- HEADLINES: USDA disappoints in its February report with limited export demand increase; S American weather and crop size in focus into March
- The USDA statistically plodded in the February WASDE report and decided not to make any big changes. This produced a negative reaction in Chicago as the bulls exit market length and argue against USDA’s slow nature in making upward revisions to US 2020/21 corn and soybean exports. The USDA report did not feed the bulls and moderate correction lies ahead.
- The USDA February report implies that new US export demand must step forward or adverse weather for S America for new highs to be scored. The USDA sent the message that soybean or corn demand rationing (through higher price) is not required. That is not the right message in our view, but the USDA seems to want to see the massive US corn sales ship before making a larger upward adjustment in US 2020/21 corn exports. We note that the risk in the USDA’s “plodding nature” is that the rationing message is never properly sent which sends corn /soybean and wheat values sharply higher on an acute demand rationing rally in April/May. The USDA is risking that the market does not start the rationing chore by assuring end users of adequate supplies/stocks. We consequently see the USDA February WASDE as slightly bearish, but we doubt that any break will be sharp or severe with the need to make sure that US farmers plant every acre possible this spring. Nov soybeans will find support below $11.50 and Dec corn below $4.40.
- The USDA estimated 2020/21 US corn end stocks at 1,502 million bu, a 50 million reduction from January to 2,600 million bu. The increase was well below what was expected based on US corn sale data and the recent over 240 million bu of US corn to China. No other changes were made to the balance sheet with the average US farmgate corn price raised by 10 cents to $4.30/bu.
- World 2020/21 corn stocks were raised 3 million mt to 286.5 million mt based on 3.0 million cut in world demand. The USDA left the Brazilian corn crop estimate at 109 million mt and Argentina at 47.50 million mt. Yet, China’s corn exports were raised to 24 million mt (up 6.50 million) as their feed use was hiked 6 million to 206.0 million mt. China’s 2020/21 corn end stocks were forecast at 196.2 million mt, up 4.5 million from January.
- US 2020/21 soybean end stocks were lowered by 20 million bu to 120 million with the USDA raising US soybean exports to 2,250 million bu, a 20 million bu increase. The rest of the balance sheet was left unchanged with the average US farmgate soybean price holding steady with January at $11.15.
- The USDA left their estimates of the 2021 Brazilian soybean crop unchanged at 133.0 million mt with Argentina at 48.0 million mt. The weather during January did not deviate far enough from normal to make any yield or production change. The USDA normally waits until March or April to make crop production changes based on harvested yield data. China’s 2020/21 soybean import estimate was left alone at 100 million mt. To date, China has loaded 20% more soybeans through January than last year. USDA is forecast that China’s 2020/21 soybean imports up 1.5%.
- The USDA forecast 2020/21 US wheat end stocks at 836 million bu, unchanged from January. The USDA raised the seasonal average cash price to $5.00, up $0.15/bu from January. The 2020/21 US wheat balance sheet offered no surprises.
- World wheat end stocks fell 9 million mt to 304.2 million as China’s domestic feed use estimate was raised 5 million to 140 million mt, a record. Russian 2020 /21 wheat exports were left unchanged at 39 million mt. USDA did not make any adjustment to Russian wheat or grain trade as export duties are enacted in wheat next week. World wheat stocks are down, but still large and it is difficult to find any bullish impetus without enlarged US export demand.
- The USDA does not release their country-by-country export grids on any grain or oilseed. This has traders wondering how the USDA could raise Chinese 2020/21 corn imports to a record 24.0 million mt (up 6.5 million) while only boosting US 2020/21 corn exports by 50 million bu or 1.3 million mt.
- Most traders argue that the USDA may wish to see the US corn ship to China before making a US export upward adjustment The USDA February report leaves traders asking more questions than answers, and the bulls wanting more.
- With China heading to their Lunar New Year holiday and Brazilian fob soybean offers cheaper than the Gulf from late February through July, the demand led bull market phase has ended. If new Chicago highs are to be scored, it must be based on the loss of S American crop, either through Brazilian soy yield data or Argentine/S Brazilian dry weather. Supply losses are the new driving mantra of the bulls with us corn/soybean sales already record large.