Count on the USDA to knock your stocks off

The USDA published its assortment of January crop reports earlier in the week, with the World Agriculture Supply & Demand Estimates (WASDE), along with the Quarterly Grain Stocks Report, and the Winter Wheat and Canola Seedings Report released. Analysts had bullish expectations for this WASDE, based on pre-report forecasts, and they were not disappointed.

The USDA reduced US estimated ending stocks of corn, soybeans and wheat in the January report compared to their December report estimates. As a result, nearby futures prices rocketed upwards for the major crop commodities. Within the first hour of trading post-WASDE, spot corn futures were up 25 cents/bu, trading at the highest price since July of 2013. Spot soybean futures were up 45 cents/bu, and spot wheat futures were up ~30 cents/bu.

Corn

  • The Grain Stocks Report for corn estimated that corn stored in all positions in the US was down slightly in Dec 2020 vs Dec 2019. Corn stocks in the US were much lower than the low-end of industry expectations. As a result of lower stocks, the 2019/20 estimated corn ending stocks were lowered slightly (-76 M bushels), which reduced 2020/21 beginning stocks by the same amount.
  • Both projected harvested area and yield were lowered for US 2020/21 corn production. As a result, US corn production was reduced by 325 M bushels. This production decrease was well below pre-report industry estimates, adding to the rally in prices post-report release. Projected feed and residual demand were lowered 50 M bushels. Food/seed/industrial use was lowered 100 M bushels, driven by a 100 M bushel decrease to ethanol production. Ethanol producers have been challenged in recent months as corn price improvements have exceeded gasoline and ethanol price improvements, reducing profitability. Ethanol production has also exceeded the volume needed for the 10% blending ratio in the US as gasoline demand has remained well below 2019 levels as the pandemic continues across the US, resulting in ethanol stocks building.
  • The changes resulted in a projected net decrease for 2020/21 US corn ending stocks; which were lowered to 1.55 B bushels, a 150 M bushel reduction vs December’s report. The stocks/use ratio is now projected to be 10.6%, which remains the lowest since 2013/14.
  • Global production estimates were reduced, most notably in Argentina (-1.5 MMT) and Brazil (-1 MMT) where the La Niña weather pattern is causing dryness.

Soybeans

  • The Grain Stocks Report for soybeans in the US estimated that stocks in all positions as of December 2020, were down 10% vs December 2019. The reported estimated soybean stocks were in-line with average pre-report industry expectations.
  • Projected US soybean yields were reduced 0.5 bu/acre to 50.2 bu/acre. This resulted in a 35 M bushel reduction to estimated US soybean production. Projected imports were raised, and projected crushings and exports were also increased due in part to lower expected exports from Argentina. These changes resulted in a net decrease of 35 M bushels to projected US soybean ending stocks and a 3.1% stocks/use ratio. This remains the lowest stocks/use ratio since 2013/14 and would be the second lowest stocks/use ratio over the last decade.
  • Projected 2020/21 soybean production in Argentina was lowered 2 MMT as the dry weather has impacted both the corn and soybean production prospects for the country. Brazilian production was left unchanged vs December as recent rains in Brazil have helped to stabilize the soybean crop.

Wheat

  • Winter wheat planted acres in the US are projected at 32 M acres for the 2021 crop year. This is up ~5% vs 2020 crop year.
  • All wheat stored in all position in the US as of December 2020 was projected to be down 9% vs December 2019. This was slightly below pre-report industry average expectations, but within the range of industry estimates.
  • There were little changes to the projected US wheat S&D in the January WASDE. Of note, projected ending stocks were lowered 25 M bushels to 836 M bushels. The stocks/use ratio decreased to 39% as a result, the lowest since 2014/15.
  • Global production estimates were lowered for China (-1.8 MMT) and Argentina (-0.5 MMT), which more than offset estimated increases for Russia. Russia’s production was forecast to be a new record of 85.3 MMT. Consumption in China (+1 MMT) was forecast to increase as the continued high demand for feed use has resulted in increased wheat demand, largely due to the relative price between wheat and corn in China. Exports for Russia (-1 MMT) and Argentina (-0.5 MMT) were forecast lower, due to Russia recently implementing an export tax and quota on grains, and reduced production paired with port labour issues in Argentina. This was offset by projected increased exports for Canada (+0.5 MMT), the EU & UK (+0.5 MMT), and India (+0.5 MMT).
Commodity Conversations

What does it mean?

Corn has been a major driver of wheat prices and the latest update from the WASDE has once again seen wheat prices swept up in the corn rally. Tight global supplies are likely to keep prices elevated and with the La Niña in play, the trade will have eyes on the progress of the South American crop. The strong crop prices, paired with the increasingly shrinking stocks, should only further drive acreage competition in the US as they approach the spring planting in 2021.

 

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Key Points

  • A bullish WASDE report sent international crop prices rocketing upwards.
  • Ending stocks were reduced for Corn & Soybeans to lowest levels since 2013/14.
  • No changes were made to Australian wheat production estimates.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: USDA, IHS Markit, Nutrien

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