August 19, 2018

June 2018 USDA Supply & Demand Report

June 12th, 2018

Summary:

US Ending Stocks (17/18 in million bushels)
USDA May 18 Avg Estimate USDA June 18
Corn 2,182 2,166 2,102
Soybeans 530 522 505
Wheat 1,070 1,079 1,080
Ending Stocks (18/19 in million bushels)
Corn 1,682 1,663 1,557
Soybeans 415 417 385
Wheat 955 958 946

 

Each month USDA updates various estimates of supply and demand and revises its moving target for where stocks will end at the end of the marketing year, August 31 for corn and soybeans and May 31 for wheat. The June report is the second of the year to show new crop numbers. This is not a complete one though. USDA is still using the March 29 Prospective Plantings for acreage and trend for yields.

Corn: Declines in both old and new crop ending stocks were supportive. Old crop stocks were lowered from 2.182 billion in May to 2.102. The trade expectation was 2.166. USDA noted there was strong old crop export demand and it could be increased by further declines in the recently harvested Brazilian corn crop. New crop stocks were lowered from 1.682 billion to 1.577. This was under the trade’s 1.663 expectation. Along with the smaller beginning stock, what is left over from old crop at the end of August, they raised corn for ethanol by 50 million and lowered feed/residual by 25 million. The new crop stock and stocks to use numbers would be the tightest in five years (2013/14).

World Numbers: Old crop world stocks were lowered from 194.9 million tonnes last month to 192.7. USDA left the Argentina crop unchanged but lowered the Brazil crop from 87 million tonnes to 85. It was just two months ago they were at 92.0. USDA surprised the grain trade with a bullish new crop number in May at 159.2. That was lowered again today to 154.7. A 4 mt decline for the 12 countries USDA defines as “Former Soviet Union 12” was positive. We compute their new crop numbers as showing stocks to use, a measure of tightness of supply, at 14.2%. That is the smallest in eight years, 2010/11.

Price Expectations: USDA raised their new crop price estimate by 10 cents from last month, now to $3.40 - $4.40. This is a cash corn price estimate for a central Illinois location. USDA asserted at the April 26 Data Users meeting they intend to change this price measurement as the trade assumes a midpoint of those two prices. USDA notes that price spends less time at the highs and more time at the lows so it is not the best way of presenting their view on price.  New crop bids yesterday in that location were at $3.34 ½. Allendale notes that their new 10.8% stocks to use posted for new crop would imply December corn prices at $4.70. As many in the market assume higher acreage and yields than this report, that may be optimistic. Get bullish but not that bullish.

Soybeans: Old crop ending stocks were lowered from 530 to 505 million bushels. The trade expectation was 522. A 25 million bushel increase was noted for old crop crush which we can’t argue about. New crop stocks were lowered from 415 to now 385 million bushels. The trade was expecting 417. Lowered beginning stocks were the bulk of the decline. USDA lowered new crop crush by 5 million and left exports unchanged. At this time, their 2.290 billion new crop export expectation is unchanged. It would be 11% over the old crop numbers. Many suggest that may be slightly large. Their new crop stocks and demand would imply a, 8.7% stocks to use, the lowest in two years.

World Numbers: World crop stocks were raised from 92.2 last month to 92.5. Argentina’s crop was lowered by another 2 mt to now 37. Brazil was raised up by 2 mt to now 119.0. The trade likely feels these numbers are about right. New crop stocks were raised from 86.7 last month to 87.0 (still smaller than last year). A 24.3% stocks to use is the lowest since 2013/14.

Price Expectations: USDA left their price outlook unchanged from May at $8.75 - $11.25 for new crop. That central Illinois location they use as a proxy was bidding $9.18 yesterday. If we assumed USDA’s 8.7% stocks to use estimate were correct then economic value for November futures would be $10.55. As much of the trade assumes new crop supply is higher than their current acreage and yields, so a rally to that level may not be in the cards.

Wheat: Old crop stocks were lowered from 1.080 to 1.070. The trade expectation was 1.079. USDA cut 10 million off the export estimate for the old crop marketing year that ended on May 31. New crop stocks were lowered from 955 to now 946 million. Smaller beginning stocks were noted. In addition, new crop production was raised from 1.821 billion to 1.827. That was partially offset by a 25 million increase for exports due to falling competitor supply expectations.

World Numbers: New crop wheat stocks were raised from 264.3 to 266.2 million tonnes. USDA cut production for Russia by 3.5 mt and the EU by 1.0 from last month. Lower feed use was noted in many locations. 35.6% stocks to use would be the smallest in two years.

Price Expectations: USDA’s whole marketing year price expectation was raised by 10 cents to $4.60 - $5.60. for new crop. Allendale has raised our downside target for the July Chicago from $4.75 to $4.90 due to competitor supply concerns.


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