- The USDA May Report failed to offer any major market surprises. US 2020/21 corn stocks are forecast at the largest in over 3 decades (3,300 million bu) while US wheat stocks stayed large (909 million bu) with soybeans more than adequate at 405 million bu. 2020/21 world wheat stocks were record large at 310 million mt (up 15 million), world 2020/21 corn stocks were up 25 million at 340 million mt, while world soybean stocks fell nearly 2 million to 98.4 million mt. The US and world hold an abundance of grain and oilseeds in old and new crop positions.
- Chicago outlook hinges on Central US/world weather and future Chinese demand for US ag goods. We would note that WASDE is taking a stepped approach in reducing US/world demand due to Covid-19. WASDE made little or no demand reduction in 2020/21 world trade/consumption due to Covid. Our concern is that WASDE is too optimistic as the virus grips the world’s health. However, forecasting the end of the virus is impossible. Thus, WASDE will be making a demand reduction on a month-by-month basis. This means that without dire weather, Chicago rallies will be capped with price bounces tied to the arrival of China for US farm goods.
- WASDE estimated the 2020 US winter wheat crop at 1,255 million bu. The crop is down 49 million bu from last year, but it was above prior trade expectations. The US HRW crop was pegged at 733 million bu, SRW at 298 million bu with white wheat at 223 million bu. The US 2020 all wheat crop was forecast at 1,866 million bu, down 54 million from last year.
- WASDE forecast 2020/21 US wheat end stocks at 909 million bu with exports at 950 million bu. Such end stocks model out to a farm gate annual price of $4.60/bu which will limit rallies in KC spot wheat futures above $5.00. US wheat feed/ residual wheat use was placed at 100 million bu based on the cheap price of corn.
- 2020/21 world wheat production is forecast to be record large 768 million mt with the Russian crop at 77 million mt, Ukraine at 28 million mt, and Europe at 143 million mt. Russian and EU wheat crop cuts were as expected due to late winter and early spring dryness. China looks to produce a record large wheat crop of 135 million mt. The size of world production is bearish with the 2020 Australian crop estimated at just 24 million mt. The Aussie crop could be 2-6 million mt larger. World wheat stocks at 310 million mt is massive with world less China stocks at 150 million mt.
- US 2020/21 corn production is forecast to be record large at 15,995 million bu. This is the first time that the US has produced a 16 billion bu corn crop. The size of the crop allowed WASDE to raise their feed/residual total to 6,050 million bu. US exports were raised to 2,150 million bu with China to take 7 million mt. The farm gate price was forecast at $3.20 which consider to be $0.30/bu too high.
- World corn stocks were raised to 340 million mt (up 25 million) the largest since 2018/19. WASDE followed prior trendline consumption increases and did not make any adjustment for Covid-19. We expect that WASDE will be forced to trim world corn consumption/trade if the virus persists through the summer. The 2021 Brazilian corn crop was forecast at a record large 106.0 million mt with Argentina at 50.0 million mt. The Ukraine new crop harvest was pegged at a huge 39 million mt. Local currencies are fanning an accelerated world corn production trend.
- US 2020/21 soybean end stocks were forecast at 405 million bu assuming a crop of 4,135 million bu (up 568 million bu from last year). The yield was forecast at trend at 49.8 bushels/acre with seedings at 83.5 million acres. We expect that US 2020 soybean seeding will rise at least 1.5 million acres to 85.0 million acres. The forecast annual farmgate price was pegged at $8.20/bu which looks to cap rallies above $9.00 basis November futures. Note that US old crop soybean end stocks were raised to 580 million bu based on a cut in exports to 1,675 million bu. WE believe that US old crop soybean exports could be trimmed by another 75-125 million bu.
- The USDA May crop report held little for the bulls with US/World crop production and stocks more than adequate. A bullish outlook depends on adverse US weather. Traders are unwinding long soy vs short corn and long wheat vs short corn spreads. China demand is needed, and it can provide bounces. Corn remains the bearish drag with December rallies capped above $3.40. Soybeans could well bounce as much as 20-35 cents on (if) China buying.