ANALYSIS - Friday's USDA World Ag Supply and Demand Estimates (WASDE) report showed a decline in beginning US stocks for the current crop year as well as a drop in world corn stocks.
Each month USDA updates various estimates of supply and demand and revises its moving target for where stocks will end at the end of the marketing year, August 31 for corn and soybeans and May 31 for wheat. For the October report USDA makes several changes on the balance sheet. Old crop ending stocks/new crop beginning stocks are revised to the September 30 Grain Stocks report. Current new crop acreage is also revised as USDA incorporates crop insurance data. Yield estimates also get a little more accurate due to a maturing crop.
Following is Allendale, Inc's post-report analysis on the grains portion of the WASDE report.
Beginning stocks for the current crop year, which started on September 1, were revised down from 1.732 billion to 1.731. Planted acreage was lowered by 516,000 (88.381 million) and harvested by 437,000 (80.664 million). This fits in with Allendale’s view for a total drop from the September report to the January final of 643,000. Yield was raised from 167.5 bpa to 168.0. Allendale was surprised with the average analyst guess of a decline to 167.1. Based on the harvest reports in our office this is very reasonable. With a 1 million drop for beginning stocks and a 30 million decline for production, lower acreage offset higher yields, lower supply was recognized. They made no changes to feed/residual or corn for ethanol which is reasonable to us. Surprisingly, they did not touch exports. Year to date sales are 28% under last year. USDA’s whole-year goal is for a 1% drop. You can expect USDA to lower exports on future reports. With lower supply and no change to demand ending stocks were lowered from 1.592 billion to 1.561.
World Numbers: World stocks were lowered from 189.7 million tonnes to 187.8. Both Argentina and Brazil production was raised by 1 million tonnes. Ukraine production was lowered by 2 mt. World ending stocks are still set for a decline from last year’s 196.0.
Price Expectations: USDA’s new crop price outlook, via a cash corn price for Central Illinois, was raised by 5 cents to now $3.80. Yesterday’s bid for that location was $3.72 ½. We still suggest the fall low has been made and that slightly higher prices through fall will be seen. Most of our expected gains will come after December rolls around. The trade focus ahead will be South American plantings and potential El Nino production declines in non-US countries.
Old crop ending stocks were revised down from 210 to 191 million bushels. That was entirely expected as it was already reported on September 30. Planted acreage was revised down by 1.1 million for both planted and harvested (83.205/82.429). Yields were raised from 47.1 to 47.2. With a 19 million drop from beginning stocks, and a 47 million decline for production, lower supply was recognized. Their demand changes were very reasonable in our opinion.
Domestic crush was raised by 10 million and exports were lowered by 50. As a reminder export sales are off last year by a ridiculously large 26%. USDA’s new lower export sales estimate calls for a 9% decline. There are likely further revisions lower in the coming months. Ending stocks were lowered from 450 million to 425.
World Numbers: Ending stocks were raised from 85.0 million tonnes to 85.1. Though we had smaller US stocks a little higher Brazilian numbers were recognized. USDA’s 3 million tonne increase for Brazil production, and 2 million increase in exports, was the offsetting factor. We are still set for an increase in world stocks compared with last year’s 78.0.
Price Expectations: USDA left their cash price outlook for Central Illinois unchanged at $9.15. Yesterday’s price for that location was $8.56. Many traders will suggest their price outlook is a bit high, and we cannot argue. Officially we look for a sideways futures trade in the coming six months.
On the bear side, South American planting is underway and bigger bean acres are the rule. On the other hand, we have well respected weather forecasters telling us El Nino will bring dryness to Southeast Asia (palm oil production) and Brazil through December.
On September 30, USDA released the Grain Stocks report and also the Small Grains Summary. Friday’s 84 million bushel decline for 2015 production was already known. It was interesting to see USDA proactively cut demand. They dropped wheat for feed by 20 and exports by 50. Those are very reasonable moves in Allendale's opinion. Ending stocks were lowered from 875 to 861 million.
World Numbers: Stocks were raised from 226.6 to 228.5 million tonnes. Lower US stocks were offset by production increases for Australia, Canada, and Ukraine. We would suggest they should have lowered Australia due to recent dryness. Last year’s stocks were at 212.1.
Price Expectations: USDA currently has a $5.00 price for this year’s wheat pricing for Central Illinois. This is under last year’s $5.99. While we are resistant to getting bullish on wheat we will recognize El Nino would impact Australian production. However, the US remains overpriced on the export market.