USDA makes early corn yield adjustment

CHICAGO — A decline in world and U.S. wheat stocks and an unexpected early move away from the trend-line corn yield provide some bullish fodder when the U.S. Department of Agriculture’s supply and demand estimates were issued May 12.

Jack Scoville, The Price Futures Group vice president, broke down the USDA report in a Minneapolis Grain Exchange-hosted teleconference.

What’s your take on USDA’s latest corn balance sheet?

Scoville: Corn was a bullish estimate and that came from the yield estimate being cut. I think everybody, including myself, thought USDA would use a trend-line yield which is 181 bushels per acre, and they didn’t.

They came in at 177 bushels per acre and that led to a production estimate of 14.46 billion bushels and ending stocks estimate of 1.36 billion bushels.

USDA did cut corn demand back both domestically and on the export side which is logical given the high prices that we’re hearing about.

Cattle feeders, for example, looking everywhere they can to avoid using corn right now because it’s so expensive, and the export market is probably going to suffer a little bit as meat producers overseas look for alternatives, as well.

So, to have a cut in demand is to be expected. Even so, the ending stocks estimate was 1.36 billion bushels and that should be pretty friendly.

Is it typical for USDA to make a corn yield adjustment so early in the growing season?

Scoville: No, it’s surprising for USDA to make the cut this early. They said it was because of the delayed planting. They’ll fine-tune it, but to start off acknowledging the lateness of the crop is pretty surprising.

I had assumed and I think everybody in Chicago assumed USDA would go with the trend-line yield. I think we all kind of thought that yields were going to come down. I don’t have a problem with this yield estimate. The timing is a surprise as much as anything.

The wheat global and domestic balance sheets also took the trade by surprise.

Scoville: The big surprise came in the world wheat ending stocks estimate which came in last month at 279 million tons and this month it was 267 million tons. The average guess was 272 million tons. That was a pretty sizeable miss.

The production in the U.S. of 1.729 billion bushels and ending stocks were down to 619 million bushels from 655 million which is bullish, as well.

Growing conditions in the wheat-producing areas in the Great Plains have raised production concerns, as well as other issues globally.

Scoville: It’s been very wet, very cold in the northern Great Plains — western Minnesota to Montana and into Canada. It may be getting a little better this week, but they’re still far behind and the producers are going to be playing catch-up ball. There’s an excellent chance some of the wheat might not get planted this year.

The hard red winter problems have been pretty well documented with the hot, dry weather in the western Great Plains and that’s probably going to continue. So, we can probably looked for the wheat production estimates to drop even further down the line once we get into the harvest and see how bad the production really was out in hard red winter wheat country.

Here in the central Midwest, we’ve had plenty of rain and it should be a pretty high-yielding crop for soft red winter wheat and that will help alleviate some of the situation.

But it’s really the hard red winter wheat and the Kansas City market is reflecting that with loss of production from hot, dry weather, and the lower world wheat ending stocks estimates contributing, as well, because of some reduction in Ukraine and problems everywhere around the world.

China had a very wet planting season for their winter wheat crop last fall. They need perfect weather from here on out to get a decent crop at all, let alone a record or near record type yield.

Argentina is having problems. I saw the Rosario Exchange reduced its wheat production estimate this morning.

There are problems with wheat production in many places around the globe. So, I think the wheat market will stay pretty well supported and we’ll see somewhat higher prices.

USDA reflects that, showing a $3 increase in the average farm price, going above $10 a bushel. That’s a pretty dramatic increase on a year-to-year basis.

Were there any numbers that stood out in the soybean supply and demand estimates?

Scoville: Soybeans didn’t appear to be anything too terribly special. USDA used the trend-line estimate of 51.5 bushels per acre. Production was increased to 4.64 billion bushels, up 5% from last year mainly on higher harvested area.

That is a real big soybean crop. And it could be, with the corn planting delays especially in places like the Northwest in the Dakotas where they’re probably going to seriously consider switching to soybeans because they are going to struggle to get the corn yield to pay for all of the inputs anyway.

There might be a little bit of switching going on in Illinois, but we’re starting to dry down a little bit here and it’s warm this week, so producers may end up sticking with corn.