USDA- swings and roundabouts

The USDA cut harvested corn by 1.6million acres, which more than countered the increase in yield.  The resultant cut of over 5Mmt was the biggest ‘miss’ in over 7 years and significantly tightens US carryout.

The USDA also cut Argentinian corn production after lingering drought has stalled seeding at 90% of average but also hurt crop development.  The cut of 3Mmt to 52Mmt is relatively moderate relative to Argentine grain exchange Rosario releasing a corn production number of 45Mmt.   Similarly, the USDA’s soybean estimate for Argy looks a little optimistic at 45Mmt given Rosario simultaneously released a 37Mmt production figure (from 49Mmt).   

In the great playground of grain marketing, where there are swings, you’ll also find roundabouts.  Firstly, the USDA completely ignored Russian analysts reporting of 101-102Mmt of  delivered wheat production and instead kept their estimates at 91Mmt.  Australian production, while widely being forecast at 40-42Mmt, was left at 36.6Mmt. One could argue that had the USDA adopted the heresay production figures, it could have been quite a bearish report for wheat.

US winter wheat sown area also caught the market bulls off guard with an increased sown area of 11% to 37M acres.  Some 59% of the winter wheat areas in the US is considered in drought – down from its peak of 75% in November.  Should the sown area be released, it would be the biggest area sown to winter wheat in 8 years and arrests a multi year slide in wheat area.

So what does it all mean?  The reduced production estimates was partially offset by a slight reduction in consumption – not enough to cancel it out.  We may find that wheat rides on the coat tails of the row crops as the US in particular will need to ration demand.  Chinese purchases of Brazilian stock will assist with managing the US stockpile.