July 25, 2014

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Click the images below for WASDE and Production Results

Corn Beans Wheat
Corn Progress Corn Progress Corn Progress

Corn:

Old Crop Adjustments: Based on the June 28 Grain Stocks report, which told us there was better than expected March – May corn usage, the trade was looking for USDA to lower its estimate of August 31 ending stocks from 769 million bushels to 722. The actual number this morning, at 729, is considered neutral. Specifically they added 10 million bushels to imports and increased feed & residual by 50. Ethanol and exports were left unchanged. We feel all changes were reasonable.

New Crop Supply/Demand: USDA always uses the March 28 Acreage numbers for this report. You may remember on that report they added to planted acres but actually dropped harvested numbers. That lower harvested number was used on this report. The trade was not expecting any change in corn yield. Allendale’s database shows changes to yield in July only in 8 of the past 20 years. More important is that when they are proactive with a yield change in June (4 of 20 years), like they did this year, they only changed it again in July one time. The net decline in new crop production, from 14.005 billion to 13.950, was entirely expected and reasonable. Other new crop changes were a 5 million increase in imports, and 50 million declines in both feed & residual and exports. New crop stocks were actually raised from a huge 1.949 billion to 1.959. Bulls, listen up. USDA will wait until October to lower acres to match with insurance. This is common and was seen in 2008, 2009, and 2011. The biggest decline in those years was only 1.4 million acres. Secondly, we have a forecast for problems covering about 20% of our production area. If you take 10% off production in those areas, and add a little for the Eastern Cornbelt, you are looking at ending stocks down to 1.7 billion at most. Unless weather gets even worse than the current forecast you cannot make a bull argument from US numbers. Producers, please pay attention to the whole-US picture and avoid backyard marketing.

World Numbers: Few changes were made to the world balance sheet, new crop stocks from 151.8 million tonnes to now 151.0. Old crop is at 123.6. They did lower China’s corn production by a small 1 mt which leaves them at a still-record 211 mt. China now has bought 2.5 mt of US new crop corn. USDA chose to leave their whole-year estimate unchanged at 7 mt. USDA’s estimate would of course be a record.

Price Expectations: Their whole-year average cash price was left unchanged at $6.95 for old crop and $4.80 for new crop. Assuming a 30 cent new crop basis for their Central Illinois location it would project an average futures price of $5.10. Allendale suggests this new crop estimate is overly optimistic and looks for December corn prices near $4.00.

 

Soybeans:

Old Crop Adjustments: USDA chose to keep old crop stocks unchanged at the tight 125 million bushel level. That was expected by the trade. Allendale still contends they will have to lower these numbers. However, USDA can choose when that decision is made. It will likely happen after the new crop production is established. It may not be the right thing to do but they can make the argument until seeing how this last quarter’s demand goes.

New Crop Supply/Demand: USDA has never changed acreage on the July supply/demand report from the June 28 Acreage numbers. They simply plugged in higher acres and left yield unchanged. That yield decision is entirely normal as they only lowered it in 4 of the past 20 years. New crop production was therefore raised from 3.390 billion to now 3.420. Interestingly, though they raised production they did not raise any demand numbers. Typically part of the increase is offset. Stocks were raised from 265 million to now 295. That is getting into large territory. Technically, they don’t have to change demand like they normally would as they are guessing Sep 1, 2013 to Aug 31, 2013 demand. Here, we can also suggest USDA sent a clear message to the grain market.

World Numbers: New crop bean stocks were raised slightly, from 73.7 million tonnes to 74.1. US numbers were raised which offset the small 1 mt decline for the spring 2014 Argentina harvest. This still represents a clear increase over the old crop’s 61.5 mt.

Price Expectations: No changes were made to old crop cash soybean projections, $14.40, or new crop at $10.75. Assuming a 50 cent basis for their Central Illinois location it gives a futures price estimate of $11.25. This is more than $1.50 lower than the current market. Though Allendale does feel old crop is tighter than USDA implies, we entirely agree with the general message about new crop. November beans at $10.50 are entirely reasonable unless the weather forecast worsens.

 

Wheat:

Old Crop Adjustments: The June 28 Grain Stocks report was THE number for the end of the old crop marketing year. Ending stocks were lowered from 746 million to 718 which was expected.

New Crop Supply/Demand: USDA raised winter wheat production for the second month in a row, this time by 34 million. The trade was expecting a slight decline. Exports were raised by a big 100 million reflecting the very strong start to the new crop export season. Stocks were lowered from 659 million to now 576. This was far below the trade guess of 624.

World Numbers: New crop stocks were lowered from 181.3 million tonnes to now 172.4. This large revision came from the US, China, and a few others. China was the story here as USDA left their production unchanged but jumped imports from 3.5 mt last month to now 8.5. You could argue this was a little more than expected.

Price Expectations: USDA’s whole year cash price estimate was raised by 20 cents to now $7.10. This is higher than current futures are pricing.