The much-anticipated U.S. Department of Agriculture February Crop Production report did not live up the hype.
The trade was expecting to see increases in corn feed demand, ethanol demand and exports. Traders were also expecting to see USDA increase soybean crush demand and soybean exports. It was a stretch to expect USDA to increase corn feed demand due to the recent livestock reports that have shown a slight reduction in the cattle herd and hogs and pigs estimate. To top that off, this year’s weather has been as close to ideal for feeding cattle as any winter, until recently.
In a nutshell, the February Crop Production report continued to be what it has always been, a placeholder report that only sees minor adjustments to demand. As expected, USDA made no changes to either 2019 or 2020 numbers for wheat. U.S. 2020-21 ending stocks were left unchanged at 836 million bushels, which was 4 million bushels above expectations. The only adjustment was to increase the national average price for wheat 15 cents to $5.
The world numbers for wheat were much more exciting as USDA decreased world wheat stocks 9 million metric tons to 304.2 million metric tons, which was 8.6 million metric tons lower than expected. This should have gotten a rise out of some wheat traders, but the negative corn numbers proved to be too much for the market to overcome. The world stocks reduction was due to an increase in wheat feeding as wheat replaces expensive corn in China. Argentina’s production was trimmed 300,000 metric tons and China’s stocks were cut 4 million metric tons.
Corn’s Crop Production estimate was disappointing as the trade was expecting to see increases in feed demand, ethanol demand and exports. All they got was a slight increase in corn exports. It seems USDA is worried that the recent aggressive corn export sales are vulnerable to cancellation, which in turn prevented USDA from giving the true picture of corn demand. Instead, USDA took the easy road. The report was negative as U.S. ending stocks came in much higher than the trade expected. USDA made no changes to the 2019 estimate and the only balance sheet change to 2020-21 corn was to increase exports by 50 million bushels to 2.6 billion bushels. That lowered ending stocks by the same amount to 1.502 billion bushels (the trade was expecting a much bigger cut of 170 million bushels). The national average price was increased by 10 cents to $4.30.
On the world front, USDA left South American production unchanged at 109 million metric tons for Brazil and 47.5 million metric tons for Argentina (both being slightly higher than expected). Chinese corn imports were increased by 6.5 million metric tons to 24 million metric tons. World ending stocks increased by 2.7 million metric tons to 286.5 million metric tons (the trade had been expecting a 3.8 million metric ton decrease).
As for soybeans, the February report was as expected. Most were expecting USDA to kick the can down the road in soybeans, and that is just what it looks like they did. Exports were increased but not enough. USDA’s report was neutral soybeans as ending stocks came in as expected and South American production was left unchanged. As was the case in the other grains, USDA made no adjustments to the 2019 numbers. The only balance sheet change to 2020-21 soybeans was an increase of 20 million bushels in exports to 2.25 billion bushels. That lowered ending stocks by 20 million bushels to 120 million bushels (right in line with the average trade estimate). The national average price was left unchanged at $11.15.
As for the world estimates, South American production was left unchanged at 133 million metric tons for Brazil and 48.0 million metric tons for Argentina. Chinese soybean imports were left unchanged at 100 million metric tons. World ending stocks were lowered by 900,000 metric tons to 83.4 million metric tons (right in line with trade estimates).
Export reports were also watched closely by the trade. It appears that the harvest delays in South America are still helping to keep export demand in the U.S. End users that have been running just in time inventories don’t have the ability to wait months before getting product shipped. With the delay in harvest activity in much of Brazil, many importers have switch destinations to the U.S. The same has occurred in corn, but now it appears much of the overseas feed demand markets are starting to switch over to wheat to feed instead of corn. This should help push wheat prices higher as wheat will try to price itself out of the feed market.
For the week ending Feb. 4, wheat export estimates had the wheat shipments pace estimated at 16.2 million bushels while sales were estimated at 21.7 million bushels. After 36 weeks, wheat shipments were at 63% of USDA’s expectations versus 66% last year and sales were at 86% of expectations versus 83% last year. With 16 weeks left in wheat’s export marketing year, shipments need to average 22.5 million bushels and sales need to average 8.7 million bushels to make USDA’s projection of 985 million bushels.
For the week ending Feb. 4, corn export shipments pace was estimated at 62.1 million bushels and sales were estimated at 57 million bushels. After 23 weeks, corn shipments were at 32% of USDA’s expectations versus 26% last year while sales were 87% of expectations versus 53% last year. With 29 weeks left in corn’s export marketing year, shipments need to average 60.5 million bushels and sales need to average 11.5 million bushels to make USDA’s projection of 2.6 billion bushels. That is proof that unless a lot of cancellations start to be reported, USDA has not increased U.S. corn exports enough.
For the week ending Feb. 4, soybean export shipments pace was estimated at 66.2 million bushels and sales were estimated at 29.6 million bushels. After 23 weeks, soybean shipments were at 80% of USDA’s expectations versus 60% last year while sales were estimated at 97% of expectations versus 72% last year. With 29 weeks left in soybean’s export marketing year, shipments need to average 15.3 million bushels and sales need to average 2.2 million bushels to make USDA’s projection of 2.25 billion bushels. Just as was the case in corn, soybeans exports were not increased enough, and USDA will be forced to continue to increase export pace. It is interesting that USDA increased exports 20 million bushels and this past week’s sales were enough to push sales right back to be 97% of expectations.
In reality, USDA is waiting to see how many acres of safrina corn are planted in Brazil before tightening up U.S. corn supply and demand numbers. If the rains continue to fall in Brazil, more demand will come to the U.S., which will put egg on USDA’s face. To USDA’s point though, shipments of corn exports has been slow. But it is not because they haven’t wanted to ship the corn, it’s that the ports have been a little busy shipping massive amounts of soybeans on a weekly basis. But corn has shown promise over the past few weeks.
Brazilian officials are reporting soybean harvest progress at 3% complete versus 13% average. Brazil’s first corn crop harvest pace was estimated at 20% completed versus 13% average. Planting pace for the safrina corn crop was estimated at 4% versus 23% average.
Corn traders were a little taken back with reports that an unknown destination canceled a 132,000 metric ton purchase of U.S. corn on the day of USDA released its February Crop Production report.
The ethanol production estimate was friendly for the week ending Feb. 5, coming in at 937,000 barrels per day, an increase of 1,000 barrels from the previous week. Stocks were estimated at 23.796 million barrels, a decrease of 520,000 barrels from the previous week.
China’s New Year celebration started Feb 12. This will take China out of the export market for the following nine days, which will likely cause a little panic among traders. Look for the next few weeks of export reports to be dismal because of the lack of Chinese participation.
Martinson Ag still thinks there are legs under this market. USDA took the easy route this month, but if adverse weather in South America continues, you can bet U.S. exports will be the beneficiary. That means prices will have to increase to ration tight supplies. And let’s not forget 2021 acres. There will be an acre race in the U.S. Soybeans need to add at least 8 million acres to get to a comfortable stock estimate (considering trend yields and good growing conditions) while corn should add 1 million to 2 million acres. That means other crops will have to lose acres.
Cattle put in a quiet week once again. Cash bids were higher, which helped support the live cattle, but that was offset by an increase in beef production in the February Crop Production report. Weather concerns added some support as adverse weather will delay cattle movement. Feeders were supported by strong demand from feedlots as they continue to want to keep lots full on the expectation of better demand in second quarter. A lower grain complex added support to feeder cattle.
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