling about the export sales reports, but more clues come from China’s corn prices.
China’s prices, the morning following the release of the March WASDE report, broke the 50 day average.
“That was the most significant break we have seen since the corn rally started in China back in early summer,” said Hultman.
As of last Wednesday, the May corn price in China translated, Hultman said, to roughly $10.71 a bushel.
“The uptrend does appear to be weakening, or possibly breaking and I think that is part of the reason we see corn trade lower,” he said.
Concerns raise about renewed reports of African Swine Fever (ASF) in China. Something Hultman said the WASDE report didn’t address very much.
“They are in the process of trying to rebuild their hog herd,” he said. “The challenge here is that not having real, solid, specific information in the country of China, we get these rumors and hearsay and it is
hard to know just how serious any resurgence of African Swine Fever may be on feed grains. The little break in corn here might be the first clue that corn demand, perhaps, is possibly finally slowing a bit in the country.”
There are 2.3 bb of export sales in the books for corn. Currently, Hultman said we are already at 90% of USDA’s estimate.
“The big key here moving forward is China, for the remaining five months of the season, the ball is in their court and it is hard to predict and that is one reason I noted their pattern in the past has been so sporadic and you can say unpredictable,” he said. “I think they like to keep us off balance.”
The ending stocks estimate for soybeans remained the same from last month at 120 mb.
What kind of prices should we expect from a 120 mb ending stocks estimate?
“We have never in the past 23 to 24 years had a situation this tight at this time of year, so there is not good comparison,” said Hultman. “We can say we are off the left end of the chart which is a very bullish scenario.”
The overall statistical expectation would be a cash price of roughly $13 a more.
“Our cash price, currently, is closer to $14. We are a little above that,” said Hultman. “Anything under 5% ending stocks to use ratio is extremely tight. We are at 2.6%. Quite frankly, I think the market is even actually tighter than the 120 million bushels the USDA is currently estimating.”
Hultman has stated before and sticks to that statement that he does not think it is unreasonable that we could see $15 soybeans.
“This continues to be an extremely tight market,” he said. “We have not seen that price yet, but it is certainly no beyond the realm of reasonability.”
World soybean estimates
The world balance sheet for soybeans only showed a slight increase in the soybean stocks estimate from 83.4 mmt up to 83.7 mmt.
“There were some past year revisions going on,” said Hultman. “USDA actually increased its estimate of Brazil’s soybean crop from the previous year of 126 up to 128.5 million metric tons. I think the comment basically was that Brazil had more exports than they could explain for that year, that may be the reason they bumped up the crop estimate from a year ago. Overall, it didn’t have a big impact on the world outlook for soybeans.”
Many were anticipating what USDA would say about the South American soybean crop.
Argentina’s crop estimate for soybeans was reduced a half mmt down to 47.5 mmt.
“Argentina, of course, is dealing with dry weather,” said Hultman, adding that some forecasted rain could help stabilize things, however, anticipating lower crop estimates from Argentina in future reports.
Brazil’s soybean crop is being harvested at the moment, just at a very slow pace. Their soybean crop estimate was increased from 133 to 134 mmt.
“That’s not a big surprise, but I want to warn everybody to keep that crop estimate in pencil,” said Hultman. “The reason I say that is because the conditions in central Brazil have been so wet and we have yet to see the rain let up. It is quite possible they are going to suffer some crop loss because of how wet things have been at harvest time.”
As far as China’s demand estimate, the import estimate was also unchanged at 100 mmt. The demand estimate for soybeans in China was reduced 1 mmt from 117.7 down to 116.7 mmt.
“That may be the actual nod to the presence of African Swine Fever in China,” said Hultman. “I can’t say for sure, I can’t read USDA’s mind, but it makes sense that there may be a slight acknowledgement there of the impact of feed grain demand that China has, still contending with African Swine Fever. That is just a possibility to throw out there.”
China’s soybean prices
Hultman said China’s soybean prices, as of the WASDE review, was barely holding above the 50 day average.
“The uptrend is still intact in China on the Dalian Exchange for spot soybeans. Prices are still expensive,” he said adding as of last Wednesday morning prices translated to $17.79 a bushel.
The uptrend could break if ASF affects feed demand.
“As of the report, the uptrend in soybean meal prices in China broke below the 50 day average and that was a significant break in upward momentum,” said Hultman. “There is some concern here African Swine Fever at least cooling off the demand situation in China from the red hot scenario we have seen in the past several months. This is the first bearish concern we have had since August.”
For right now, however, Hultman said that uptrend in soybeans is still intact in China and our uptrend in the U.S. is even stronger.
“The fact that it has been able to hold basically above the 30 day average since mid-August is just a phenomenally strong market and we don’t see a significant break in that uptrend just yet,” he said. “One of these days, yes, sure that will happen, but so far, we are not seeing any significant change in the bullishness of the trade for soybeans here in the U.S. or in China.”
Weekly export sales to China have tapered off the last few weeks, which Hultman said is on track for this time of year when Brazil’s soybean harvest starts to pick up.
Although slow, Brazil is expected to be harvesting a record crop at this time. What is unusual, however, is you normally would not be expecting both Brazil and U.S. prices to still be trending up.
“Normally, you would see Brazil’s prices trending lower, just as ours would if we were harvesting a record crop,” said Hultman. “Even in the heart of Brazil’s harvest, we still have soybean prices trending higher from both the U.S. and Brazil and that is just a testament to how strong China’s demand has been and how strong of a demand situation we are currently in.”
March 31, USDA releases their prospective plantings report, a report the markets, Hultman said usually pay attention to. More importantly, however, he said he will be keeping his eyes on the March 1 grain stocks report.
“That will tell us a lot about how actual demand has been going on this year,” he said.
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