‘A rough start to crops’
By KRISS NELSON
The July World Agricultural Supply and Demand Estimates (WASDE) numbers from USDA were released last week.
Todd Hultman, DTN lead analyst said typically the July report brings minor tweaks to USDA estimates.
“It is early in the season to take in account weather as far as yield changes go,” he said. “Obviously, we have had a very mixed weather scenario around the country. So far, the good to excellent ratings are on the low end for both corn and soybeans.”
Numbers released during the June 30th grain stocks report are figured into the July WASDE as well as the acreage estimates.
Yield estimates for this month remained unchanged. Hultman said USDA is still predicting a record 149.5 bushel to the acre for corn and 50.8 bushels an acre for soybeans.
“Of course, we have a lot of questions about those with the weather challenges we see in the country,” he said.
Old crop ending stocks estimate came in at 1.08 billion bushels (bb) for corn, down from 1.11 bb last month. The culprit, Hultman said was a 25 million bushel (mb) increase in the feed estimate for corn.
That was basically the only change.
“They did not change ethanol demand, which was a little bit of a surprise to me. There was room for that to go higher,” he said.
On the new crop side, USDA is estimating a 15.16 bb crop, which Hultman said was slightly up from expectations.
“Most of the trade was looking for 15 billion bushels,” he said. “Of course, we got a little increase in the acreage planting estimate up to 96.7 million acres on June 30 that accounts for that.”
What does these new ending stocks mean for U.S. cash corn prices?
Old crop ending stocks heightened slightly bringing the ending stocks to use ration closer to the 7% mark. That expectation, according to Hultman, is in the middle, to low $5 range for cash corn prices.
“We are actually trading above that now in the low $6 range,” he said. “Seems to be a tight old crop corn market.”
There was a 50 million bushel (mb) increase in the export expectations in corn bringing the total to 2.5 bb. Some very large, early sales to China, Hultman believes is likely behind the increase for this month.
The ending stocks estimate for the new crop season is 1.43 bb, which is also slightly higher than expected.
The ending stocks to use ratio for that level is 9.6%. This new ending stocks number points to a lower price estimate of roughly $4.60 a bushel.
“That is a little more comfortable of a supply situation than the current season we are in, but we are still currently in a very tight situation as far as cash corn prices are concerned,” Hultman said. “Looking ahead, USDA is looking for a little more roomier supplies as far as ending stocks. Keep in mind, we have not yet factored in weather for the season ahead. This is still a very fluid estimate. We have lots of season still in front of us.”
World corn estimates
World corn estimates for the current season of 2020/2021, brought a large increase for Argentina and another reduction for Brazil.
“We can’t say the reductions for Brazil are over yet given all of the crop estimates that are out there. South America is still working in this season,” said Hultman. “Brazil’s corn is being harvested as we speak. There has been a lot of concern how big Brazil’s corn crop is going to be. We have seen lots of private estimates down below 90 million metric tons, but for now, USDA is reducing its estimate down to 93 million metric tons. It was 98.5 a month ago.”
Estimates for Argentina’s corn is 48.5 million metric tons (mmt) compared to 47 mmt a month ago.
WASDE numbers for the new crop season – the crop we are expected to harvest this fall – was increased from 289.41 mmt to 291.2 mmt.
USDA kept their previous estimate of 26 mmt for China’s corn imports.
“That is another, very large purchase total close to what we are seeing in the current season,” said Hultman. “USDA is still asserting and expecting China to have a very large need to import corn in the new season ahead. This will be a big question mark as we move ahead in the next 14 months and something to keep an eye on given the clues of high corn prices still in China. I tend to support USDA on this view.”
As of July 1, the U.S. has shipped 2.31 bb of corn with an overall sales commitment total just under 2.75 bb.
“We are still close to, and on track for the 2.85 billion bushel estimate of old crop sales and shipments, even though the shipment pace has slowed a little bit the past few weeks, we still have a good chance of reaching that, so far, by the end of August,” Hultman said. “It remains to be seen if we will quite make it or not.”
In general, Hultman said the changes in this report were bearish for corn due to the U.S. ending stocks coming in higher than expected at 1.43 billion bushels.
“However, the old crop stocks to use ratio remains tight at 7%. We have kind of a bullish old crop scenario and a less bullish new crop scenario,” he said.
When it came to soybean numbers, Hultman said there was little unchanged since June.
There is a 155 mb ending stocks estimate for new crop soybeans and old crop estimate is at 135 mb. Exports, however, did come down slightly in the old crop season from 2.28 to 2.27 bb.
The average farm price, Hultman said, curiously enough was changed from $13.85 a bushel down to $13.70 a bushel.
World soybean estimates
The world supply table for the old crop season which includes South America’s soybean harvest that will be completed soon, saw a slight reduction in the soybean estimate for Argentina which was 47 mmt down to 46.5 mmt.
There must have been a revision in the old crop soybean stocks estimate, as Hultman said it is now up from 88 mmt last month to 91.5 mmt.
“Beginning stocks are basically the same. The production total estimate was just down a half million metric tons because of Argentina. The demand estimates are basically the same, yet the soybean stock estimate got bumped up 3.5 million metric tons.”
For new crop world soybean’s ending estimate also increased from 92.5 up to 94.5 mmt. That was due to the previously mentioned revision on the old crop side.
China’s import estimate for soybeans was reduced from 103 mmt down to 102 mmt.
“That is a surprise to me because China’s new policy, supposedly, is encouraging more corn production to come at the expense of soybean production,” said Hultman.
The soybean price on China’s Dalian Exchange has been trading very firmly, holding up better, Hultman said than the corn price.
“It still seems to be there is a stern case for China importing a lot of soybeans this year,” he said. “More than we saw a year ago.”
The ending stocks estimate stayed at 155 mb, which points to a $13 cash price.
“It is maybe not a shock USDA brought down their average farm price estimate slight to $13.70 – that seems closer in line to history,” he said. “We have a very tight situation here. It is still an exceptional market and there is still a lot of potential volatility in these prices.”
Shipments of soybeans, Hultman said have slowed quite a bit since February.
“China’s attention for buying soybeans has turned from the U.S. to Brazil,” he said. “They have been shipping soybeans out of Brazil during this time. We have seen the typical seasonal slowdown that we do for our U.S. soybeans.”
As of July 1, there has been 2.12 billion bushels of soybeans shipped.
“That is 60% higher than last year,” said Hultman.
Soybean commitment sales have totaled 2.26 bb and the new estimate, Hultman said is 2.27 bb for the season, a reduction from 2.28 in last month’s estimate.
The return for soybean crush has dropped significantly the past couple of years. Are things beginning to turn around?
“We are still down near the lowest levels in seven years, but there has been a slight improvement the past couple of months,” said Hultman.
The crush pace is up 1% from a year ago and Hultman said it has been an active part of our domestic soybean demand.
Hultman brought the word “bearish” out for the first time in a long time when describing the soybean WASDE numbers
“For soybeans, this report was slightly bearish,” said Hultman. “Soybeans in the bigger context, continue to be bullish because we are in such a tight supply situation, but it is a bit odd USDA increased that world ending stocks number by 3 million metric tons.”
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