- NASS surprised Chicago traders with a 2019 US October corn yield above September. Traders/farmers were anticipating that objective yield analysis would reflect a 2-4 bushels/acre decline. The net result is that US 2019 corn production held steady (with September) at 13,779 million bu due to a modest fall in harvested acres due to new and updated FSA data.
- The NASS October soybean yield/stocks data was supportive with diminished production, but it is always corn that rules the day with many (including us) suspecting that WASDE is at least 5-7 million mt too high with China 2019/20 soybean imports due to the ongoing expansion of ASF within their pig herd.
- The battle between supply bulls and the demand bears has been won by the bears. US corn, soybean and wheat export forecasts are likely to fall even further with time. We had been hopeful for a positive NASS report.
- Longer term, if the nearly 20 million acres of corn/soybeans (prevent plant) were seeded equally to each crop, US farmers would have produced another 2.2 billion bu of crops. This is the problem for US ag markets longer term. The return of 19.4 million acres to Midwest production and trendline yields would substantially add to US stocks without additional export demand.
- The October USDA report confirmed what now seems to be a secondary top in corn. The soybean market may still have 10-25 cents of upside price potential, but a US/China ag trade deal or dire S American weather is needed to alter directional bearish Chicago price trends.
- USDA corn data is bearish relative to Dec Chicago at $3.95. Yield was pegged at 168.4 bushels/acre, up marginally from September and 1.5 bu above the market’s expectation. Even accounting for the loss of old crop carry-in supplies, new crop US corn stocks were put at 1,929 million bu. Total 2019/20 US corn disappearance was lowered 90 million bu. Exports were lowered 150 million, with ethanol’s demand draw down 50 million. This was partially offset by higher projected feed use.
- We currently see a US corn yield of 166 bushels/acre, with just 29% of NASS samples rated as mature. This compares to 80% a year ago in Oct. Additional ear weight loss is expected across the E Corn Belt. However, USDA’s ethanol and export forecasts remain overstated in our opinion. US corn export commitments through early Oct are down 52% from last year, with the USDA’s Ukrainian production forecast still 2 million mt too low. Enlarged export competition persists into early 2020.
- Following tight US corn stocks estimates early in the summer, a relative loosening of the US balance thereafter and now a drop in final 2018 end stocks, major exporter corn stocks/use is unchanged on the year. Note that Ukrainian yields are up 1% from last year with 40% of the crop gathered. The USDA projects Ukrainian corn yield to decline 6% year-over-year. A drop in US yield of 1 bushels/acre in Nov will be offset completely by higher Black Sea production. Projected world corn trade in 2019/20 was 166.6 million mt and now sits 11 million below last year. With world wheat stocks record large, there is no shortage of global grain supply. Only widespread adverse S American weather can change the oversupply.
- Our primary concern for the US market is sheer lack of US export demand, even from W Hemisphere countries. Dec Chicago is fairly priced between $3.65-3.95.
- The October Crop Production and WASDE reports were viewed as supportive for Chicago soy markets as balance sheets tightened.
- In the 2018/19 balance sheet, production was reduced to match NASS’s estimate from the September Grain Stocks Report. Imports were lowered to match Census Bureau trade data, and the net result was a 119 million bu decline in total supply. Crush increased by 7 million bu to 2,092 million, and exports were increased by 3 million bu to 1,748 million bu. Last year’s US carryout was lowered to 913 million bu.
- In the new crop balance sheet, NASS lowered planted/harvested acres by 240,000 acres. Yield declined 1 bu to 46.9 bushels/acre.
- US production fell by 83 million bu, and total supply dropped by 175 million bu. Exports were raised 5 million, and end stocks were projected 180 million bu less at 460 million. The average farm-gate price forecast was raised $.50 to $9.00/bu.
- Yields were lower in 18 of the 29 states that NASS estimates. In the Midwest States, the largest decline of 2 bushels/acre was in IL, MO, and NE. All other states were lowered by 1 bushels/acre, except MI, which was increased 1 bushels/acre. The largest yield declines were in Delta and Southern states, where the GA and SC yields were down 5 bushels/acre, while AL and KY yields were lowered 4 bushels/acre.
- In objective yield data, the 7-state pod count increased 3% from the September report. Despite the modest increase in the October count, it is still the second largest year-over-year decline in counts, behind the 2012 drought and the lowest pod population since 2013. NASS’s yield estimates implied a 5% decline in pod weights, but the implied figure is still 9% more than a year ago and record large.
- NASS’s yield estimates assume normal weather which would not account for the N Plains and N Midwest blizzard. Yields in those states will decline, but losses will not be fully accounted until after harvest (January report).
- In the global balance sheet, the 2019/20 world soybean production forecast declined by 2 million mt from September and remained at a 4-year low of 341 million mt. Nearly all the decline in global production was due to the smaller US soybean crop estimate.
- Argentine production was unchanged at 53 million mt, and Brazilian production held steady at 123 million mt. Ahead of the USDA forecast, Brazil’s crop forecast agency CONAB estimated a soybean crop of 120.4 million mt. The USDA is expected to maintain its larger crop production forecast later in the year when more is known about early season weather.
- Typically, the USDA begins following CONAB’s guidance in the December and January reports.
- The October reports did not hold a bearish surprise and were generally supportive. However, it was the bearish corn estimates that pulled soybeans down.
- Our long-held price targets of $9.30 were reached this week and we are generally bearish of any post report rallies. A China trade deal is needed to support a trade over $9.50 November.
- The USDA raised US wheat ending stocks 29 million bu to 1,046 million. WASDE adopted NASS’s final production as well as disappointing implied Jun-Aug feed disappearance. USDA also lowered 2019/20 exports 25 million bu amid ongoing US premiums to other comparable origins and another reduction in total world wheat trade. Note that US HRW stocks were raised to 491 million bu, vs 462 million in Sep. Steep KC discounts to other markets will continue.
- Wheat lacks a fundamental story. Seasonal trends in world cash values have turned positive, yet EU and Black Sea origins are offered at levels equivalent to $3.95, basis Dec KC. Note that US 2020 end stocks will stay above 950 million bu even assuming another 400,000-acre cut in seedings. Supply fear will remain lacking amid lofty end stocks. Any lasting rally in wheat will be tied to potential corn supply losses in S America should a dire summer drought develop. Wheat looks to be range bound.
- And the world wheat balance sheet continues to loosen. Total world end stocks were raised 1.3 million mt to 287.8, a record high, on a minor revision to domestic use and another 1.1 million mt cut to world trade. World trade wheat trade is now pegged at 179.7 million mt, vs. 185.4 million in June.
- Australian production was lowered 1 million mt to 18 million. This was offset by larger EU production. And we would still anticipate a 3-4 million mt hike in Russian production within the USDA’s Nov release. Major exporter stocks/use is pegged at 16.1%, vs. 15.6% in September. Major exporter stocks are not overly bearish, but it is clear that steep competition for export demand persists from Europe and the Black Sea.
- World wheat stocks will rise another 8-10 million mt in 2020 with normal weather. It is the trend of ever-higher world stocks that will cap price rallies as world wheat trade stagnates.