USDA makes atypical December corn stocks cut

KANSAS CITY, Mo. — In an unusual move historically, the U.S. Department of Agriculture made aggressive cuts in its corn stocks.

“This is a little bit out of character for USDA. Usually the December reports are what we call a snoozer, kind of boring, but USDA decided to put a little fireworks in there and made some big adjustments to the corn balance sheet and some smaller ones to soybeans,” said Arlan Suderman, StoneX chief commodities economist.

“USDA really got aggressive in cutting both domestic and global corn stocks with increased usage estimates. They were also certainly aggressive for one month’s type of a move and certainly aggressive for that one month being in December.”

What were the major changes USDA made in the corn supply and demand estimates?

Suderman: USDA increased the corn for fuel ethanol by 50 million bushels to 5.5 billion. My estimate is 5.475 billion bushels for ethanol. I was ahead of the report by 25 million. USDA went up 50 million, and USDA may end up being correct. I’m just being a little more conservative.

USDA increased exports by 150 million bushels and I was up 75 million. I do have a little higher feed usage estimate. I’m operating my balance sheet off of a .6 of a bushel per acre higher yield that’s why my ending stocks are higher – 1.873 billion bushels compared to USDA’s 1.738 billion.

Global corn stocks were reduced by 7.7 million metric tons to 294.4 million. That’s much more than expected.

USDA did not raise it’s marketing year average cash corn price which says that even though we’re cutting stocks, there’s still adequate supplies.

What have you seen in the export market to justify the increase for U.S. corn shipments number?

Suderman: We’ve seen a big increase in corn export sales which USDA utilized to justify. You could make the argument that USDA is justified in making this. It’s more than I did because I’m a little bit more conservative. I want to see how many of these are front-loaded. Unknown destinations is the biggest reason. Mexico is up by about 40-some million bushels over the previous year.

Unknown destination is where the big jump in sales are. Who is unknown destinations and right away there’s a lot of speculation that it’s China. It could be, but I don’t think so. That doesn’t seem to fit.

I think what it is, is a lot of customers, resellers maybe, saying multiyear lows, let’s buy it, we’ll get rid of it. That would end up being front-loading. I don’t think it’s all front-loading.

That’s why I had raised my target by about 75 million bushels but USDA went 150 million bushels. Maybe USDA will end up being right. I don’t know. I’m a little bit more cautious to see if it’s front-loading first before I get that aggressive.

If we look at corn export shipments to date, we’re still exceeding marketing year inspections to date. Shipments still exceed USDA’s revised target, the seasonal pace we need to be to hit USDA’s newly revised target by 30-some million bushels.

We still have a strong pace. From that standpoint, if these aren’t front-loaded you can make the argument for even additional increases.

Argentina will have the next big supply available when they start harvesting in March to start impacting our demand, depending on the size of their crop.

Going back to USDA increasing corn for ethanol by 50 million bushels, what do the number show?

Suderman: Even at that, our year-to-date usage exceeds the seasonal pace needed to hit USDA’s target by about 12 million bushels.

We’ve had a big increase in ethanol exports, up about 400 million bushels on the year. Canada is our biggest customer. So, you come back to the tariff issue. That’s one of the things of concern here. The United Kingdom and India are also big factors overall for our ethanol exports.

The soybean balance sheet from this report didn’t make any headlines, but what were some of of USDA’s moves of note?

Suderman: USDA made no changes on the soybean balance sheet except for the price, down 60 cents from last month to $10.20 per bushel. That’s down over $4 a bushel over the last two years. That’s a significant financial hurt in farm country.

My crush number and USDA’s is 2.41 billion bushels. This is something to watch. How much do we see crush back off in late December into the first quarter of next year based on the lack of 45Z guidelines (tax credit incentive promoting renewable energy investments).

For exports, I’m 40 million bushels above USDA’s 1.825 billion bushels. We could see that go higher or go lower. That could go either way significantly. That’s why USDA didn’t make any adjustments in this report, wisely enough. It’s going to hinge on the size of the Brazil crop and the timeliness of being able to get it harvested and into the export channel.

I have soybean ending stocks at 486 million bushels compared to USDA’s 470 million.

Where are soybeans at in terms of the export market?

Suderman: Soybean exports exceed the seasonal pace needed to hit USDA’s target by about 88 million bushels. Where do we go from here? We’ve been way above the seasonal pace to this point. Now do we dip down well below it with the big Brazil crop? Part of it depends on if they have any weather problems with harvest, the second part being just how big those yields are because they will be cheaper.

So, with export sales of soybeans being so strong, where is it from? The assumption is that it’s China, but it’s not. China is behind previous years.

Unknown destinations are up a little bit from last year, not significantly. We did see Sinograin, China’s state grain buying agency, buy for China’s reserves. China does not allow Brazilian soybeans to go into reserves. Argentina isn’t going to have much in the way of exportable supplies before late March or April.

Sinograin bought about 10 cargoes of soybeans last week, according to our sources in China, for shipment in March and April when Brazilian soybeans will be a lot cheaper. So, it’s probably going into the reserves as an additional buffer against the possible trade war.

It’s the demand that we have coming over the next several months that is probably meant to be a buffer against a possible trade war going forward.

What adjustments did USDA make to the domestic wheat balance sheet?

Suderman: USDA increased feed usage by 5 million bushels, increased exports by 25 million bushels. They’re now above my estimate by 5 million bushels for feed usage of wheat, and exports are about 10 million above me. My ending stocks estimate of 807 million bushels compared to USDA’s 795 million.

Until we can get these export numbers increased, we’re going to have plenty of wheat. Our ending stocks are going to be quite ample.

It doesn’t say we can’t rally because keep in mind that wheat futures in the United States correlate very poorly to actual U.S. supply and demand. They correlate better to Black Sea fundamentals.

The wheat market continues to wait for Russia to curtail exports. USDA lowered Russian exports by 1 million metric tons from 48 to 47 million metric tons. I think they need to go down to as low as 42 million metric tons yet, and some private estimates are as low as 40 million.