- HEADLINES: USDA leans bullish corn; Central US drought continues expansion.
- The June USDA report is mixed in terms of statistical data. US corn stocks data was bullish, while the 15 million bu cut in US crush rate was seen as slightly bearish. And the 2021 US wheat crop expanded just 26 million bu (1,898 million bu) with 2021/22 wheat end stocks declining by 4 million bu to 770 million bu.
- In general, the USDA is moving closer to the weekly data that calls for an increase in the 2020/21 US ethanol grind and US corn exports. It is a process! USDA cut 2020/21 US corn end stocks to 1,107 million bu, a 150 million bu reduction as exports were raised 100 million bu to a record large 2,857 million bu while ethanol use was increased 50 million bu to 5,025 million bu. We would argue that the USDA is still 150-175 million bu too low with 2020/21 US corn export estimate and 25-75 million bu too low on ethanol. This would pull final old crop US corn end stocks to 925 million bu. Any change in the feed/residual use estimate will have to wait until the June 30 Stocks Report, but the old crop US corn balance sheet cannot afford to find any additional feed demand. The finding of feed demand is likely based on soaring cash sorghum/barley prices. US 2021/22 corn end stocks fell to 1,357 million.
- NASS should find an additional 1.5-3.0 million acres of US corn seeding in the June report, but that will not be enough to prevent US corn end stocks from reaching levels not seen since 2012, assuming trend line yield of 179.5 bushels/acre. If the US corn yield were to fall to last year’s 172 bushels/acre or less, we have no way of modelling how high is high for US corn/feedgrain prices.
- The USDA lowered the 2021 Brazilian corn crop to a conservative 98.5 million mt, down 3.5 million. This was slightly above the average trade guess of 97.0 million mt, as million mt is just too conservative in making a deeper adjustment. Brazilian 2020/21 corn exports are a still far too high 33 MMTs (down 1 million from May) which is only down 2.3 million mt from the year prior. We estimate the 2020/21 Brazilian corn crop at 89.5 million mt, and the USDA will not reach this lower estimate until August. At that time, it will have to aggressively raise 2021/22 US corn exports to make up for the Brazilian shortfall. The USDA is being too slow in sending the right market message in Brazilian corn crop adjustment. 2021/22 world corn end stocks are estimated at 289.4 million mt with China importing 26.0 million mt. US corn exports at 2,450 million bu are too low by 500-600 million bu.
- The USDA increased US 2020/21 soybean end stocks by 15 million bu to 135 million bu and adjusted new crop by a like amount to 155 million bu. Amid June-August US crush margins that are deeply positive, the cut must be made on local supply shortages that slow crush operations. This does not alter the bullish soy outlook.
- 2021/22 US wheat end stocks were lowered 4 million bushels from May amid reduced carry-in (higher old crop exports) and as a 26-million-bushel hike in winter wheat production was partially offset by enlarged feed use.
- NASS pegged 2021 HRW production at 771 million bushels, up 40 million from May but very close to expectations. SRW production was raised 3 million bushels to 335 million. White winter production was lowered another 18 million bushels amid ongoing drought in PNW, and at 202 million bushels will be the smallest since 2015 and down 44 million (18%) from Last year. Additional downgrades to winter white wheat production are anticipated. And spring wheat production is likely to be dropped 100-130 million from last year resulting in a year-over-year decline in US wheat output of 30-60 million bushels.
- The 2021/22 world wheat balance sheet was Loosened slightly as combined EU/Black Sea production was raised 4.5 million tons. Global consumption was raised only 2.4 million tons. Yet, global spring wheat yield risks are high as crops across the Northern and Western US, Kazakhstan and Russia labour under heat and dryness.
- The USDA’s June release was largely in line with known input, though US corn and soy demand is still understated. A further reduction in Brazilian corn production results in an ongoing re-shuffling of the global corn trade matrix, to the benefit of US exporters. Otherwise, it is back to watching weather and gauging if a shift from ongoing Central US warmth and dryness occurs prior to July 1. We remain bullish.