Minimal market movers in USDA balance sheets

MINNEAPOLIS — With typically no changes in crop production, the December supply and demand report is usually market-benign, but there were some numbers of interests to the trade.

Brian Hoops, Midwest Market Solutions president, gave his take on the U.S. Department of Agriculture estimates in Minneapolis Grain Exchange-hosted teleconference Dec. 9.

USDA kept corn ending stocks unchanged from the previous estimate at 1.493 billion bushels. Was that expected by the trade?

“The trade had come into the report expecting to see a bump in ethanol grind because our ethanol production has improved so much. Possibly we’d see an improvement in corn exports as well and neither one of them happened. We were expecting ending stocks cut by 15 million to 20 million bushels in this report.

“The initial reaction from the corn market was a little bit bearish because this was unchanged and prices did turn lower initially, but then started to firm up again. This number by any means is not a bearish number — just the reaction was a little bit negative because of the expectation going into the report.

“World ending stocks for corn increased by 1 million tons and that was initially a little negative, as well. World ending corn stocks are now 305.54 million tons.”

USDA also made no changes to the domestic soybean balance sheet with ending stock unchanged from last month’s report at 340 million bushels.

“The trade had expected a change in ending stocks with an increase of 15 million bushels because soybean exports have gotten off to a real slow start. If we look at the export numbers that came out this morning, USDA is probably justified in holding the line on these exports because soybean sales have improved dramatically. They were 60 million bushels this morning, last week was 39.1 million bushels and this morning’s sales were the highest in seven weeks.”

What were the factors that most recently sparked soybean export sales?

“Part of this is ongoing because we have some dry conditions, I won’t say a drought, but it is getting dryer than desired in southern Brazil and in Argentina and that’s really the key for our U.S. exports. China has started to come back into the marketplace pretty aggressively over the last two weeks as this dryness has intensified, along with unknown destinations which probably is going to turn out to be China down the road.

“They are starting to book some soybeans and so I think it was justified for USDA to, at this time anyway, leave the export forecast unchanged and leave ending stocks unchanged.

“Total soybean commitments are about 1.426 billion bushels and that is 27% down from last year. So, it’s a big drop from a year ago, but we are starting to pick up sales quite aggressively because of this dryness that is developing in South America.

“World ending stocks for soybeans were actually down from last month by 1.8 million tons to 102 million tons which was a surprise and we’re seeing some strength in soybeans. We’ve had two numbers that were somewhat friendly surprises for soybeans and now it’s unsurprising to see soybeans rally.”

There were some changes in the wheat supply and demand estimates that grab some attention.

“U.S. wheat ending stocks did rise more than what the trade had expected and that was bearish. U.S. ending stocks went from 583 million bushels last month to 598 million this month and that was slightly above expectations. USDA lowered U.S. wheat exports by 20 million bushels and they were certainly justified in doing so.

“Our sales this morning, for example, were 8.8 million bushels, that’s the second lowest in the last 15 weeks, and we’re down nearly one-third of where we were a year ago. They were 22.6 million bushels.

“The total commitment for wheat of 535 million bushels is down about 24% from last year and at this time that’s the lowest on record over the last 40 years. So, it’s certainly justified to bring export business down in this report and it was a little bit more than what the trade had expected.

“So, there’s unfortunately more bearish news for our wheat producers. I think we’ll continue to see pressure against the wheat market and that will limit the advance of the corn market.”

What were some key changes in the world wheat estimates?

“World wheat ending stocks was 278.18 million tons compared to last month’s 275.8 million tons. That’s negative, as well. We’re increasing supplies because this wheat rally that we’ve seen is all about supply — it’s not about demand and exports being poor.

“It’s about tight supplies of spring wheat, tight supplies of winter wheat and world supplies. However, USDA is telling us that these supplies are going to be less burdensome and that may have put the top in the wheat market for the time being, especially when we talk about planted additional acres this winter of winter wheat.

“Russia’s wheat crop size increased to 75.5 million tons. That’s up from 74.5 million last month. The Australian wheat crop is 2.5 tons bigger than a month ago to 34 million tons. So, we’ve added 3.5 million tons of world wheat production in this report. I think that’s a bigger picture negative for the wheat market and something that wheat traders really have to be cognizant of because we just don’t have enough demand for our product.”

What did the report note about some of the top U.S. export competitors?

“It’s so early in the growing season that you really don’t expect to make any major changes. Brazil’s corn and soybeans are both 95% planted the rest of South American is behind them with maybe two-thirds planted, but production numbers for Brazil and Argentina were left unchanged at this time for both corn and soybeans. Yet they are up considerably from last year.

“For example, Brazil’s corn crop is expected to be 118 million tons this year versus 87 million last year. Argentina’s corn crop is expected to be 54.5 million tons versus 50.5 million last year. Brazil’s soybean crop is estimated at 144 million tons versus 138 million last year.

“We’re looking at bigger world competition for corn and soybeans if they can have a good growing season.

“It looks like wheat producers in Australia and in Russia are going to have a little bit larger crop than what they had in earlier expectations. Australia’s wheat crop is just slightly larger than last year, but Russia’s crop is down about 10 million tons from a year ago.”