Grain futures turned mixed after a report from USDA that slashed forecasts of corn carryout but raised soybean ending stocks due to the impact of Chinese tariffs. 

With USDA lowering its forecast of average soybean prices by 75 cents per bushel, Farm Futures senior grain market analyst Bryce Knorr says the agency has assigned a cost to the current Chinese soybean tariffs. That translates to about $325 million in lost revenues at current levels of production – but Knorr searches for a silver lining. 

“The good news for growers: Futures prices have already priced much of this into the market,” he says. “The low end of USDA’s price range for the 2018 crop is $8, and new crop bids in the cash market are already lower than that.”

Here are some other key findings from today’s USDA World Agricultural Supply and Demand Estimates (WASDE) report.

Corn

USDA’s latest assessment for 2018/19 domestic corn cites “larger supplies, greater feed and residual use, increased exports and lower ending stocks.”

The agency upped its forecast for 2018/19 corn production by 190 million bushels to 14.230 billion bushels, entirely due to increased acreage. Trade analysts expected that number to come in somewhat higher, with an average estimate of 14.304 billion bushels. Farm Futures, which regularly participates in these surveys, supplied an estimate of 14.132 billion bushels.

USDA did not alter its estimates for per-acre corn yields, at 174.0 bpa. Analysts predicted that number would come in between 172.6 bpa and 179.5 bpa (Farm Futures represented the low end of trade guesses).

On the demand side, USDA raised its projected feed and residual use by 75 million bushels and exports by 125 million bushels. That leaves 2017/18 U.S. corn ending stocks at an estimated 2.027 billion bushels, with 2018/19 U.S. corn ending stocks coming in moderately lower.

“With use rising more than supply, stocks are lowered 25 million bushels to 1.552 billion,” the agency concludes. With that, USDA still lowered its season-average corn price by 10 cents at the midpoint, leaving a range between $3.30 and $4.30 per bushel.

Overseas, USDA projects lower production, trade and stocks for 2018/19 corn compared to June. Some reductions are expected in Russia and Canada, partially offset by increases expected in the European Union.

USDA did not raise or lower its estimates of this year’s South American corn production from June, keeping Argentina and Brazil production steady at 1.299 billion bushels and 3.346 billion bushels, respectively.

World ending stocks for 2017/18 are now estimated at 191.73 million metric tons (down 0.5% from June estimates), with world ending stocks for 2018/19 now estimated at 151.96 million metric tons (down more than 1.7% from June estimates).

“On the corn side, USDA didn’t cut its forecast for feed usage as much as I expected, causing a beneficial drop in old crop leftover supplies,” Knorr says. “Feed usage could still wind up less than anticipated, but that won’t be known until the end of September, when the next stocks report comes out. By then, we should have a pretty good idea about just how big the crop is.”

Knorr notes that USDA remains optimistic on new crop corn demand. That could cause worry later on, considering the agency’s tendency to overestimate usage. Weather could be the overriding market mover in the short-term.

“Weather for corn pollination hasn’t been overly threatening, but the fast rate of pollination could reduce the time the crop has for filling,” Knorr says. “As long as yields stay below 175 bushels per acre, there’s a good chance for some post-harvest rallies, perhaps sooner.”

That said, gains could be limited until USDA’s first survey of farmers and their fields is released August 10, Knorr adds.

Soybean

In contrast, USDA expects higher ending stocks for 2018/19 U.S. soybeans. This year’s production could reach 4.310 billion bushels – up 30 million due to increased harvested area, although USDA did not alter its per-acre yield forecasts, still at 48.5 bpa.

Chinese tariffs have USDA expecting soybean exports to fall by 250 million bushels to 2.040 billion – but not all export news is sour, the agency contends.

“Despite losing market share in China, soybean exports are supported in other markets as lower U.S. prices increase demand and market share,” according to this month’s WASDE report. As a result, USDA estimates for 2018/19 U.S. soybean stocks moved from 385 million bushels in June to 580 million bushels in July.

USDA’s estimate for 2017/18 U.S. soybean stocks, however, moved from 505 million bushels to 465 million bushels. Analysts were expecting that number to move higher, with an average guess of 512 million bushels, including a Farm Futures projection of 494 million bushels.

In South America, USDA projects steady production in Argentina and slightly higher production in Brazil compared to its June estimates, reaching 1.360 billion bushels and 4.391 billion bushels, respectively.

USDA raised its estimates of world ending soybean stocks for 2017/18 by about 3.8%, to 96.02 million metric tons. 2018/19 world ending stocks saw an even bigger bounce – moving 12.9% higher to 98.27 million metric tons. Those estimates caught trade analysts off-guard, expecting revisions to 92.0 MMT and 88.7 MMT, respectively.

USDA moved its season-average soybean price 75 cents lower at the midpoint, with a new range of $8.00 to $10.50 per bushel.

“Whether soybean prices can move higher depends on weather now,” Knorr says. “A shift to cooler and drier conditions into the end of July doesn’t tip the scales one way or the other. But storms moving through the Midwest into early next week could be crucial, both in areas that are too wet or too dry.”

Wheat

USDA’s estimates of 2018 U.S. all-wheat production came in higher this month, moving from June estimates of 1.827 billion bushels to 1.881 billion bushels. That was mostly due to an increase in spring wheat production estimates – booming 47% higher than June estimates, to 614 million bushels thanks largely to high quality ratings and favorable growing conditions. Winter wheat production estimates, on the other hand, moved slightly lower, from 1.198 billion bushels in June to 1.193 billion bushels.

According to USDA, domestic wheat stocks for 2018/19 moved from an estimated 946 million bushels in June to 985 million bushels, a move that trade analysts largely anticipated.

World wheat ending stocks for 2017/18 moved slightly higher from USDA’s June estimates of 272.37 million metric tons to 273.5 MMT. Estimates for world wheat ending stocks in 2018/19 trended lower, meantime, dropping nearly 2% to 260.88 MMT.

USDA dropped its 2018/19 season-average price projection by 10 cents at the midpoint, pushing it down to a range of $4.50 to $5.50 per bushel.

Futures prices initially reacted positively to the latest WASDE report, with some wheat contracts trending 1% to 2% higher immediately following its release.

“Wheat is enjoying a bit of a relief rally because today’s report wasn’t overly bearish,” Knorr says. “Gains have less to do with the U.S. numbers than what’s happening around the world, where our competitors’ production is down, supporting higher global prices. Wheat will try to get a rally going once again, but the slowing pace of winter wheat harvest could tamp down that effort for now.”