August 19, 2018

May 2018 USDA Supply & Demand

May 10th, 2018
Ending Stocks 2017 - 2018
Wheat Corn Soybeans
USDA - May '18 1.070 2.182 .530
Avg Trade Est 1.065 2.178 0.541
High Trade Est 1.090 2.207 0.575
Low Trade Est 0.941 2.150 0.495
USDA April 1.064 2.182 0.550
2018 -2019
USDA - May '18 .955 1.682 .415
Avg Trade Est .930 1.628 0.535
High Trade Est 1.075 1.907 0.715
Low Trade Est 0.780 1.467 0.400

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 May report is a special one. It shows minor changes to old crop but also provides the first full balance sheet for the new crop on this specific report.

Corn: No changes were made to the old crop balance sheet. US ending stocks were left unchanged at 2.182 billion bushels. The trade expectation was 2.178 billion. New crop stocks were pegged at 1.682 billion. That was just over the 1.628 billion private trade estimate. USDA used the March Prospective Planting for acreage, as they should, and also left the 174.0 bpa trend yield estimate from their February conference unchanged. They reserve the right to adjust yields according to planting progress if needed. We don’t have any major disagreements with their numbers. The new crop stock and stocks to use numbers would be the tightest in five years (2013/14).

World Numbers: World stocks were lowered from 197.8 million tonnes last month to 194.9. Argentina’s crop was left unchanged from last month at 33 mt. Brazil’s crop was lowered from 92.0 to now 87.0 mt. On the new crop end, USDA suggested 159.2 mt for their starting estimate. A tighter US and Chinese situation was the reason. This would be the smallest ending stock number in six years. World stocks to use, the true measurement that determines price, would be 14.6%. That would be the tightest situation in seven years.

Price Expectations: The midpoint of USDA’s corn price forecast was raised from $3.35 to $3.40 on the old crop numbers. For new crop, they suggested a range from $3.30 - $4.30. That would put the midpoint at $3.80. USDA asserted at the April 26 Data Users meeting in Chicago that they would like to change this price measurement. In future reports they intend to give a single forecasted price and maybe a price range instead of the current system of only a price range. They felt the trade was incorrectly using a midpoint as the suggestion that was the average price of that year’s trade. The midpoint is technically an incorrect measurement. During a year’s price range from high to low markets typically spend more time at the low end and only a few days up near summer highs. This change was not made on today’s report. It may come in future reports. As a reminder, USDA’s estimates are a cash corn estimate for Central Illinois that is weighted according to assumed marketing patterns. Prices yesterday in that location were at $3.75 ½ for old crop and $3.87 ½ for new. Allendale notes that the 11.5% stocks to use posted for new crop would imply December corn prices at $4.60. Allendale remains supportive to corn.

Soybeans: Old crop ending stocks were lowered from 550 to 530 million bushels. The trade expectation was 541. USDA added 20 million to the domestic crush estimate but did not touch exports. If China does not cancel currently contracted beans then we will meet that expectation. New crop stocks were pegged at 415 million bushels. That was quite under the 535 trade expectation. As part of these numbers, USDA posted new crop exports at 2.290 billion. That was 225 million over their current old crop estimate. Much of the private trade will disagree with this so don’t be surprised to see the market resist any large price movement.

World Numbers: World crop stocks were raised up from 90.8 to 92.2. Argentina’s crop was lowered from 42.0 to 39 mt. Brazil’s crop was raised from 115.0 to 117.0. No changes were made to USDA’s assumptions for China’s old crop. New crop stocks were noted at 86.7 mt. A surge in production from assumptions of normal crops in the US, BZL, ARG was offset by higher demand. China was seen increasing imports from 97 mt old crop to 103 for new. USDA’s numbers would apparently assume no problems with China’s tariff issue.

Price Expectations: USDA’s price outlook is for the soon to be completed old crop marketing year at $9.35. That is up 5 cents from last month. New crop was seen with an $8.75 - $11.25 trading range. The midpoint of that would be $10.00. Again, USDA asserts the midpoint is not the best way to look at their price outlooks as the market does not spend an equal amount of time at summer highs vs. fall lows. Perhaps we will see their new method in future months. Their numbers are a marketing year weighted average price for Central Illinois. The marketing year weighted average means Sep – Jan prices get more weight due to farmer marketing patterns. Bids yesterday for that location were at $9.77 ½ for old crop and $9.89 for new. If we assumed USDA’s 9.4% stocks to use estimate were correct then economic value for November futures would be $10.30. As we noted, much of the trade will strongly push back against their bullish looking new crop export estimates.

Wheat: Old crop stocks were raised from 1.064 billion to 1.070. This came from a 15 million drop for exports, a, 8 million increase for food, and a 1 million increase for seed. The trade expectation was 1.065. New crop stocks were noted at 955 million bushels. The trade expectation was 930. New crop production was seen higher than expected at 1.821 billion. That is 80 million over last year. Hard red winter did see problems with a 647 million estimate. Last year’s crop was 750. However, HRW is not all US wheat. Soft red was seen at 315, over last year’s 292. In addition, the expectation for a much larger spring crop has more than offset winter wheat problems.

World Numbers: Old crop world stocks were lowered from 271.2 million tonnes to 270.5. New crop was seen at 264.3. This comes from a smaller world production in Russia and Canada that offset small increases elsewhere. We are also starting out with smaller beginning stocks.

Price Expectations: USDA’s whole marketing year price expectation was raised by 5 cents at $4.70. The marketing year will end on May 31. Their new crop guess is a $4.50 - $5.50 trading range. That would imply a midpoint price of $5.00 and a likely “average traded” price of around $4.75 or so using their methods. Allendale sees July Chicago wheat futures down to $4.75 at harvest.


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