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China & USDA Are BearISH

Tuesday, August 28, 2018
filed under: Marketing/Risk Management

       The USDA’s August production and supply and demand estimates were (again) bearish for soybeans, neutral to bearish corn and slightly bullish wheat.  Some of the report highlights/surprises:
  • The markets were expecting small U.S. corn and soybean yield increases, but the USDA raised corn to the high side of estimates and increased the soybean yield a whopping 3.1 bu/ac from the July estimate. 
  • The USDA increased the corn export demand, and that partially offset the production increase.  Nevertheless, corn ending supplies were pushed higher by 132 million bushels from the July estimate.  That is not an overly bearish number.
  • The soybean yield estimate was a real WOW and pushed U.S. soybean ending supplies to almost 800 million bushels. Without China in the export equation, there was no way to increase the demand estimates anyplace close to enough to offset the big production increase.
  • The wheat numbers were slightly positive.  The U.S. wheat export forecast was raised by 50 million bushels because of the world wheat production problems.  If there was a surprise in the U.S. wheat production estimate it came in spring wheat. The spring wheat tour found a significant drop in yield potential from earlier expectations. The USDA, however, essentially left the spring wheat yield and production estimates unchanged from July.
       The actual USDA August estimates are below, with comparisons to last month and last year.
U.S. Crop Production (bu/ac & billion bu) Source: USDA
  2017 USDA 2017 USDA July USDA July USDA August USDA August USDA
  Yield/Ac Production Yield/Ac Production Yield/Ac Production
Corn 176.6 14.604 c 14.230 c 14.600
Soybeans 49.1 4.392 174.0 4.310 178.4 4.59
All Wheat 46.3 1.741 48.5 1.881 51.6 1.888
U.S. Ending Supplies (million Bu) Source: USDA
  2017/18 2017/18 2018/19 2018/19
  July, USDA August, USDA July, USDA August, USDA
Corn 2,027 2,027 1,552 1,684
Soybeans 465 430 580 785
Wheat 1,100 1,100 985 935

       It is probably the world production numbers more than the U.S. numbers that left analysts questioning the USDA’s August estimates.  Here are some thoughts on the August world numbers from USDA:
  • Corn – If there’s a world corn production estimate that remains puzzling, it comes from China.  Key wheat and corn production regions in China have suffered from drought throughout this growing season, but the USDA has steadfastly left their corn production estimate steady at 225 million metric tons. Nonetheless, world corn ending supplies will collapse from 193 MMTs to 155 MMTs.  That is a slight increase from last month because of the big increase in the U.S. yield estimate. The USDA also only reduced the EU corn crop by 1.7 MMTs.  That crop is still in trouble because of drought and hot weather. It should get smaller.  The last small surprise came with a 1.0 MMT increase in the Ukraine’s corn crop. The overall corn outlook remains bullish. We think today’s U.S. corn yield will be the biggest we see.
  • Wheat – About the only significant change in the world wheat production numbers came with a 7.5 MMT reduction in the EU crop.  This number is still 3.0 to 5.0 MMTs above many other estimates.  The USDA left Australia and Canada unchanged while most other estimates are dropping slightly. Like corn, nothing was changed with China’s wheat production estimate despite some legitimate weather problems. The USDA actually increased Russia’s wheat production estimate by 1.0 MMT and left the Ukraine unchanged. 
       These numbers will slow any bullish momentum in corn and wheat markets until more is known about the U.S. corn yield and how the spring wheat yield picture develops.  That harvest will make rapid progress on the hot and dry Northern Plains/Canada forecast. 
       The big increase in the soybean yield estimate, coupled with no conversation on the China/U.S. trade dispute, has sealed the fate of the soybean and other oilseed markets until one or both of these issues change.  August weather still looks warm and dry across the Northern Plains and the western Corn Belt. That could start to trim the big soybean yield estimate.
       The USDA will not release any yield and production estimates for sunflower until October.                              n
* Mike Kruegerfounded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company.  While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.
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