The May supply/demand report from USDA covers the typical old crop changes noted in prior months. That includes adjustments to the US situation as well as updated South American production numbers. The trade is highly focused on this report given that it includes full new crop balance sheets for both the US and world. For corn and soybeans these new crop estimates held trend yields. That is normally and fully expected. Summer weather will drive this estimate higher or lower.
Corn 2023/24: USDA lowered US ending stocks from 2.122 billion bushels to 2.102 on this report. This was under the 2.100 trade expectation (ALDL 2.147). USDA added 50 million bushels to its prior corn for ethanol estimate. We can see why it was changed but are not sure it was needed this month. Their prior 5.400 billion bushel estimate for the year would be +4.3% from last year. That sounds too low when considering the September – April corn for ethanol usage was +6.8%. To meet that seemingly low estimate the remainder of the year would only need to run +1.0%. This new estimate, 5.450 billion, now requires the rest of the year to run +3.3%. Given four recent weeks with a reigned in production, -4.0% to +1.1%, we would suggest USDA should have stood aside. The second change for old crop was another 50 million bushels added to USDA’s prior export estimate. We are a little more hesitant to agree with USDA’s view on this end. Their prior 2.100 billion bushel goal was -2% from the average of the prior five years. Our year to date sales pace was behind that at -4%. With minimal sales from here on out on a seasonal basis, it would have take a sharp increase in remaining sales through August to +24% from normal. USDA could justify this move as two of the three prior weeks saw that needed pace but there is no sign that stepped up interest is the new normal. USDA’s new 2.150 billion estimate now requires remaining year sales at +60% vs. normal. We are not sure of that. In the coming weeks the majority of price movement comes from new crop news.
2024/25: The new crop balance sheet, at least from a supply side, is relatively mechanical right now. Using the March Prospective Plantings estimate, a normal percent harvested and trend yields USDA posted a starting production view 14.860 billion. That was next to the 14.867 trade expectation (ALDL 14.872). Though many market participants may disagree with 181.0 bpa trend yields we fully agree with it. The current planting pace is slightly behind normal. USDA typically does not start adjusting this estimate unless we are much above or much below normal planting. As a reminder, though planting pace is a verified factor in final yields it is a relatively small influence. Additionally, there is almost no real weather influence in the vegetative growth stage with final yields. After the crop is fully planted the next yield influence is weather exactly at the reproductive phase. USDA is correct with trend yields at this early point in the year. The bearish argument from new crop corn is not with production. That is -482 million bushels from last year. It is with total supply. When you add in beginning stocks and imports total supply runs +180 million bushels vs. old crop. A 16.907 billion bushel total supply is the third largest in history. With USDA’s view on new crop demand included, new crop stocks were pegged at 2.102 billion. This was under the 2.284 trade estimate (ALDL 2.319). This lighter than expected new crop stock, using trend yields, would imply July and December futures near $4.00. With a summer risk-on story, which is valid in a light way given the summer forecast, a moderate rebound in price into early-summer is reasonable. Our studies involving heavy supply years, studies involving annual trade range analysis and other factors would verify this view.
World old crop corn ending stocks were lowered from 318.3 million tonnes to 313.1. Aside from some influence from lowered US stock numbers, a slightly smaller South American picture was noted. USDA’s Brazil crop estimate from April, 124 million tonnes, was lightly lowered to 122. Conab in April was at 110.964 mt. Argentina was lowered from 55 mt to now 53. USDA is also slow-walking this number. The other two exchanges are now at 46.5 and 47.5. No one expects USDA to immediately join the rest of the trade with either Brazil or Argentine estimates. On the China side USDA left its view of annual imports unchanged at 23.0. The Chinese government this morning released their own s/d report. They lowered old crop imports from 20 to 19.5. USDA’s new crop stock estimate 312.3 million tonnes, would be considered lightly positive. The biggest highlight we see here is that they are holding Chinese imports estimates unchanged from old crop at 23. This morning’s Chinese s/d report shocked the trade with an unrealistic decline to 13 for imports. The world balance sheets, old and new, have a bit of movement in them still ahead.
Soybeans 2023/24: USDA left their prior 340 million bushel ending stock view for old crop unchanged today. The trade estimate was 339 (ALDL 360). USDA chose to leave domestic crush unchanged this month. It will be raised in the future. Their whole-year estimate is for a 4.0% increase over last year. September – April usage is +5.0%. With our overage already, and expectation for further capacity increases into August, we’ll eventually exceed their view by 20 – 40 million bushels. USDA also left exports unchanged. This was the surprise. Their current 1.700 billion bushel view for the year is -14% from the five year average. Year to date sales are -17%. With minimal sales left at this time of year, it would take a sharp increase to +39% from normal to meet their view. Only two of 17 recent weeks have met that hope. Exports will eventually be lowered from 20 – 90 million bushels. USDA will eventual raise old crop stocks. Old crop pricing is primarily determined by new crop news from here on out.
2024/25: As with corn the new crop soybean balance sheet is generally mechanical in nature. The March farmer survey is the basis for acreage and 52.0 bpa trend yields are noted. In the history of May supply/demand reports, USDA has used trend yield for all but one year (2005). USDA could have chosen to lightly start higher than trend given our planting pace. As a reminder, soybean yields are primarily determined by weather at the reproductive phase and just after. Though there is an impact from planting date it is relatively minor. There is almost no impact on yields from weather in the vegetative growth stage. USDA’s first production estimate of the year, 4.450 billion bushels, was next to the 4.453 billion trade estimate (ALDL 4.441). This production estimate is +288 million from last year and the second largest in history. Total supply, which includes beginning stocks and imports, pushes to 4.805 billion. That is +351 million from last year. It is the second largest ever. With USDA’s view of new crop demand, ending stocks were pegged at a large 445 million. This was just over the 431 trade estimate (ALDL 456). The computed 10.2% stocks/use would be the largest in five years. This would imply eventual harvest lows for November at $10.80. A minor summer risk-on story would allow prices near $11.50. To be clear, different than corn, it is much harder to justify higher prices from balance sheet economic analysis. We will fully point out that our studies involving similar years and annual trading ranges would allow for a larger than expected rally to $12.40 or just higher. It is normal for soybeans to temporarily “float on air” on these type of rallies. Different than corn, we cannot exact justify it with the balance sheet. Given that expected summer dryness is more focused in August, rather than June or July, some would suggest a short term risk-on trade is reasonable.
World old crop ending stocks were lowered from 114.2 million tonnes to 111.8. USDA minimally lowered Brazil by 1 mt, now 154. Brazil’s government was at 146.522 in April. They left their prior 50 mt view for Argentina unchanged. That is within the 49.7 – 52.5 range from the two Argentine exchanges as well as the Argentine ag ministry. USDA left their view of Chinese soybean imports unchanged at 105 mt. Earlier this morning, the Chinese government lowered their own 97.25 estimate from April down to 96.1. New crop stocks were pegged to rise up to 128.50. This was over the 120.9 trade estimate (ALDL 130.2). One highlight we’ll note is USDA’s view of Chinese imports, rising to now 109. This is quite different than the Chinese government’s view, this morning posted at 94.6. As with corn, we will clearly say USDA is feeling much more confident in holding differing numbers than the trade and other governments. We expect this discrepancy to remain in place for some time.
Wheat 2023/24: US old crop wheat ending stocks were lowered from 698 million bushels to 688 million. The trade estimate was 696 (ALDL 658). Exports were raised by 10. Given that we’ve already met needed old crop shipments for USDA’s prior view, we agree with this. There is likely another export increase coming. The old crop marketing year ends on May 31.
2024/25: Different than corn and soybeans, a portion of the new crop balance sheet is live. Today’s 1.288 billion bushel view for winter wheat contains a live view of current yields. This estimate was just under the 1.316 trade estimate (ALDL 1.328). This is the largest winter wheat crop in five years. The breakdown was 705 million for hard red, 344 for soft red and 229 for white. Trade estimates were 695, 404 and 212. Total wheat production was counted at 1.858 billion. This was under the trade estimate of 1.888 (ALDL 1.881). With USDA’s view of new crop demand ending stocks were estimated at 766. That was under the 786 trade view (ALDL 744). As wheat pricing is heavily influenced by the world picture we would suggest this is a bigger issue.
World old crop wheat ending stocks were lowered from 258.3 to 257.8 million tonnes. On the new crop side USDA’s starting view was 253.6. This was under the 256.9 trade estimate (ALDL 263.5). They started off a little low for hot button individual countries. Russia was pegged at 88.0 vs. last year’s 91.5. USDA is actually the lowest of the group! Others range from 89.6 – 92.1. Australia’s 29 mt estimate is minimally over last year’s 26. USDA is starting out with cuts below trend yields on the assumption of a drying Australia this year due to La Nina. Two years ago Australia posted a 41 mt harvest. The net message for the wheat market is that US production and supplies will grow. However, the general rest of world numbers are declining