- With the USDA’s November data void of surprises, or tight US balance sheets, it’s back to watching South America’s climate pattern and ongoing US-Chinese trade progress. The EU weather model has been trending increasingly wetter in Argentina, with early corn pollination there to begin in December.
- The USDA’s November WASDE report was surprisingly dull, with US corn, wheat and soy balance sheets barley changed from October. Corn yield will very likely be lowered slightly again in January, but today’s data confirmed that meaningful rallies from current values require S American supply loss or new demand from China.
- The issue throughout the season has been the lack of a demand driver, which actually has been case since 2017. The USDA in its Nov WASDE pegged US major crop consumption at 20.09 billion bu, down 127 million from October and down 457 million from 2018/19. US weather issues have less bite without enlarged export demand.
- NASS pegged US corn yield at 167 bushels/acre, vs 168.4 in October. This was marginally below trade expectations but not nearly enough to trigger a new supply-driven bull market. Total US corn consumption was cut 100 million bu amid reduced feed, exports and ethanol disappearance.
- Following yield cuts in November, there is a strong tendency for NASS to further reduce US corn production in January’s final report. Yet, US corn yield changes from Nov to Jan are rather small as NASS has greater access to mature corn samples. The average annual reduction from Nov-Jan sits at 0.9%, which in 2019 would equal 1.5 bushels/acre. Mathematically a final yield of 165-167 is most probable.
- This extrapolation will keep the market supported on breaks. However, a much-improved pace of export sales is needed to sustain March above $4.00.
- US exports will be lowered another 50 million bu in Dec without better nearby demand, though we are in general agreement with the USDA’s outlook. Longer term, hanging over the market will be a boost in US corn seedings. The return of trend yield requires a surge in consumption to prevent 2020 stocks from ballooning to levels in excess of 3.0 billion bu. Domestic use will grow slightly, but more important will be capturing a greater share of world trade in the next several years.
- Only S American supply dislocation can change the US’s position in the world corn market. Our bet is that normal precipitation will be established in Brazil and Argentina into December.
- The November Crop Production and WASDE reports offered no surprises to the soybean trade. Soybean futures held within the week’s range through Friday but gave back all of Thursday’s gains to end 4-5 cents lower.
- A late-season harvested area survey of ND and MN produced no changes to the USDA estimates, while the USDA maintained the October yield forecast of 46.9 BPA. Production remained at 3,550 million bu, down 20% from last year. Changes to the demand end of the balance sheet were almost as uneventful as the supply side. Crush was lowered 15 million bu to 2,105 million. No other changes were made to the old crop balance sheet, and ending stocks increased by a like amount to 475 million bu. The season-average price forecast was also held unchanged at $9/Bu or $0.52 over last year.
- Our initial projection at the 2020/21 balance sheet, has stocks increasing to 600 million bu, and price to fall $1.10/bu.
- Of the 29 states that NASS provides yield estimates for, 16 of the state yields were different from October. However, the National yield was incredibly unchanged. Most of the yield declines were noted outside of the Corn Belt, the exceptions being Ml and ND, where yields were lowered 2 bushels/acre. Yield increases of 1 bushels/acre were estimated in IN, KS, MN, and NE.
- In the objective yield data, the 7 state pod count actually declined. An average pod count of 1,632 pods was 20% less than last year and the lowest since 2013. While the pod count went down, both the 7 state average yield and the implied pod weight increased. The implied pod weight was already at an unprecedented level in October, and the November increase lifted weights to an almost unbelievable figure, a testament to the skills of the modern-day soybean breeder.
- Along with a lower soybean crush rate, the USDA lowered its estimate for annual soybean meal exports by 350,000 short tons. Total meal exports of 13.35 million tons would also be 2% less than last year and the lowest annual soymeal export rate in 3 years. Thursday’s Export Sales report showed that in the first five weeks of the year the meal export rate has been just above last year and record large. However, outstanding export sales are lagging a year ago by 17%, which along with lower production led to the lower export forecast. Yet, the USDA has strong history of underestimating annual soymeal exports in November. Argentine meal exports have recently slowed, under weak crush margins. But we expect the world soymeal market will remain highly competitive in the year ahead.
- US 2019 wheat stocks were lowered 29 million bu to 1,014 million amid lost spring and durum production follow in abnormal October snowfall across the Northern Plains. US domestic use was lowered slightly. We estimate 2019/20 feed use a bit lower than the USDA. US wheat stocks will be abundant.
- New crop US wheat stocks do tighten assuming the loss of an additional700,000 acres and a return to trend yield. Yet, the price of US wheat longer term will be determined by non-US markets, namely the Black Sea, and whether there are threats to further stocks reduction via better export potential.
- Eventually the US wheat market will need to stabilise seedings, but this fight for acres isn’t due until beyond 2020.
- US and European futures on Friday were focused on a new projected record in global wheat stocks. World stocks were raised another 500,000 tons as production was lifted in Russia, Ukraine and Europe. Combined production there was raised 3 million mt, which more than offset a combined reduction in the Southern Hemisphere worth 1.2 million mt. We would mention that global wheat trade was raised 1 million mt amid better than expected shipments in Europe. Trade this month was raised for the first time since June.
- But fear of current and future shortages will remain absent. Incremental increases have been made to EU and Black sea wheat exports. EU/Black Sea exports are now forecast to reach 90 million mt in 2019/20, the second largest on record.
- We look for range-bound trade nearby, with strong chart -based support noted at $5.08-5.10, basis March Chicago. US wheat lacks the demand driver to turn outright bullish.