9 April 2021

Posted on by
  • HEADLINES: USDA takes the feeble approach in raising demand; Leaves hard choices to the May 12 report; Market turns its attention to cash premiums and weather.
  • The USDA April Crop Report was broadly neutral to positive for Chicago futures with prices mixed at midday. Amid tightening US and world grain stocks, it appears that everything will be a process for the USDA amid the uncertainty of them trying to decipher when demand rationing starts. The grains are higher while soy futures are sagging. We doubt that the sag in soy will be long lived amid record large world oilseed demand and surging non-US vegoil prices.
  • Chicago will focus entirely on tightening US cash corn/soy supplies and rising basis bids, and US/world weather. The biggest nearby worry is the Brazilian winter corn crop and its increasing stress levels amid a lack of soil moisture. Corn will remain the upside leader while new crop November soybean futures are expected to hold support at $12.40-12.60.
  • The USDA dropped 2020/21 US corn end stocks to by 150 million bu to 1,352 million bu while holding the average farmgate price steady at $4.30. The USDA raised its US feed/residual use estimate by 50 million bu to 5,700 million and the corn ethanol grind by 25 million bu to 4,975 million. In total, domestic demand was hiked 75 million bu to 12,100 million (85 million bu less than last year). US 2020/21 corn exports were raised by 75 million bu to 2,675 million bu, which are arguably too low by 325 million bu.
  • By not raising US corn exports as much as statistical sales/shipment data would suggest, the door remains open for additional upward export adjustment and cuts in 2020/21 US corn end stocks. We note that by mid-April, the US will have sold more corn than the elevated USDA annual forecast with Brazil’s corn price at record highs. In our opinion the USDA should have sent a clearer message for the immediate need for US corn demand rationing.
  • The USDA dropped 2020/21 world corn end stocks by nearly 4 million mt to 283.8 million. They cut their Argentine corn crop estimate by 500,000 mt to 47 .0 million, while holding Brazil at 109 million mt. The cut in the Argentine production resulted in a like drops in domestic feeding with exports holding steady at 34.0 million mt. The USDA shockingly left China’s corn exports at 24 million mt even though the US has sold that amount and there are another 8-9 million mt of corn sales/shipments from Ukraine. It seems the USDA is way behind in forecasting China’s corn import program, they continue to be stubborn in the understanding of China’s corn import need.
  • The USDA estimated 2020/21 US soybean end stocks at the same 120 million bu but adjusted the US soybean crush rate down 10 million bu while exports gained 30 million bu to 2,280 million bu. USDA cut their soy residual forecast by 17 million bu to 4 million bu based on the March stocks data. Research argues that the USDA is too low on both crush/export estimates. The average US farmgate cash soybean price was raised $0.10/bu to $11.25. The USDA is not sending the right signal on demand rationing by raising its domestic price forecast more. US crushers/exporters will overuse soybeans so that cash supplies virtually run out this summer.
  • USDA raised their estimate of the 2021 Brazilian soybean harvest to a record 136 million mt while leaving Argentina at 47.50 million. China’s soybean crush was trimmed 2 million to 96 million mt while imports were left unchanged at 100 million mt. The net result was that China’s soybean end stocks were raised by 2 million mt to 31.6 million. 2020/21 world soybean end stocks were raised 3.1 million to 86.8 million mt.
  • US 2020/21 wheat stocks were raised by 16 million bu to 852 million bu based on a 25 million bu cut in feed/residual and a 10 million bu drop in imports. Class breakdowns showed a 28 million bu hike in HRW stocks (411 million bu) while spring wheat stocks fell 3 million bu, SRW stocks 5 million bu (94 million bu), and durum stocks 5 million bu. The average farmgate wheat price was left at $5.00/bu.
  • There are many points that one can argue with the USDAS in this April Report. The big glaring data point is keeping China corn imports at 24 million mt, and why they have been so slow to adjust in recent months. Yet, they will get it right in the end and for now the tightening cash markets and flash drought for Brazilian winter corn will underpin a Chicago break. Corn is the upside leader, followed by wheat, and then new crop soybeans. From a longer-term perspective, the best risk vs reward is owning November soybeans and December corn on breaks. US cash basis is strong.
To download our weekly update as a PDF file please click on the link below: