The February World Agricultural Supply and Demand Estimate report is generally benign, but market bulls who were expecting changes with the current robust demand for corn and soybeans were disappointed in the U.S. Department of Agriculture's projections.
U.S. corn ending stocks were a bearish surprise coming in nearly 140 million bushels above trade estimates. The USDA estimated stock at 1.502 billion bushels, a 50 million bushel drop which came from the same revision upward in exports.
“USDA kicked the can down the road with this report,” said Shawn Hackett, with Hackett Financial Advisors.
He said the agency acknowledged some of the increase in export business to China with this revision but certainly didn't fully account for the unprecedented sales to China.
“USDA also failed to program in the additional ethanol exports China is taking,” he said.
World corn ending stocks were actually raised 2.7 million metric tons to 286.5 million metric tons, and South American production was left unchanged. Brazil corn production was pegged at 109 million metric tons, with Argentina at 47.5 million metric tons, which is the same as January.
Domestic soybean ending stocks came in at 120 million bushels, which the agency lowered by 20 million bushels from last month. The change came directly from an increase in exports which are now projected at 2.25 billion bushels. Meanwhile, the crush figure was left unchanged. Many in the trade believe the export number will eventually need to be increased as export sales, prior to the report, were already at 97% of USDA’s projection for the whole marketing year with nearly seven months remaining. Brian Basting with Advance Trading said USDA is being too conservative with their export projection.
Hackett believes the highs may be in the soybean market, at least for the time being.
“I think in this $14 level we are already doing some rationing of demand,” he said.
Plus, Hackett believes that even though the Brazilian harvest has been delayed, the impending crop will keep prices in the U.S. from having to go much higher. USDA left South American production unchanged, with Brazil at 133 million metric tons and Argentina at 48 million metric tons. World soybean carryover was lowered 900,000 metric tons to 83.4 million metric tons and right in line with trade guesses.
U.S. stocks of all wheat were unchanged from last month at 836 million bushels, but USDA did make some revisions between the different classes of wheat. Hard red spring wheat ending stocks dropped by 21 million bushels to 258 million bushels. USDA increased hard red spring exports by 15 million bushels due to China demand.
“China has purchased 23 million bushels of U.S. HRS wheat so far,” Basting said.
Hard red winter wheat stocks were increased 28 million bushels due to a 25 million bushel decrease in exports and a 3 million bushel decrease in food use.
“The premium HRW Wheat prices have been carrying has mills shifting their buying over to the spring wheat class,” Basting said.
He said spring wheat prices will be sensitive to the weather this spring and will also have to bid up for acres as Northern Plains farmers look to plant more soybeans and even canola this spring with the higher prices.
World wheat stocks were lowered by 9 million metric tons to 304.2 million metric tons, and Basting said that came largely from increased demand in China and India.
“China corn prices have been running higher than wheat prices in country and they are substituting wheat into the livestock ration,” he said.
As a result, China is expected to import 10 million metric tons of wheat, with nearly 5 million metric tons going to feed use.