Traders were expecting the U.S. Department of Agriculture's August crop production report to be friendly, but most did not expect the report to be that friendly for wheat and corn while being slightly negative soybeans.
For wheat, production was reduced due to a slight drop in yield and demand was only slightly adjusted, which resulted in a smaller ending stock estimate than expected. But the real bullish news came in the world numbers and the dramatic cut in their production, which followed through to cut ending stocks more than expected.
For the 2021 wheat crop, USDA left acreage unchanged but lowered yield 1.3 bushels to 44.5 bushels. This resulted in a 49 million bushel decline in production, now estimated at 1.697 billion bushels. That is the lowest wheat production estimate since 2002. On the demand side, USDA cut food demand 1 million bushels and feed demand 10 million bushels. The net result was a 38 million bushel decrease in ending stocks, now estimated at 627 million bushels (13 million bushels below expectations). The national average cash price for wheat increased 10 cents to $6.70.
Production for the different classes of wheat were as follows: all winter wheat: 1.3 billion bushels (45 million bushels lower than expected and last month), hard red winter wheat: 777 million bushels (31 million bushels below expectations and 28 million bushels below last month), soft red winter wheat: 366 million bushels (4 million bushels above expectations and last month), white wheat: 176 million bushels (18 million bushels below expectations and 22 million bushels below last month), and other spring: 343 million bushels (15 million bushels above expectations but 2 million bushels below last month). As expected, USDA made no changes to acreage in this report. Adjustments to spring wheat’s harvested acreage likely will not be seen until the September Small Grain Summary.
On the world stage, old crop stocks were estimated at 288.8 million metric tons, 1.6 million metric tons below expectations and 1.4 million metric tons below last month. The bullish part of the report for wheat came in the new crop world estimates. New crop world wheat stocks are estimated at 279.1 million metric tons, 8.5 million metric tons below expectations and 12.6 million metric tons below last month. The decline was due to a 1.5 million metric ton increase in Australia’s production, 7.5 million metric ton decrease in Canada’s production, 400,000 metric ton increase in the European Union's production, a 12.5 million metric ton decrease in Russia’s production, a 3 million metric ton increase in Ukraine’s production and a 1 million metric ton decrease in China’s production.
The report was neutral to friendly U.S. corn but once again the world numbers were bullish. USDA cut the U.S. corn yield much more than expected. Yield was slashed 4.9 bushels, 2.6 bushels more than expected. What was expected was a battle between the east and west regions. Most of the states in the eastern Corn Belt are expected to see record yields (Illinois at 214 bushels, Indiana at 194 bushels, Michigan at 169 bushels, Ohio at 193 bushels, and Pennsylvania at 164 bushels). At the other end of the spectrum the western Corn Belt and Northern Plains are seeing dramatic reduction in yield (North Dakota at 106 bushels, South Dakota at 133 bushels, and Minnesota at 166 bushels). USDA also slashed demand 190 million bushels. This left corn stocks close to expectations.
For old crop corn, USDA left the supply numbers unchanged, but adjusted demand. USDA increased food demand 15 million bushels, increased ethanol demand 25 million bushels, but decreased exports 75 million bushels, for a net decrease in demand of 35 million bushels. This followed through to increase corn ending stocks 35 million bushels to 1.117 billion bushels, which was 20 million bushels above expectations.
On the world stage, Brazil’s production was cut 6 million metric tons to 87 million metric tons and Argentina’s production was left unchanged at 48.5 million metric tons. World old crop corn stocks were estimated at 280.8 million metric tons, 900,000 metric tons above last month and 2.3 million metric tons above expectations. New crop world ending stocks were estimated at 284.6 million metric tons, 6.6 million metric tons below last month and 3.4 million metric tons below expectations.
For soybeans, USDA’s report was somewhat disappointing. Soybeans suffered the same fate as corn with a cut in yield which lowered production. But a huge reduction in demand more than offset the reduction in supply, making the soybean estimate negative. Soybean’s yield was cut by 0.8 bushels which lowered production 66 million bushels. This was offset by a 25 million bushel decrease in old crop demand (15 million bushel cut in crush and 10 million bushel cut in exports) and a 41 million bushel reduction in new crop demand (crush cut 20 million bushels, exports cut 20 million bushels, and residual cut by 1 million bushels). The net result in soybeans was an unchanged ending stocks estimate.
As with corn, the central and eastern Corn Belt are expected to see record soybean yields (Missouri at 50 bushels, Illinois at 64 bushels, Indiana at 60 bushels, and Ohio at 58 bushels) while the Northern Plains and western Corn Belt see huge cuts in yield (North Dakota at 24 bushels, South Dakota at 39 bushels and Minnesota at 43 bushels).
For old crop world numbers, Brazil’s production was left unchanged at 137 million metric tons and Argentina’s production was cut by 500,000 metric tons to 46 million metric tons, leaving world ending stocks at 92.8 million metric tons, 1.3 million metric tons more than last month and 1.7 million metric tons more than the trade expected. New crop world ending stocks came in at 96.2 million metric tons, 1.7 million metric tons higher than last month and 1.7 million metric tons more than the trade expected.
The grains started the third week of August trading in a sloppy fashion with most of the selling in wheat and corn tied to poor demand, technical selling, and profit taking. Most wheat contracts were posting new contract highs and were overbought and in need of a correction. Corn continues to be disappointed by the lack of export news even with Brazil likely out of the export game due to poor quality. Soybeans were the only bright spot, and even soybeans faded its gains for the week. Losses were kept in check from a rash of flash export sales of U.S. soybeans. For 10 days straight (Aug 8 to August 18), the U.S. has sold a total of 2.6 million metric tons of soybeans with China and unknown the main destinations.
The other USDA report grabbing traders’ attention was the Aug. 16 Crop Progress report, which put a little wrinkle in the bear market. Traders were looking for conditions to improve 1% for spring wheat, corn and soybeans. Instead, the crop ratings dropped. That gave the grains the strength to gap higher that night, pushing the grains into levels that uncovered profit taking sell orders.
Corn’s crop condition rating was expected to increase 1% but instead dropped 2% to 62% good/excellent. It was interesting that all of the major producing states saw declining conditions (Illinois: -5%, Indiana: -2%, Iowa: -3%, Minnesota: -1%, Nebraska: -2%, and South Dakota: -6%), except for North Dakota (+3%) and Ohio (+1%). The big drop in Illinois was due to a major windstorm that made a mess of the corn in the northern part of the state. The wind was bad enough to cause most of the corn to lodge, likely cutting the yield on that corn in half. Reports had the storm 30 to 40 miles wide and 80 miles long. North Dakota’s crop likely saw improvements as some of the worst corn is being chopped.
Soybean’s rating was not much different. The trade was looking for conditions to improve 1% but instead conditions dropped 3%, for a 4% swing from expectations. The soybean rating is now at 57% good/excellent. All of the major states saw declining conditions (Illinois: -7%, Indiana: -2%, Iowa: -2%, Minnesota: -5%, Nebraska: -2%, Ohio: 0%, and South Dakota: -5%). Only North Dakota saw an improvement, going up 1%.
Spring wheat harvest is rapidly advancing due to the hot dry conditions. As of Aug 15, 58% of the nation’s spring wheat crop was in the bin versus 38% last week and 38% average. To add to that, spring wheat conditions were left unchanged at 11% good/excellent.
Traders are also looking for conditions to decline next week. The Drought Monitor Map continues to show a drought that is expanding as North Dakota, South Dakota, Minnesota, Nebraska and Iowa all showed increasing drought conditions from the previous week. This week will be more of the same as a majority of the Northern Plains and Western Corn Belt have not seen rain in 10 days and have seen temps in the 90s accompanied by high winds. Gains were kept in check from forecasts calling for rain, which at this point would be very welcome.
Cattle continue to trade in a back-and-forth fashion. Fundamentals are friendly as supplies remain tight (and appear to be getting tighter) and demand is strong, but traders seem to be looking for the other shoe to drop. Economic concerns and the thought that the Delta variant could start to result in shutdowns has traders worried about fourth quarter beef demand. At this point boxed beef prices are increasing, which is a signal of strong demand now, but traders are concerned demand could turn in a dime.
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