Demand draws surprise drop in old crop stocks

CHARLOTTE, Mich. — An unexpected reduction in old crop corn stocks thanks to increased demand surprised the market when the World Agricultural Supply and Demand Estimates report was released July 12.

Angie Setzer and Karl Setzer, copartners at Consus Ag Consulting, looked at the new numbers when they hosted a live podcast on X, formerly Twitter, when the U.S. Department of Agriculture’s report was released.

In the day leading up to the WASDE report, traders were expecting old crop corn ending stocks to come in slightly higher than last month’s 2.022 billion bushels, around 2.05 billion bushels, and had an ending stocks range from 1.997 billion to 2.122 billion.

What happened on the corn side in this report?

Angie: Old crop corn carryout came in at 1.877 billion bushels, 250 million lower than what traders were anticipating. There was a pretty decent increase in feed and residual, about 75 million bushels. Exports were bumped up by 75 million bushels.

So, there was a 150-million-bushel increase in demand for old crop that reduced ending stocks, and that took the new crop ending stocks estimate lower. Last month new crop was 2.102 billion. This month it was 2.097 billion new crop carryout, and traders were expecting a 2.3-billion-bushel carryout.

USDA increased old crop corn demand pretty aggressively, which fits if you think there are larger supplies out there — your feed and residual goes up. If you have larger production, your feed and residual are greater. They rely on one another to ebb and flow. Cheap corn gets fed more.

The wheat balance sheet had a surprise of its own, but on the other end of the supply spectrum, right?

Angie: Wheat carryout came in at 856 million bushels, up from 758 million in June, and much higher than what traders were anticipating. The trade was expecting a 30-million-bushel increase in ending stocks versus last month. The average trade guess was 788 million bushels.

We were expecting all wheat production to come in at 1.909 billion bushels. USDA had 2 billion bushels. That is quite a bit bigger than what traders were expecting. A lot of that carried over into the ending stocks figure. There was a little higher domestic use and some other things.

We got that surprise in wheat carryout, but it’s super important for those who grow the different kinds of wheat what you could be seeing in each cash market, in particular just because of the supply and demand dynamics that you might be looking at year over year by class.

The big thing we’re seeing today is the hard red winter wheat ending stocks are expected to be quite a bit higher than what we saw a year ago. I don’t think that’s going to be a surprise at all. Production is about 160 million bushels higher than what we had seen last year for the USDA numbers.

Spring wheat ending stocks is expected to increase about 40 million bushels. Soft red winter wheat had about a 10 million bushel increase. So, it’s not all in one class by any means, but kind of spread out among all of them.

Where were the soybean numbers compared to pre-report expectations?

Angie: Soybean carryout came in a 435 million bushels on the new crop side. Traders were expecting that to come in around 449 million bushels.

USDA lowered old crop ending stocks on soybeans, as well, down to 345 million. Traders were expecting 355 million bushels.

On the soybean side, you’re looking at low prices carrying low prices. We have seen an uptick in demand.

We’re seeing some pretty significant strength in cash, showing that that demand is there for the last half of the year. That doesn’t necessarily surprise me to see the USDA be somewhat aggressive with those adjustments.

Were there any numbers on the global balance sheet that stand out?

Karl: Australia wheat production was unchanged at 29 million metric tons. I thought we would see that maybe increase a little bit. We’ve been hearing reports of some better weather down there.

They left the EU old crop wheat production unchanged, and I think trade is kind of scoffing at that with all the weather issues they’ve had in the EU.

The only global number that really jumps out at me is the old crop corn carryout. USDA took that down to 309 million metric tons versus 312 million.

No change to global production on most of the crops and I think the trade is starting to cast that aside a little bit.