USDA’s May Supply and Demand reports contain a lot of numbers, with old-crop supply and demand updated, winter wheat production, and USDA’s third initial look at new crop. And of all the figures, the one that jumped off the page, at least in my opinion, was USDA’s new-crop U.S. soybean ending stocks projection (a key word) of 305 million bushels. Not only was this 120 mb, more or less, below the average pre-report estimate, it also jolted the market into the realization that soybeans’ future remains one of continued unchecked growth in global demand.
To that end, the May WASDE report increased 2015-2016 global usage from April’s 316.35 million metric tons to 318.17 mmt. This, combined with a 4.3 mmt decrease in production, most notably Brazil’s by 1 mmt and Argentina’s by 2.5 mmt, resulted in global old-crop ending stocks coming in at 74.25 mmt, or 4.77 mmt less than April estimate. But that was just the appetizer with new-crop ending stocks projected at only 68.21 mmt and ending stocks-to-use of 20.8%, the latter the lowest since the 2008-2009 marketing year.
Regarding the growth in global demand, it isn’t hard to figure out where it comes from. The May WASDE report pegged China’s 2015-2016 total demand at 95.25 mmt, including imports of 83.0 mmt. Next marketing year, 2016-2017, Chinese demand is expected to increase 5.3 mmt to 100.7 mmt, requiring at least a 4 mmt increase in imports.
Now, back to the United States. Not only did USDA increase 2015-2016 export demand to 1.740 mb (47.36 mmt), but came in with an “initial” 2016-2017 figure of 1.885 bb (51.30 mmt). Note that this is roughly a 4 mmt year-to-year increase, accounting for basically all the projected increase into China.
There are a number of factors leading to this result, including the above-mentioned reduction in Brazilian and Argentine production (official domestic estimates in Brazil are actually below 97 mmt), and the ongoing weakening of the U.S. dollar and long-term downtrend in the U.S. dollar index. Is it possible USDA is tipping the hand of the Federal Open Market Committee (FOMC) in regard to future increases, or lack thereof, in interest rates? The key fundamental of the greenback is interest rates, so a continued downtrend would suggest at least one governmental agency — USDA — is of the belief the Fed isn’t going to make another move any time soon. The end result of a weaker dollar would be the projected increase in demand for U.S. supplies.
And the export changes didn’t stop with soybeans. USDA also increased old-crop corn demand by 75 mb despite the fact total shipments through 35 reporting weeks of the 2015-2016 marketing year were running 1% behind pace to hit USDA’s April demand estimate of 1.650 billion bushels. Total shipments are now 5% behind the revised May estimate. Furthermore, new-crop exports are expected to increase to 1.9 bb, which if realized would be the second largest export total since the beginning of corn’s demand market with the 2005-2006 marketing year.
However, that’s where the bullish news ends for new-crop corn. Using its prospective plantings figure of a planted 93.6 million acres — equating to 85.9 ma harvested — combined with its Outlook Forum trendline yield number of 168 bushels per acre, USDA pegged total production for 2016 at a record-large 14.430 bb. Adding and subtracting the rest of its standard supply and demand categories resulted in an ending stocks projection of 2.153 bb, the largest since 4.259 bb calculated at the end of the 1987-1988 marketing year. Yes, you can have a moment to read that last sentence again. I’ll wait.
The upside for corn is that the 93.6 ma planted area could still be considered the most bearish number the crop will see this marketing year. Not only has persistent rain across the U.S. raised the question of a possible acreage switch from corn to soybeans, the whispers have grown louder as the November soybeans/December corn ratio spread rocketed to a high this week of 2.75. Early September 2015 saw this same spread priced at 2.11.
If soybeans exports were fascinating and corn merely interesting, USDA’s increase for wheat could be considered stupefying. With 48 reporting weeks already accounted for and wheat running 6% behind pace to hit the April demand projection of 775 mb, USDA upped its bid to 780 mb. Taking it a step further, total wheat sales for those 48 weeks was only 740 mb, also well behind the pace to meet April’s estimate. While it’s not impossible wheat could see a strong end to 2015-2016, it seems improbable. All wheat sales need to average about 10 mb and shipments 33.4 mb, with the latest report showing weekly figures of 6.6 mb and 14.2 mb respectively.
But as bearish as that sounds, the new-crop situation is even more daunting for U.S. producers. All wheat production was increased to 1.998 bb with a much larger hard red winter crop accounting for much of the gain. On the demand side, total usage is expected to see a year-to-year increase of 132 mb, including a 95 mb gain in expected exports. However, the bottom line remains scary for wheat with USDA’s May ending stocks coming in at 1.029 bb. If realized, this would be the first time domestic ending stocks are north of 1.0 bb since the 1987-1988 marketing year. This was above both the average pre-report estimate of 991 mb and USDA’s Outlook Forum number of 989 mb.
Article Via Darin Newsom DTN Sr. Analyst. Photo via Jim Patrico DTN/The Progressive Farmer.