USDA releases fourth friendly report in a row
The report not only made adjustments to the 2020 crop year numbers, but also to 2019 (most of which were seen in the September Quarterly Grain Stocks estimate).
The U.S. Department of Agriculture's October Crop Production report was expected to be a market mover and that thought was a bit of an understatement. The report not only made adjustments to the 2020 crop year numbers, but also to 2019 (most of which were seen in the September Quarterly Grain Stocks estimate). This marks the fourth USDA report in a row that was deemed neutral to friendly to the grains.
The October report was not expected to bring much to the wheat market, but there were a few unexpected adjustments. For 2019, USDA increased planted acreage 300,000 acres and harvested acreage by 200,000 acres but yield was left unchanged. That led to increase in production of 12 million bushels to 1.93 billion bushels. There were a few minor adjustments to the demand side which put the 2019 ending stocks at 1.028 billion bushels.
For 2020 wheat, USDA made no adjustments to planted or harvested acreage, but did decrease yield 0.4 bushels. per acre. This resulted in a 12 million bushel cut to production, now estimated at 1.826 billion bushels. On the demand side, the only change was an increase in feed demand of 10 million bushels. The net change for 2020 was a 42 million bushel cut in ending stocks, now estimated at 883 million bushels. The national average wheat price did see a 20 cent increase to $4.70. This left the U.S. numbers for wheat neutral to friendly.
The world numbers were not so friendly as we continue to see the potential for a record world ending stocks estimate for wheat. World ending stocks were estimated at 321.6 million metric tons, 2.1 million metric tons above last month and 4.9 million metric tons above expectations.
The most anticipated estimates from the report were the corn numbers. The September Quarterly Grain Stocks estimate had corn ending stocks coming in at 1.995 billion bushels and the trade wanted to see if USDA would hold to that estimate. They did.
For the 2019 corn numbers, USDA left acreage unchanged but increased yield 0.1 bushels per acre. to 167.5 bushels. That resulted in an increase in production of 3 million bushels, which was offset by a decrease in imports of the same amount. On the demand side USDA finally realized that increasing livestock numbers would mean more feed demand. USDA increased feed demand 227 million bushels, food demand 20 million bushels, and exports 13 million bushels. Ethanol demand was cut 3 million bushels. That put ending stocks at 1.998 billion bushels, 258 million bushels lower than last month. The national average price dropped 4 cents to $3.56.
For new crop 2020, USDA cut planted acreage 1 million acres and harvested acreage by 946,000 acres. The states that had the largest reduction in acreage were North Dakota, South Dakota, Iowa and Minnesota. This was slightly offset by increases in Illinois and Nebraska. USDA also decreased yield 0.1 bushels per acre to 178.4 bushels. (0.7 bushels above expectations). Production was cut 178 million bushels to 14.72 billion bushels (93 million bushels below expectations). On the demand side, USDA cut feed demand 50 million bushels and lowered ethanol demand 50 million bushels. The net result was a 336 million bushel decline in ending stocks, putting stocks at 2.167 billion bushels, 65 million bushels above expectations. The national average price increased 10 cents to $3.60. This left the report neutral to negative corn.
The soybeans estimate also followed the trend set by September Quarterly Grain Stocks estimate as stocks were trimmed. For old crop 2019, USDA left planted acreage unchanged but cut harvested acreage 100,000 acres. Yield was left unchanged. On the demand side, USDA decreased crush 5 million bushels, decreased exports 4 million bushels, and decreased seed 1 million bushels. As expected, residual was increased 61 million bushels. The net change was a 52 million bushel decrease in ending stocks, putting stocks at 523 million bushels. The national average price for soybeans increased 2 cents to $8.57.
For new crop 2020, USDA cut planted and harvested acreage by 700,000 acres (harvested acres were 600,000 acres less than expected). The states that had the largest decreases were Kansas, North Dakota, South Dakota and Illinois. The states that had the largest increase in acreage were Missouri, Nebraska and Ohio. Yield was left unchanged (which was 0.4 bushels above expectations) so the net change to production was a reduction of 45 million bushels putting production at 4.27 billion bushels. On the demand side, USDA increased exports 75 million bushels. The net result put ending stocks at 290 million bushels, 170 million bushels less than last month and 62 million bushels lower than expected. The national average price increased 55 cents to $9.80. The report was bullish soybeans.
On the world side, world soybean stocks were estimated at 88.7 million metric tons, 4.9 million metric tons below last month and 2.4 million metric tons below expectations.
In summary, the report was neutral to wheat as although U.S. numbers were friendly, world numbers continue to be negative. The wild card will be weather in the Black Sea region. For corn the numbers were neutral to negative as U.S. stocks were larger than expected. It was about time USDA increased feed demand as livestock numbers have been on the increase for the past few years. In addition, last year’s poor harvest conditions left a lot of corn with low test weight, which resulted to more corn usage. Weather in South America and China demand are the wild cards in corn. The numbers in soybeans were friendly to bullish. Once again USDA significantly cut soybean stocks due to lower production and strong demand. The wild cards in soybeans are China demand and South American production. The market is signaling the likelihood of U.S. export demand fading as the South American crop comes online. If planting continues to be delayed in South America, that could extend U.S. export season.
The grains saw a little more volatility this week, breaking hard to start the week on improving weather forecasts for Brazil. Last weekend’s rains were better than expected in some regions of Brazil while chances for rain remain throughout the week. Producers in Brazil are about 50% sold for 2020. Strong prices and the appearance of a decent return has allowed producers to be aggressive forward sellers. This will also guarantee that there will be an increase in acres. Early estimates have Brazil increasing acreage between 3% to 6%. This is part of the reason why there is no carry in soybeans and why the contracts past Jan. are so weak.
USDA’s Crop Progress report was delayed a day by the Columbus Day holiday. The report was close to expectations but did lean a little more on the bearish side. Crop development stages of the grains seems to be moving ahead of average. Mature corn is rated at 94% as of Oct. 11 versus 87% average. The report estimated harvest progress at 41% complete versus expectations of 39% and 32% average. But that rapid harvest progress was slightly offset by a lower crop rating. Corn conditions dropped 1% to 62% good/excellent.
Soybeans numbers were a little more bearish than corn. Soybeans dropping leaves was estimated at 93% versus 90% average. Harvest progress is estimated at 61% completed versus expectation of 59% and 42% average. Most of the major soybean producing states are estimating harvest progress 10% to 30% ahead of average. The states that are behind in harvest are the Delta states and Mid-Atlantic region, both delayed due to recent hurricanes. Like corn, soybeans’ crop rating dropped 1% to 63% good/excellent.
But at this point in the game, crop ratings are not influencing market direction as much as before. Harvest progress is now the main driver and with a better than expected harvest pace, this report was more negative than positive.
Producers should continue to move soybeans off the combine as there is no incentive to hold soybeans. The market is inverted and at this point you can own soybeans cheaper on paper than in the bin. Corn has a small carry, but only to March. Watch basis in corn as that will help to get the best price for stored corn. Wheat continues to underperform expectations. Basis levels are strong for November and December, but futures have not reached their potential yet. Consider locking basis in and leaving futures open.
Cattle continued to trade in a sloppy fashion this week. A disappointing weekly cash trade and sloppy boxed beef prices pressured the live cattle. Feeders were under pressure from expectations for increased supply as producers wrap up field work and start to switch their focus to pulling cattle off pastures. The Oct. 9 Crop Production estimate did show a slight increase in 2020 beef production. The report also showed consumers are expected to consume 206.5 pounds of meat per person in 2020 and 205.9 pounds in 2021. Of that total, beef makes up 58.8 pounds in 2020 and 57.7 pounds in 2021. Beef exports for 2020 are expected to be 10.7% of production while 2021 exports are expected to increase to 11.2% of production.
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