Summary of Numbers:
|U.S. Ending Stocks (bbu)||April WASDE||Trade Average||March WASDE||2018/2019|
|World Ending Stocks (mmt)|
Quick context on the corn numbers: OPEC+ met recently and agreed to a production cut of up to 20 million barrels per day. They also said they will see an additional five million barrel per day reduction from G20 countries (pretty much the U.S.). Three points on this:
- OPEC agreements are only as good as the follow through. There isn’t an enforcement mechanism, so the market is likely going to take a wait and see approach, which leads to my next point:
- Prices initially rallied on the news, but it was an ugly reversal shortly thereafter. That’s not encouraging
- A 20 million barrel per day cut is good. However, the Energy Information Administration is currently projecting a loss in demand of 12.2 million barrels per day through the remainder of the year. So the cut isn’t as influential as the headline reads.
Corn, as expected, has seen the biggest impacts from COVID-19, which resulted in a re-shuffling of demand. On the supply side, the United States Department of Agriculture (USDA) is resurveying all the late states EXCEPT North Dakota, which they believe still has too much left to resurvey. Personally, I think they could probably go ahead, but for now, they are waiting until at least May for the resurvey there. So, no change in production right now, and really I’m not sure that we will see anything that’s influential to the market.
On the demand side, the biggest impact is obviously to ethanol. For now, USDA is reducing the demand for corn to supply ethanol production by 375 million bushels. Then, they are going to add back 20 mbu for use in food and industrial - specifically, hand sanitizer and alcohol for drinking. Further, the loss of DDG production, plus better than expected disappearance through the second quarter of the marketing year, resulted in USDA increasing corn for feed usage by 150 mbu. The good news was that exports were not reduced and sales and shipments in the past month have picked up. Export sales are finally starting to bend higher, so we might be able to avoid further cuts, especially if South America doesn’t get some additional moisture. Regardless, the net loss of demand stands at 205 mbu and puts the “new” carryout projection of 2.09 billion bushels. Stocks to Use wise, that’s pretty comparable to the carryout on the 2018 crop. Accordingly, USDA also dropped the projected price for the 2019 crop to $3.60. If realized, the Price Loss Coverage (PLC) payment on corn will be $0.10, although again that is not final. The USDA will issue their first look at the 2020 crop next month.
Globally, USDA took world production one mmt higher (~39 mbu) while basically performing the same reshuffle of demand. The net result was an increase of 5.8 mmt (~228 mbu) in the global balance sheet. That number is flexible with Brazil producing about three-quarters of their corn right now with harvest in June.
In soybeans, there is some shifting of numbers but the net effect was less than corn. We’re still in a much better position than last year at this time.
The DDG issue is causing some shifting of resources as noted above, which includes the replacement of some DDG’s with soybean meal. All of this caused USDA to raise crush estimates by 25 mbu - although the crush spread trade through the past few weeks causes some questions on that. This is probably not long enough to raise outright questions, but it will be watched carefully. The “extra” crush demand came out of the seed and residual estimate for the most part. The bigger issue was the fact that USDA has reduced export demand by 50 mbu because the phase one deal with China hasn’t really panned out to this point. This isn’t shocking given the collapse of the Brazilian Real and the Argentine Peso, the normal seasonal tendencies and the fact that Brazil is looking at a good crop. Remember calendar years and crop years are different. The phase one deal is an annualized number of a basket of goods over a calendar year. Once we get past this and into harvest of the 2020 crop year, we should have better demand but that’s not going to show up for a few months.
Regardless, the new carryout is 480 mbu and USDA reduced the projected price just five cents to $8.65. The reference price to generate a PLC payment in soybeans is $8.40, so most producers will have enrolled in Agriculture Risk Coverage-County (ARC-CO).
Worldwide, Brazilian production is expected to be a record 124.5 mmt. The USDA secretary’s report added that with prices at current levels (in terms of the Real), they do currently expect that additional land will be broken out for the 2021 crop. That could change as they won’t plant for six months. It is interesting that USDA would point that out now. Total global supply is expected to be reduced by 4.7 mmt and demand is expected to be reduced by 2 mmt. We did see a reduction in the global balance sheet despite everything that’s going on, which is great news.
USDA lowered export demand by 15 mbu, as well as feed demand by 15 mbu. This is likely due to the fact that corn prices are lower and wheat isn’t as competitive into rations. I think it’s worth mentioning that export reductions were only in hard red winter (HRW) and soft red winter (SRW) classes, so the HRS balance sheet that effects our trade area was steady compared to last month. Projected carryout is 970 mbu, which is still a better stocks-to-use ratio than last year. Market price was raised five cents to $4.60 to reflect better case prices over the past month and the fact that it doesn’t look like that will change before the end of the marketing year on May 31st. For PLC, that would indicate a 90 cent/bu payment.
Globally, there was no change in production estimates. There is a globally reduction in feed usage of 3.7 mmt and a reduction in total demand period of 5.1 mmt. Therefore, we do have more wheat available globally. How that moves has a lot to do with currencies and export restrictions of varying degrees. I’ll believe HRS exports should hold up fine with little issue for the next few months.