Grain prices are sitting a little lower this morning after a generally bearish WASDE report out yesterday and some healthy rains falling across a hot Midwest. The USDA put out their estimates with data collected as of July 1.
In the nearly two weeks since then, it’s been pretty hot in most places across America.
The numbers that you see today were a little larger than what the market was perhaps pricing in. As such, expectations for further downgrades to crop yield and corresponding production in the August WASDE, out on Thursday, August 10th, exactly four weeks from today.
During those next four weeks, the weather will dictate price direction as this USDA report didn’t alter too much of the market’s opinion. Adding some further bearish pressure is the rains falling across the Midwest, giving crops a nice, cool drink after more than a few days of intense heat. I, for one, landed in Chicago after 9 p.m. local time last night and it was still 30 Celsius / 86 Fahrenheit with 90% humidity. At that kind of heat, I’m willing to pay a little more for a cold drink.
Where’s the wheat?
The hot topic heading into the report was wheat. The U.S. spring wheat yield was pegged at 40.3 bu/ac by the USDA, down 14.6% from last year’s 47.2 bu/ac. Further yield downgrades are likely expected by the market though as U.S spring wheat crop ratings are the worst in nearly 30 years.
This means that total hard red spring wheat production in the U.S. will come in at 385M bushels (or 10.48M tonnes), down almost 22% from last year’s crop. The market was expecting around 409M – 416M bushels ahead of the report. With American HRS wheat ending stocks pegged at 122M bushels (or 3.32M tonnes) by the end of 2017/18, this nearly half the supply that the 2016/17 crop year will end with: 235M bushels.
For durum, American production is pegged at just 57M bushels (or 1.55M tonnes). This is a more-than-statistically-significant drop in production from last year, down 45% from (albeit last year’s production figure was one of the best in terms of both yields and quality). Ending stocks from 2016/17 to 2017/18 are expected to fall by 28% to 26M bushels (or just 707,600 MT).
On the winter wheat side of things, production of hard red winter wheat (that traded on the Kansas City board) is down 30% year-over-year to 758M bushels (or 20.63M tonnes). Chicago-traded soft red winter wheat output in America this year is expected to come in at 306M bushels (or 8.33M tonnes), down about 11% from last year’s nice yields. Aggregately, total winter wheat production of 1.28B bushels is down 23% from last year, but actually up 2% from the June forecast.
Kicking Corn & Soybeans Down the Road
For American corn and soybean production, yields went unchanged at 170.7 and 48 bushels per acre respectively. But, with the updated planted acreage for corn, total U.S. production of the coarse grain was raised by nearly 200M bushels from June’s estimate to 14.255 Billion bushels this month (or 362.1M tonnes).
The additional production was not offset by demand with feed and residual use climbing by 50M bushels. Exports and ethanol use were left unchanged from June. The more interesting number is exports though. With 1.875 Billion bushels forecasted by the USDA, this would be almost a 16% decline from the 2.225 Billion bushels expected to land on the books for 2016/17.
Overall, the higher production and lack of corresponding rise in demand pushes the domestic American corn ending sticks higher. 2016/17 corn carryout was raised by 80M bushels to 2.37 Billion bushels (meaning the 2017/18 crop year starts with 80M more bushels). With those 80M bushels added to the extra production the market wasn’t really pricing in, 2017/18 carryout is pegged at 2.32 Billion bushels. Last month the estimate was 2.11 Billion and before the report, the market was pricing in something closer to 2.18 Billion. Clearly bearish and hence why corn fell yesterday by double digits.
For U.S. soybeans, production was barely changed, climbing 5M bushels from the June report to 4.26 Billion bushels (or 115.94M tonnes). This narrowly beats out the 114M-tonne crop out of Brazil. It’s also just 1.2% behind last year’s record crop of 4.307 Billion bushels (or 117.2M tonnes).
2016/17 carryout was lowered by 40M bushels from the June estimate though to 410M (and the trade’s estimate of 430M bushels). There are 2 reactions I have to this: First, it’s slightly bullish (“obviously Brennan” you think). The second is that it’s a bit ridiculous, considering the size of the South American crop.
On the demand from, 2017/18 numbers stayed the same. With the additional 40M bushels to start 2017/18, this meant that ending stocks for the crop year will be 35M bushels lower than the June number at 460M bushels. The trade was expecting things to stay flat at 495M bushels.
What about global corn and soybean players?
For soybeans, global 2017/18 ending stocks are expected to come in at 95.53M tonnes. This is up from the trade’s expectations of 92.14M tonnes and June’s forecast of 92.22M tonnes. It’s also barely unchanged from 2016/17’s carryout of 94.78M tonnes.
On the demand front, Chinese bean imports were raised by 1M tonnes from last month’s forecast to 94M tonnes. In case you aren’t keeping track of the trend, that’s a new record.
China’s June soybean imports came in actually lower than expected at barely 7.7M tonnes. As we outlined in last Thursday’s Breakfast Brief, the market was pricing in 8.5M – 9M tonnes. The difference is the nearly 700,000 MT sitting in port waiting to dump, likely due to an import tax dropping by 2 points to 11% on July 1st.
For corn, global production was raised from June by more than five million tonnes, mainly thanks to bigger U.S. production. This means that the 1.037 Billion tonnes expected to be produced in 2017/18 around the world is just a 3% drop from last year’s record crop. On the flipside, it’s also 7% larger than the global crop from 2 years ago.
Production in South America is expected to be large again in 2017/18. Between Brazil and Argentina, the USDA is forecasting 135M tonnes of production, down just three million tonnes from 2016/17 record crops.
Carryout-wise, global inventories of 200.8M tonnes should be nearly 12% lower year-over-year, but this is because of China extinguishing some of its multi-year leftover supply.