WASDE disappoints grain trade

WASDE disappoints grain trade

- USDA lowers corn yield estimate 1.5 bu. per acre. - Traders expected larger reductions because of late planting. - Market cautiously

TRADERS viewed the U.S. Department of Agriculture's June "World Agricultural Supply & Demand Estimates" (WASDE) report as almost summarily bearish because USDA didn't trim ending stocks for corn nearly as much as anticipated.

Given the late corn planting and assumption that planters would switch acres from corn to soybeans, the market didn't think USDA took nearly enough production off the proverbial table.

USDA lowered corn production by only 135 million bu., pegging production at 14 billion bu. based on an average yield of 156.5 bu. per acre. While the department lowered its yield projection by 1.5 bu. per acre from the May estimate, it made no changes to its acreage assumptions, instead waiting for the June 28 acreage report to make any substantive changes there.

Delving into the corn balance sheet, USDA lowered domestic corn usage by 70 million bu. Feed usage was lowered by 125 million bu., based on a smaller crop and higher prices, but corn use for ethanol production was boosted 50 million bu., and food and industrial uses were projected to be 5 million bu. larger.

New-crop ending stocks were trimmed 55 million bu. to a projected 1.9 billion — roughly 2.5 times larger than estimated 2012-13 ending stocks (Table 1). USDA added a dime to its season-average farm price for corn, with estimates at $4.40-5.20/bu.

USDA lowered its projections for global coarse grain supplies by 4.3 million metric tons. While most of that drop came from the projection for reduced U.S. production, global beginning stocks were trimmed based on the estimated 2.4 mmt reduction in China's corn production, according to the latest government data out of Beijing, China.

Global corn consumption, however, was lowered by 1.7 mmt, based mostly on the changes to domestic feed use in the U.S. New-crop ending stocks were projected to be 151.8 mmt (Table 2), which would mark the largest global ending stocks in 12 years.

Traders had anticipated that USDA would essentially stand pat on its 2012-13 U.S. ending stocks projection from last month, so the extra 10 million bu. was viewed as slightly bearish. Traders had also expected slightly larger global ending stocks for the old crop, so the reduction was somewhat good news.

For the new crop, however, both U.S. and global corn ending stocks came in much larger than traders had expected, leading to some amount of pessimism in the pits to end the week as well as some grumbling that USDA didn't take into account the state of affairs out in the fields.

For soybeans, USDA was content with the status quo for both old-crop and new-crop ending stocks. The agency did tinker with the balance sheet slightly, increasing old-crop imports and crush but offsetting those changes with a reduction in exports.

USDA raised its season-average soybean and soybean meal price estimates, adding a quarter to soybeans and $10 per ton to soybean meal. Soybean prices are now pegged at $9.75-11.75/bu., and soybean meal is projected to be $290-330 per ton.

Global oilseed production was projected to be lower for both the old and new crops in the June report, with old-crop ending stocks coming in slightly below the average pre-report trade estimate.

Along with the WASDE report, USDA released its June "Crop Production" report, with wheat production as its central focus. USDA surprised traders by boosting its forecast for winter wheat production 2% to 1.5 billion bu. (Table 3).

Despite ongoing and well-documented concerns about the size and quality — not to mention outright abandonment — of the wheat crop, USDA was sufficiently impressed to increase its production estimate for every class reported. Based on conditions as of June 1, USDA pegged average yield at 46.1 bu. per acre, up 0.7 bu. from the previous estimate.

Next up for the markets are the June 28 acreage and "Quarterly Grain Stocks" reports. It will be a momentous day because both reports have the potential to shake up the market as traders are anticipating changes, especially in planted acreage.

According to a survey of grain analysts conducted by Reuters June 10, USDA should reduce its estimate of U.S. corn plantings by nearly 1.5 million acres based on planting delays this season. The current official estimate is 97.3 million acres, the largest area planted to corn since the 1930s.

Traders also assume that USDA will boost its estimate of soybean acres slightly as some corn acres move into soybean production toward the tail end of a late planting season. The average guess is that nearly 700,000 acres will shift from corn to beans, according to the survey.

 

Market watch

According to University of Illinois agricultural economist Darrel Good, the market is having a hard time pegging the size of the U.S. corn crop this season.

"Over the past three weeks, December corn futures have traded from a low of $5.12/bu. to a high of $5.735 as production expectations continue to unfold," he explained. "Nationally, an estimated 46% of the crop was planted as of May 15 this year, compared to an average of 72% in the previous 34 years. An estimated 9% of the acreage was still to be planted as of June 2."

The June acreage update, therefore, will be very important to the market. That report will be based on data collected during the first two weeks of June, with USDA conducting two surveys during that period.

One problem, according to Good, is that the market's range of opinions about the size of the actual planted area is pretty broad for two reasons: "First, some analysts think that USDA's March survey of prospective corn plantings resulted in an underestimate of farmers' actual planting intentions," he explained. "The second and more important reason stems from late planting. Estimates of the number of acres that will be switched to another crop, or not planted at all, vary considerably."

While the June 28 reports will provide some additional insight, Good cautioned that the larger-than-normal amount of acreage not planted during the June survey period will still reflect intentions in some cases rather than actual planting.

So, factor in the added uncertainty surrounding the prospects for yield at this point — consider what yield projections looked like this time last year, for example — and it's easy to understand why there is still a very wide range of possibilities for production and pricing and why the market is having a tough time gauging the size of the crop at this point in the ballgame.

Meanwhile, demand for both corn and soybeans remains strong. Ethanol production averaged 884,000 barrels per day for the week ending June 7, marking a four-week average for production of 877,000 barrels per day. Stocks of ethanol hovered at 16 million barrels, and imports were nil yet again.

The National Oilseed Processors Assn. is expected to report June 17 that the May soybean crush was down 14% from a year ago and that inventories of soybean oil probably increased 10% compared with the prior year, according to a Bloomberg survey of oilseed analysts.

 

Ingredient watch

With increased ethanol production comes more dried distillers grains plus solubles (DDGS). For the week ending June 7, ethanol producers churned out 87,954 mt of DDGS per day.

Globally, soybean meal supplies are expected to remain tight for the remainder of the month. An update from analytical firm Oil World in Germany indicated that South American exports remain sluggish. While hopes were that Brazil would satisfy a hungry global market for soybeans, logistical challenges have kept beans from leaving the country.

New-crop cottonseed supplies available to the market also are expected to get tighter as farmers plant fewer acres of cotton. Current USDA estimates indicate that cotton acres will be 18.6% smaller than last year, and total production will fall 22%.

Following the May WASDE, the feed industry was expecting roughly 2 million tons of cottonseed to be available for feed use, but with production lowered another 3.6% in the June report, the supplies of cottonseed for feed will likely only get smaller and smaller.

 

1. U.S. ending stocks, million bu.

 

USDA

Average

Trade

USDA

2012-13

June est.

est.

range

May est.

Corn

769

759

684-919

759

Soybeans

125

121

80-140

125

Wheat

746

733

715-751

731

2013-14

Corn

1,949

1,795

1,175-2,200

2,004

Soybeans

265

268

185-344

265

Wheat

659

640

501-713

670

 

2. Global ending stocks, mmt

 

USDA

Average

Trade

USDA

2012-13

June est.

est.

range

May est.

Corn

124.31

125.975

124.5-128.2

125.43

Soybeans

61.21

62.105

60.5-63.0

62.46

Wheat

179.87

180.395

179.8-181.6

180.17

2013-14

Corn

151.83

149.571

141.5-155.2

154.63

Soybeans

73.69

73.512

68.2-76.0

74.96

Wheat

181.25

185.144

179.8-188.5

186.38

 

3. U.S. wheat production 2013, million bu.

 

USDA

Average

Trade

USDA

June est.

est.

range

May est.

All winter

1,509

1,467

1,401-1,523

1,486

Hard red

781

752

676-815

768

Soft red

509

505

492-517

501

White

219

210

200-217

217

All wheat

2,080

2,034

1,872-2,109

2,057

Sources for Tables: Reuters, USDA.

 

Volume:85 Issue:24

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