- The June WASDE was a huge surprise for the marketplace, as the USDA made far larger than expected cuts to both harvested corn acres and yield. Downward adjustments were expected, but the changes were far more aggressive than even the most bullish traders had expected. Harvested acres were lowered by 3 million, and the yield was cut 10 bushels/acre to 166 bushels. June changes to either figure are rare, but the 2019 changes were both record large. The USDA’s June WASDE was much more exciting than anticipated! The USDA cut corn yield 10 bushels/acre based on planting delays. The USDA typically alters yield and acreage very slowly during the summer months, but unprecedented rainfall and planting delays this season forced a more proactive approach. Measuring US crop potential at this date is difficult, but there is little room for additional corn production loss.
- However, keeping the US corn market from entering a rationing phase is the recent and coming boost to non-US major crop production. Combined corn, wheat and soy production outside the US is pegged at a record 1.72 billion tons in 2019. This is up 2.6 million mt from the USDA’s May report and up 50 million mt from 2018/19. The message is that while substantial corn/soy yield risk is present, US end stocks are less certain as world trade flows are shuffled around and more wheat is fed globally. Choppy trade persists into late month. And there is no shortage of global wheat or oilseed supplies.
- The USDA’s updated balance sheet is close to what’s being used by the trade currently, but this was certainly not anticipated based on recent years’ protocol.
- The highlight in ag markets today was the 810 million bu drop in projected new crop US corn end stocks. Stocks/use is pegged at 11.9%, vs. 15.1% in 2018/19. Work suggests this correlates with Dec corn futures at $4.40-4.50. Coming yield risk will offer ample support on breaks. In addition, we expect even further tightening in the US corn balance sheet without ideal summer/autumn weather.
- Yet, focus should be kept on end stocks and whether the market’s perception of stocks/use falls below 10%, at which point the stocks/use vs. price curve steepens. Export and feed use will be cut along with production.
- Damage was done to the major corn exporter balance sheet by the plunge in US corn production. Major exporter corn stocks/use is estimated at 10.4%, the lowest since 2012. This will keep world cash corn values supported. S American corn prices will rise seasonally into autumn, and already the S American market is beginning to firm as world demand is funneled to Brazil and Argentina.
- S America’s corn harvest this year has been raised to a record 150 million mt, and their exports are pegged at 135 million mt, vs. 105 a year ago. World barley production in 2019 will rebound 12 million mt to a record 152 million. A nuanced market lies ahead this summer as the battle between sharply lower US production and rising non-US production continues. We believe that neither sharp breaks nor rallies should be chased until clarity over July and early August weather is available.
- While the USDA shocked the trade with aggressive cuts to new crop corn acreage and yield, changes to the soybean balance sheet were far less intense, but nonetheless bearish. Old crop soybean exports were sharply lowered by 75 million bu to 1,700 million. There were no other changes to demand in the old crop balance-sheet, with crush held steady at 2,100 million bu. The lost export business was added to end stocks, which increased to a record large 1,070 million bu. The USDA cut the season average price forecast by $0.10 to $8.50.
- The USDA punted on the new crop balance sheet, leaving acreage and yield unchanged from May. Beginning stocks were increased by 75 million bu, and with no other changes to the new crop balance sheet, the 2019/20 carryout increased by the same amount to 1,045 million bu. The July WASDE will feature acreage changes according to the June survey, and WASDE analysts will make judgments around yield potential.
- Changes in both the old and new crop balance sheets hinged on the adjustment of just one item: old crop exports. The USDA noted slower than expected exports to China for the reduction, and also lowered their estimate for Chinese all origin imports by 1 million mt to 85 million. The annual soybean crush rate was unchanged from May at 86 million mt, down 4 million from last year, but still the third largest annual crush figure.
- Last week’s Export Sales report showed 6.7 million mt (245 million bu) of outstanding sales to China, with another 2.3 million mt (86 million bu) of outstanding sales to unknown destinations. US soybeans are still being loaded for Chinese ports, albeit at a very slow pace, and the USDA is likely justified in reducing their export figure based on the current pace. However, their track record for estimating annual exports in June shows that since 1990, the June estimate has been too low in 20 years (71%), and too high in 8 years (29%). A year ago, after making major cuts to the export outlook in July, the June estimate was still too low by 64 million bu. We have kept our estimate unchanged at 1,725 million bu, waiting to see more export data to determine additional changes.
- In the soy product balance sheets, the USDA lowered their soyoil yield and production estimate fractionally. Domestic food, feed, industrial, and export use was unchanged, but the USDA cut the biodiesel use estimate by 150 million lbs. Year-end soyoil stocks increased slightly to 1,950 million lbs, but the season average price was unchanged at 28 cents/lb. It is 2019/20 that holds a more bullish soyoil outlook when biodiesel demand is projected to increase by 500 million lbs (6%) to 8,700 million.
- In soymeal, the USDA went the opposite direction, slightly increasing the meal yield and production estimates. Domestic use was unchanged, while the USDA raised the export forecast by 25,000 short tons to 14 million tons. Historically, the USDA tends to underestimate annual meal exports in June, but data shows the current forecast is aligned with the pace of export commitments. The current export total is at a four-year high, while outstanding sales are down 7% year-over-year.
- US wheat balance sheet changes were mixed but ultimately are viewed as neutral. Old crop US wheat stocks were lowered 25 million bu on a similar boost to exports. New crop production was raised 6 million on higher HRW yields. New crop wheat stocks were lowered 69 million bu on lower carry-in supply and higher projected feeding. Still, US wheat stocks will stay above 1.0 billion bu. The US market currently is not positioned to boost its share of world trade. And work suggests the US HRW crop at 794 million bu is still understated by 10-15 million. Spring wheat crop ratings are the highest since 2010 at 81% good/excellent.
- The point is that there is no real threat to overabundant US wheat supplies. The world market will rise seasonally, if only to compete with EU/Black Sea origin, KC needs to trade below $4.55, basis Sep. US wheat needs demand to turn outright bullish above $5.25, spot Chicago.
- Major exporter wheat stocks were lowered slightly as higher projected domestic use offset higher production in Russia and Ukraine.
- World wheat prices appear to have forged their seasonal lows. But with major exporter production to be up 38 million mt from 2018, competition for world trade will be present well into late 2019. Our main concern since early June is that world markets have failed to follow US futures higher. Latest Russian fob offers are down slightly to $195-199/mt for Aug-Sep arrival. This compares to US Gulf wheat at $210-227. Better rains lie ahead for Australia into late June. Better rain is also offered to the Canadian Prairies beginning this weekend. Wheat will likely follow corn into mid-summer.