WASDE lowers corn, soybean ending stocks

WASDE lowers corn, soybean ending stocks

Corn and soybean markets rally after USDA releases WASDE report.

THE latest U.S. Department of Agriculture "World Agricultural Supply & Demand Estimates" (WASDE) report, released April 9, brought news of lower corn stocks as well as even lower numbers for an already tight soybean supply.

U.S. soybean stocks are now at a critically low number of 135 million bu., a decrease of 10 million bu. from USDA's March estimate of 145 million bu. and lower than the year-ago supply of 141 million bu. (Table 1).

U.S. soybean supplies for 2013-14 were projected to be 3.49 billion bu., up 30 million bu. on increased imports. Imports were projected to be a record 65 million bu. based on trade reported through February and prospective large shipments from South America during the second half of the marketing year.

Soybean exports for 2013-14 were increased 50 million bu. to 1.58 billion bu., reflecting record year-to-date shipments and large outstanding sales.

"Despite relatively high prices and record harvests in South America, U.S. exports have remained strong, especially to China, where imports from the U.S. have already exceeded the previous marketing-year record," the WASDE report notes.

Projected prices for soybeans and soybean products were all higher. The projected range for the season-average soybean price was raised 5 cents at the midpoint to $12.50-13.50/bu. Soybean oil prices were projected to be 38-40 cents/lb., up 1.5 cents at the midpoint. Soybean meal prices were projected to be $460-490 per ton, up $5 at the midpoint.

Soybean production in Brazil was forecasted to be 87.5 million metric tons, down 1 mmt from last month as lower yields more than offset increased harvested acreage (Table 2). USDA reported that the lower yields primarily reflected the effect of warm temperatures and limited rainfall through mid-February in the south.

Argentina's soybean production forecast remained unchanged at 54 mmt. Rainy weather in Argentina delayed the soybean harvest and also affected soybeans that had been planted later.

USDA raised corn exports to 1.75 billion bu., up from the March estimate of 1.625 billion bu. As a result, U.S. corn ending stocks were lowered to 1.331 billion bu., down from the March estimate of 1.456 billion bu.

Continued strong export sales and a rising weekly shipment pace for U.S. corn during March supported the higher expected export level, as did an increase in projected global corn demand.

The estimated 2013-14 season-average farm price for corn was raised 10 cents at the midpoint, with the range narrowed to $4.40-4.80/bu., compared with $4.25-4.75/bu. last month.

Argentina's corn harvest estimate, at 24 mmt, was unchanged from USDA's March forecast, while Brazil's corn production estimate was raised 2 mmt to 72 mmt.

Purdue University Extension agricultural economist Chris Hurt said the WASDE report continued a series of recent reports that have offered corn and soybean producers a more optimistic price outlook than what was expected for most of the winter.

After cash corn prices fell to almost $4/bu. during the fall and early winter months — a price well below the estimated $5/bu. it cost farmers to produce the crop — Hurt explained that grain producers were afraid of just how low prices would fall and how long those lows would persist.

"That fear was very real, but recently, both old- and new-crop corn futures have pierced the $5 mark on the heels of USDA reports showing better old-crop corn usage and reduced acreage for 2014 plantings," he said.

Low corn prices drove winter corn use higher than originally anticipated, causing USDA to recently increase its export estimates by 125 million bu.

Since November, USDA has increased total corn usage by 500 million bu., which includes increases for exports, livestock feeding and ethanol use.

"When you see usage go up across the board as we have this year, it's an indication that corn prices near $4 were just too low," Hurt said. "Being 'too low' means that almost all end users had very high margins and wanted to own more corn. It also means that prices needed to rise to better reflect strong usage."

In March, farmers reported to USDA that they intended to reduce the national area planted to corn this spring by 3.7 million acres. Reduced acreage plus strong demand means that with normal yields in 2014, corn production will be relatively in balance with usage. Hurt said if that happens, prices could range between $4.40 and $4.80/bu. for the 2014 marketing year.

Overall, Hurt said, this is good news for growers.

"At this point, the prospects are more positive that U.S. corn prices can average somewhat above $4.50/bu. for both the 2013 and 2014 crops," he said. "The closer those national corn prices come to $5, the less downward adjustment is needed in land values and cash rents.


Market recap

Although trading by computer had a bullish reaction to the April WASDE report and pushed prices higher, Arlan Suderman, senior market analyst for Water Street Solutions, said people saw this as an opportunity to sell. While prices initially spiked following the report, the selling pulled prices off their highs to close lower last Wednesday.

The soybean market made double-digit gains following the report but closed at $14.955/bu., down from the high of $15.12/bu. Corn ended the day negatively last Wednesday at $5.0225/bu.

That's "not the type of close you'd like to see. It is very possible that the spring highs have been posted," Suderman explained.

The soybean markets need rationing, whether in the cash market or the futures market, according to Suderman. Sizable reductions are needed; otherwise, he said, prices could fundamentally go higher.

"There are multiple ways to work out the tight old-crop supplies, including encouraging some buyers to cancel contract purchases, importing soybeans from South America or having U.S. soybean prices go so high that they discourage some domestic use," Hurt said.

Farm Futures senior market analyst Bryce Knorr said, "While USDA's soybean stocks forecast was right on with ours, the basic assumption is that demand will be rationed, imports will soar and farmers likely will harvest 2014 beans early. The first two of those assumptions mean higher prices. The third depends on good growing season weather.

"Futures could be ripe for a correction at just about any time on news of Chinese cancellations" of U.S. soybean shipments, Knorr explained. "Chinese companies are reportedly defaulting on 20 million bu. purchased from both the U.S. and Brazil because they can't get financing, thanks to very weak crush margins and credit tightening by a government trying to reform its banking system."

Nearby soybean markets closed at $14.6425/bu. last Monday, and despite the rally following the WASDE report, soybean prices closed lower last Thursday at $14.8225.

Bob Burgdorfer, Farm Futures senior editor, said soybean prices dropped last Thursday on profit-taking after jumping to a nine-month high a day earlier and also on a bearish Reuters report indicating that credit issues caused Chinese buyers to default on purchases of 500,000 mt of soybeans from the U.S. and Brazil.

Corn prices were a little weaker last week, but according to Knorr, buying in Europe helped May futures get back above $5/bu. after last Wednesday's bearish decline from fresh seven-month highs.

"While USDA said better export demand will cut the carryout by 125 million bu. from previous estimates, prospects for a big 2014 crop could cause a seasonal trend for a spring top to kick in," Knorr noted.

After a bullish surprise for corn in the April 9 WASDE, the market was looking to new-crop corn and the potential for an increase in acreage.

Suderman said it's fundamentally difficult to justify sustaining corn prices much above current levels.

"That doesn't mean they can't go higher, but fundamentally, it's hard to argue, unless they get a legitimate threat," he said.

Nearby corn prices closed at $4.9925/bu. last Monday but climbed to $5.07/bu. on Tuesday. By Wednesday and Thursday, prices couldn't sustain the previous highs and closed at $5.0225 and $5.0125/bu., respectively.


1. U.S. 2013-14 ending stocks, billion bu.







April est.



March est.

















2. South America 2013-14 production, mmt







April est.



March est.






















Sources for Tables: USDA and Bloomberg.



Volume:86 Issue:15

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