• HEADLINES: Chicago corn limit bid on US corn production fall of 325 million bu; Chicago soybean demand rationing rally to deepen.

• The USDA January Crop Reports are bullish with corn futures rising the 25-cent limit in midday trade. Both US 2020 corn/soybean yields fell further than expected with the 2020 US corn yield down 3.8 bushels/acre for a production fall of 325 million bu of production. The 2020 US soybean yield fell another 0.5 million bu to 50.2 bushels/acre for a production loss of 35 million bu. The loss of both corn and soybean production make the coming rationing rally more important.

• Moreover, US December 1 corn stocks came out close to last year’s 11,322 million bu. Such stocks argue for a feed/residual Sept-December estimate of a record large 2,737 million bu. The December corn stocks were 320 million bu below trade expectations and considered bullish. The record corn feed use makes the WASDE cut in US feed/residual use of 50 million bu difficult to understand. The crop was reduced 325 million bu, but Research would have held their stocks estimate stable.

• WASDE also adjusted downward its US 2020/21 corn export estimate by 100 million bu to 2,550 million bu.

US End Stocks (million bu)

December    January

2019/20    2020/21    2020/21

Corn            1,995        1,702        1,552

Soybeans        523        175        140

Wheat            1,028        862        836

• The WASDE US corn export cut is difficult to agree amid both the Argentine and the Brazilian corn crops in decline. WASDE cut their Brazilian corn crop by 1 million mt to 109 million with the Argentine crop cut to 1.5 million to 47.5 million mt.

• We would note that there are numerous S American private crop estimates that place the Brazilian corn crop at 101-104 million mt and Argentina at 40-44 million mt. The point is that without a dramatic reversal in S American weather, US 2020/21 corn exports will be expanding (not contracting per WASDE) due to the US being the only competitive source of feedgrain supplies.

• US corn end stocks of 1,552 million bu represent a stocks/use ratio of 10.6% which would model out to a March futures price high of $5.30. However, if China secures additional US corn or the lower WASDE feed/residual use rate is incorrect, much higher prices are likely. We see the 2020/21 US corn end stocks total at 1,200-1,250 million bu which raises the upside price potential to $5.50-6.00. We would expect that corn values are going to be extremely sensitive to S American weather and 2021 US corn seeding expectations and intentions.

• WASDE 2020/21 soybean stocks were lowered to 140 million bu, close to pipeline at 115-130 million bu. This means that the market has a considerable amount of demand rationing yet to accomplish.

• The loss of 35 million bu of 2020 US soybean production combined with a 5 million bu increase in crush and 30 million bu rise in US soybean exports was offset by a 20 million bu gain in imports and 13 million bu cut in the residual.

World End Stocks (million mt)

December    January

2019/20    2020/21    2020/21

Corn            303.4        289.0        283.8

Soybeans        95.5        85.6        84.3

Wheat            300.6        316.5        313.2

• WASDE left the Brazilian soybean crop estimate unchanged at 133 million mt despite some of the worst spring weather in 40 years. WASDE appears to be willing to wait for harvest data from Mato Grosso and Goias in coming weeks to make the needed yield/production cut. We put the Brazilian soybean crop at 128 million mt with Argentina at 44-46 million. The drop in S American production mandates additional US export demand and price rationing. We would forecast 2020/21 US soybean exports at 2,325 million bu, a 95 million bu increase from WASDE.

• We estimate that US soybean stocks will be totally exhausted with much higher prices needed to ration supply. This would become a difficult task if S American crop estimates decline during February and March.

• WASDE forecast 2020/21 US wheat end stocks at 836 million bu, a decline of 26 million bu. The drop was based on an increase of feed/residual of 25 million bu and a 1 million bu increase in seed use. Research argues that US 2020/21 wheat exports are understated by 25-40 million bu which would pull US wheat stocks closer to 800 million bu. US HRW wheat was close to pricing into the GASC tender this morning.

• 2020/21 world wheat stocks were trimmed by 3.3 million mt to 313.2 million. The key for wheat prices going forward is Russia and the potential for a hike in their export duty that could last into the new crop year. We should know the Russian grain export position later this week.

• US corn and soybean demand rationing will become more acute in the weeks ahead. The market’s sensitivity to China buying of US corn/soybeans will be increasing. US Corn nor soybean prices can allow China to book additional large US tonnages. We remain bullish with a Chicago downtrend unlikely until Northern Hemisphere crops are seeded in May/June.