November 16, 2018

July 2018 USDA Supply and Demand Report

July 12th, 2018


US Ending Stocks (17/18 in million bushels)
USDA June 18 Avg Estimate USDA July 18
Corn 2,102 2,107 2,027
Soybeans 505 507 465
Ending Stocks (18/19 in million bushels)
Corn 1,557 1,712 1,552
Soybeans 385 471 580
Wheat 946 973 985


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 July report is the third of the year to show new crop numbers. On this report USDA incorporated changes to old crop implied from the June 1 stocks count on the June 29 Grain Stocks report. New crop numbers were influenced by the June 29 Acreage report.

Corn: Old crop stocks were lowered from 2.102 billion bushels to 2.027. The trade expectation was 2.107. USDA added 100 million to their export estimate, 50 million to their feed/residual estimate, and reduced the corn for ethanol by 25. Allendale is not sure about the aggressive new crop numbers as that move is not implied by current export sales numbers. On the new crop side USDA added in the higher acreage from the 6/29 Acreage report. Yields were left unchanged at their 174.0 bpa version of trend. USDA has only adjusted yields in July five times over the past 20 years. With their current approach driven by quantitative weather data, that starts with July weather, it is still too early to make changes yet. Higher acreage pushed the 2018 production from 14.040 billion in June to now 14.230. Despite the increase in production, USDA was very active with higher demand estimates. Feed/residual for new crop was raised by 75 million, corn for ethanol was lowered by 50, and their export estimate was raised by 125 million. The export increase was due to expectations for South America to lower corn plantings this fall. Amazingly, new crop ending stocks were revised down from 1.577 billion last month to now 1.552 even with higher production. The trade guess was 1.712. In August, USDA will adjust yields. That could push stocks into the 1.8 billion bushel range.

World Numbers: Old crop world stocks were lowered from 192.7 million tonnes last month to 191.7. They lowered Brazil’s corn crop from 85.0 to 83.5. New crop stocks were lowered from 154.7 to 152.0. 2018 production from the Former Soviet Union 12 countries (excludes Russia/Ukraine/Kazakhstan) was revised down from 49.5 to 46.5 mt.

Price Expectations: USDA lowered their new crop price estimate by 10 cents from last month, now to $3.30 - $4.30. This is a cash corn price estimate for a central Illinois location. New crop bids yesterday in that location were at $3.20. Without adding in above-trend yields, their stocks to use number comes to 10.6%. Allendale computes that level would imply December corn at $4.75. Yes, that number is correct. If adding in a 179 bpa yield, you can come up with something around a 12.2% level. That would imply $4.25 December corn. Current prices are trading a clear discount to economic value due to the psychological influence from trade concerns.

Soybeans: Old crop stocks were lowered from 505 million bushels to 465 today. The trade estimate was 507. Domestic crush was raised by 15 million. Old crop exports were raised by 20 million. The export increase was a surprise. We are on pace to meet their previous June estimate. Of note, there are still 26 million bushels of old crop still listed as unshipped for China. There are other amounts for China listed as “unknown” as well. USDA’s move today implies they believe any cancellations will be sold to buyers from other countries. New crop stocks were raised from 385 million last month to 580. The trade expectation was 471. Production was raised from 4.280 to 4.310 billion due to higher acreage. Yield was unchanged from the 48.5 trend. USDA has only changed yield in July three times out of the past 20 years. The big deal was the 250 million bushel cut to new crop exports for new crop. Separately, USDA also cut 10 from crush. Today’s report did about as much as the trade thinks they would do on exports. Bears may not be ready to give up though. They expect stocks to push past 600 when yields are changed next month.

World Numbers: World old crop stocks were raised from 92.5 to 96.0 mt. The big question from USDA was how they would play Trade War Bingo. New crop US exports were lowered as previously noted. USDA revised down the Chinese import estimate from 103 million tonnes to 95.0. Many would suggest that will be hard to do. It is the approach they did today. Lowered domestic demand is the assumption. For Brazil, they raised the 2019 spring harvest up from 118.0 to 120.5. A little lower crush and higher exports was noted.

Price Expectations: The 2018/19 price expectation was changed from an $8.75 – $11.25 range to $8.00 - $10.50. This marked a 75 cent cut in one month. Current new crop bids in that location are at $8.10. While we could say this price is on the very low end of USDA’s expectation, don’t forget there are bears waiting for a yield increase. Taken at face value, USDA’s stocks to use would come to 13.7%. With a little yield bump, you are up to 15.8% or so. That implies $8.20 for November soybeans.

Wheat: Old crop stocks were raised from lowered from 946 million bushels up to 1.100 billion. That was expected as it was adjusted to the June 1 stocks number from the Grain Stocks report. The old crop wheat marketing year ended on May 31. For new crop USDA added acreage due to the June 29 report and recognized yields up from 46.9 to 47.5. Production was raised from 1.827 to 1.881. The trade expectation was 1.858. On the demand side feed/residual was raised by 10 and exports by 25. We have a small concern about their 975 million new crop export hope. Higher US exports from lowered non-US production sounds reasonable. However, we are 27% behind last year’s export sales at this early point in the marketing year. USDA’s hope is for an 8% increase. New crop ending stocks were raised from 946 million bushels to now 985. The trade expectation was 973.

World Numbers: The completed new crop ending stocks were raised slightly, from 272.4 to 273.5 million tonnes. New crop stocks were lowered from 266.2 to 260.9 this month. USDA recognized cuts to production for Australia, Russia, and Ukraine. USDA’s expectation is that the US will benefit. At this time, that has not happened.

Price Expectations: USDA’s whole marketing year price expectation was lowered 10 cents to $4.50 - $5.50. for new crop. Allendale’s downside target for wheat pricing has been reached. A sideways trade from $4.75 - $5.25 may be seen.

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