8 April 2022

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  • HEADLINES: The USDA update lacked bearish surprise; Traders buy break on weather concern for NC Brazil/US Plains; World vegoil prices surge.
  • The April USDA report was a “yawner” with WASDE once again conservative in their reducing the Brazilian soybean crop and raising 2021/22 US corn and soybean export estimates. It appears that they do not want to be part of the food inflation problem. Understandably, WASDE has no way of knowing when the Russian war will end, and they will only adjust Black Sea exports and grain stocks as time passes. This leaves the USDA not in a forecasting position, but one of following the data and being behind the market in terms of forecasting future US farmgate prices.
  • WASDE left 2021/22 US corn end stocks at 1,440 million bu with just a 25 million bu bump in ethanol use to 5,375 million and a like 25 million bu cut in feed/residual to 5,625 million. We would argue for a 50 million bu hike in US corn feed/residual demand based on the lack of feed wheat and sorghum that will be available in the months ahead. WASDE raised the average US farmgate price to $5.80. Corn futures should hold strong.
  • WASDE raised their estimate of the Brazilian corn crop by 2 million mt to 116.0 million while leaving the Argentine corn crop unchanged at 53.0 million mt. We would note that Ukraine 21/22 corn exports were lowered by 4.5 million to 23.0 million mt which raised their stocks to 6.55 million mt. We believe that WASDE will cut Ukraine exports further to maybe 18.5 million mt amid their difficulty in exporting during the war. World corn exports were lowered 2.9 million mt due to Ukraine. 2021/22 world corn demand will increase amid the decline world feed wheat supply availability.
  • WASDE cut 2021/22 US soybean end stocks by 25 million to 260 million bu, just 3 million bu above last year, by raising the export estimate to 2,115 million bu. We argue that the USDA export estimate is 90-110 million bu too low which would drop end stocks closer to 150-160 million bu, which is pipeline stock level. WASDE also raised its seed use by 4 million bu to reflect the record 91 million acres to be planted this spring. The average farmgate price held at $13.25.
  • WASDE dropped its 2021/22 Chinese import estimate to 91.0 million mt, which we believe will be too low by 3-4 million mt. World imports to China are running just 1 million mt below last year’s pace through March. The Brazilian soy crop was lowered to 125.0 million mt (down 2 million) with Argentina at 43.5 million mt. We look for additional cuts in S American crop production in May.
  • The April WASDE is bearish on paper, but price determination is now cantered solely on US, European and Black Sea weather, as well as the increasing likelihood that conflict in Ukrainian will be ongoing throughout 2022.
  • USDA lifted 2021/22 US wheat ending stocks 25 million bu to account for reduced exports (-15 million) and lower projected feed use (-10 million bu). We view the adjustment to feed/residual use as premature, but the trimming of exports was fully expected given the pace of sales and shipments to date. Wheat’s season average cash price was raised $0.10 to $7.60/bu.
  • World and world less China ending wheat stocks were lowered 3.1 million mt amid larger projected Indian domestic use. Elsewhere in the global balance sheet, Russian exports were raised 1 million to 33 million mt, which makes little sense, while Ukrainian exports were lowered 1 million to 19 million mt. Total world wheat trade in 2021/22 is now pegged at 200 million mt, vs. 203 million in March and 202.6 million a year ago.
  • The 2021/22 world wheat balance sheet has been solved, according to USDA, via a slowing of demand growth and record Indian exports. However, priority number one remains US HRW yield potential and whether Black Sea surpluses return to the world market by August. It will be impossible to replace the Black Sea’s share of world trade in late summer/autumn. Our outlook remains bullish. Note that Ukraine and Russia in Aug-Oct 2021 exported 21 million mt of wheat.
  • Markets are no longer trading WASDE data as USDA will continue its measured approach to S American corn production estimates and the full impact Ukrainian conflict has on trade flows. Weather pattern shifts are needed immediately in Brazil and in the US S Plains. Breaks into late spring will limited strictly to periodic profit taking.
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