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Doane Comments After the August WASDE

Posted By Doane Advisory Services | August 10, 2017 9:10 PM CDT

Corn

USDA released its first surveyed-based corn production estimate for 2017. USDA pegged corn production at 14.153 billion bushels, down 995 billion bushels (6.6%) from a year ago. However, the estimate came in more than 300 million bushels above the average pre-release trade estimate. The national yield is estimated at 169.5 bushels per acre and compares to 2016’s record 174.6 bushel yield. If realized, this would be the third highest national yield on record and it is only 1.5 bushels below the long-term trend yield. The trade expected a yield of 166 bushels. USDA reported that the objective yield data indicate the fifth highest number of ears per acre for the 10 objective yield states. Given the adverse weather experienced through the growing season across the Corn Belt, Doane strongly expects the yield and production estimates to decline from its current level.

USDA made no adjustments to the 2016/17 supply and demand forecast, leaving ending stocks unchanged at 2.370 billion bushels. The trade anticipated little change so the old-crop forecast is seen as price neutral. USDA narrowed the season average forecast price by a nickel on each end of the range to $3.30 to $3.40.

Supply and demand revisions from last month center on 2017/18. USDA’s production estimate is down 102 million bushels from the July projection.  Total corn supply is also down 102 million bushels from last month to 16.573 billion bushels.  With respect to demand, USDA lowered feed and residual use 25 million bushels and also cut exports by 25 million. The lower export forecast reflects the slow pace of new-crop export commitments so far along with increased Brazilian corn production and exports from July. The cut in production slightly exceeds the 50-million-bushel decline in total use, resulting in ending stocks at 2.273 billion bushels, down 52 million from last month. Because the trade was anticipating a smaller crop, expectations for ending stocks were lower at 1.966 billion bushels. USDA is currently only projecting a 97-million-bushel cut to ending stocks from 2016/17. The season average price forecast is unchanged at $2.90 to $3.70 per bushel. The $3.30 midpoint is down 5 cents from 2016/17. Corn prices reacted negatively to the larger than expected production forecast.

USDA revised Brazil’s 2016/17 crop up by 1.5 mmt to 97.5 million while Argentina is unchanged at 41 mmt. Global corn production is projected to fall 3.2% in 2017/18 to 1033.5 mmt with the smaller U.S. crop accounting for about two-thirds of the decline. 2017/18 global carryover is now forecast at 200.9 mmt, essentially unchanged from last month, but down 27.7 million from last season.

Soybeans

In its first objective survey for the 2017 soybean harvest, USDA forecasted the crop at a record 4.381 billion bushels. That is up from its July WASDE forecast at 4.260 billion, as well as the 2016 harvest at 4.307 billion bushels. USDA’s yield forecast is at 49.4 bushels per acre, down from 52.1 bu/a in 2016. Some 2017 yields versus 2016 comparisons: Illinois (58.0 vs 59.0), Iowa (56.0 vs 60.5), Minnesota (49.0 vs 52.5), Indiana (55.0 vs 57.5), Ohio (53.0 vs 54.5), Missouri (49.0 vs 49.0). In the Plains: North Dakota (33.0 vs 41.5), South Dakota (41.0 vs 49.5), Nebraska (58.0 vs 61.0), and Kansas (41.0 vs 48.0). Some southern states: Arkansas (49.0 vs 47.0), Kentucky (52.0 vs 50.0), Louisiana (53.0 vs 48.5), Mississippi (52.0 vs 48.0), North Carolina (38.0 vs 35.0), and Tennessee (45.0 vs 45.0). USDA said there were record yield forecasts for Delaware, Georgia, Kentucky, Missouri, Mississippi, Pennsylvania, and South Carolina. With the exception of Missouri, the other states are outside of the main Midwest growing region.

USDA reduced its 2016/17 soybean ending stocks forecast by 40 million bushels to 370 million bushels. Trade expectations were higher. An example was the Dow Jones poll at 401 million bushels. Our Doane forecast was also higher. There was no surprise that USDA cut the crush forecast this month by 10 million bushels. That actually adds to the carryover. What was a surprise was that USDA aggressively increased its old-crop exports by 50 million bushels to 2.150 billion. That is possible but will require unusually strong August export shipments. Nonetheless, that change resulted in the net 40-million-bushel reduction for the carryout. Finally, USDA is forecasting the average cash price at $9.50, unchanged from last month.

For 2016/17, USDA’s global demand forecast at 329.15 million metric tons (mmt) was down 2.28 mmt from last month. Global ending stocks increase by 2.20 mmt to 96.98 mmt. USDA reduced Argentine exports by 1.0 mmt and Brazil’s by 0.5 mmt. Those cuts were largely captured in the higher US exports. China, Argentina and Brazil’s ending stocks forecasts were higher.

USDA forecasts new-crop 2017/18 ending stocks higher year-over-year to total at 475 million bushels. The new forecast is up 15 million from its July forecast. The increase occurred despite carry-in from 2016/17 being down 40 million bushels. And USDA jumped its export forecast by 75 million bushels to 2.225 billion bushels. But the relatively huge jump in the production forecast more than offset lower carry-in and higher demand forecasts. The price range forecast was narrowed by 20 cents to $8.45 to $10.15 with a mean price forecast of $9.30. That is down 10 cents from July. 

USDA updated its global supply/demand forecasts for 2017/18. Global production is forecast at 347.36 mmt, up from 345.09 mmt last month. The U.S. forecast was higher. We would note that there were no changes to the production forecasts for Argentina, Brazil, China and Paraguay. The total use forecast was down 1.95 mmt to 343.32 mmt. Use forecasts were lower for the U.S., Argentina, and the EU. With production higher and use lower, USDA forecasts ending stocks at a record 97.78 mmt, up from 93.53 mmt last month. That is an increase of 4.25 mmt.

Soybean prices traded sharply lower on the larger crop and larger stocks forecasts despite higher use outlooks.

SOYBEAN PRODUCTS

SOYBEAN OIL

USDA reduced its soybean crush forecast by 10 million to 1890 million bushels for the 2016/17 product year. The soyoil yield forecast was unchanged at 11.61 pounds. The production estimate dropped 115 million pounds. Soybean oil ending stocks are estimated at 1.982 billion pounds, down those 115 million pounds of lower production. There were no changes to the use forecasts. The price forecast was set at 32.50 cents, up 0.50 cent from last month.

In the U.S. outlook for 2017/18, there was the lower carry-in discussed above. USDA cut the production forecast by 115 million to correspond to its 10-million reduction in the crush forecast.  As with the old crop, use forecasts were unchanged. USDA forecast month-to-month ending stocks down 230 million pounds to 2,062 million, but up 80 million year-to-year. USDA forecast cash prices ranging from 31.00 to 35.00 cents per pound, mean at 33.00 cents, and up 1 cent from last month.

Globally, USDA reduced the 2016/17 total crush forecast to 288.23 mmt from 290.45 mmt last month. The forecast for global soyoil production declined from 54.27 mmt to 53.83 mmt. Global soybean oil carryout decreased by 0.10 mmt from July to 3.65 mmt. USDA anticipates 2016/17 global vegetable oil ending stocks unchanged from last month at 18.60 mmt, down from 20.22 mmt in 2015/16.

USDA forecasts the global 2017/18 crush at 300.46 mmt, down from 302.23 mmt last month but up from 288.23 mmt in 2016/17. USDA sees global new-crop use increasing to 55.78 mmt from 53.40 mmt in 2016/17. In terms of global vegetable oil ending stocks, those project higher for 2017/18 at 20.31 mmt from 18.60 mmt year-to-year.

Soybean oil prices were lower following the reports. Even though ending stocks forecasts were lower, the plunge in soybean prices weighed on the products. 

SOYBEAN MEAL

USDA reduced its soybean crush forecast by 10 million to 1890 million bushels for the 2016/17 product year. The soymeal yield forecast decreased 0.05 to 46.94 pounds. The production estimate dropped 275,000 short tons. The domestic use forecast was unchanged at 33.050 million short tons. The export forecast was reduced by 300,000 tons to 11.6 million. The price forecast was unchanged at $320. 

In the U.S. outlook for 2017/18, USDA lowered the crush forecast by 10 million to 1940 million. The production forecast dropped by 225,000 tons. USDA lowered the export forecast by 200,000 tons. The price forecast was reduced by $5 on each end of the range to $295 to $335.

USDA forecasts the global 2017/18 crush at 300.46 mmt, down from 302.23 mmt last month but up from 288.23 mmt in 2016/17. USDA forecasts global soybean meal production at 236.00 million tonnes which was down from 237.43 mmt last month, but up from 225.99 mmt in 2016/17. USDA sees the global new-crop use decreasing to 233.88 mmt from its forecast of 234.85 mmt last month, but up from 222.04 mmt last year.

Soybean meal prices were sharply lower following the release of the new data. Soybean meal price action was highly correlated to the changes in soybean prices. The latter plunged on the revelation of a much larger than expected crop. 

Wheat

USDA updated its wheat production forecasts. Nationally, the winter wheat forecast increased 0.3 bushels to 50.0 bushels. The winter wheat crop projects to 1.287 billion bushels, up 8 million from July. The HRW crop totals 758 million, up 1 million from last month, but down from 1,082 million last year. The soft red forecast is higher, but it is a modest increase of 500,000 bushels from last month to 306 million. That is down from 345 million last year. The white winter totals 223 million, up 6 million from last month, but down from 245 million last year.

USDA found the other spring crop projecting a lower yield of 38.3 bushels versus 40.3 last month. The crop totals 402 million, down 17.1 million from last month and down from 534 million last year. In the case of the durum crop, the yield forecast falls to 27.2 bushels from 30.9 bushels last month. Durum production at 50.5 million bushels is down from 104.1 million last year.

Total wheat production projects to 1739.2 million bushels, down 570 million from 2016 and is the smallest U.S. crop since 2002. In the WASDE 2017/18 analysis, the major factor is the downward revision to the crop forecast. That compares to 1.760 billion last month. USDA raised its import forecast by 10 million, partially offsetting lower production. The total supply projects to 3,074 million, down from 3,403 million in 2016/17. On the use side, USDA cut its food use by 5 million with no changes to feed use and exports. Ending stocks project to 933 million for 2017/18. That is down 5 million from the July forecast. USDA left the price forecast range unchanged at $4.40 to $5.20, median $4.80.

USDA updated its global supply and demand estimates in the WASDE. For 2017/18, global ending stocks are up 4.1 mmt from last month to 264.69 mmt. That is up from 258.56 in 2016/17. The production forecast is up due to large increases for Russia, and Ukraine, more than offsetting cuts to Canada and the EU. The forecast is 743.18 mmt, up from 737.83 mmt last month. Last year totaled 755.00 mmt. USDA increased the Former Soviet Union by 9 mmt. The EU forecast fell 0.4 mmt and Canada is down 1.85 mmt. On the demand side, USDA lifted forecasts for feed and trade. Ending stocks now total 264.69 mmt compared to 260.40 mmt last month and 258.56 mmt for 2016/17.

Cotton

The most important cotton number on today’s USDA report was the national yield estimate for the 2017 crop, since acreage wasn’t going to change from the initial estimate made on the June Acreage report. The industry rather clearly expected result slightly below the trendline figure at 816 pounds/acre published previously, since the industry average estimate for the fall harvest was 18.8 million bales (as opposed to the USDA’s July forecast at 19.0 million). However, USDA obviously found much better harvest prospects, since it stated the likely national yield at 892 pounds/acre and the production total at 20.55 million bales. It actually trimmed its harvested acreage forecast slightly (from 11.18 million to 11.05 million acres), which made the projected production increase that much more impressive. As one would expect, the predicted output surge sent ICE cotton futures tumbling in the wake of the report.

The industry probably shouldn’t have been terribly surprised by the strong yield forecast, since recent crop condition ratings have run well above the historical norm and year-ago levels. The rating for the August 6 crop condition climbed one point to 57% good to excellent, whereas it came in at 48% the same week last year and the 10-year average for early August is 49%. Keep in mind that the average U.S. cotton yield in 2016 was 867 pounds/acre.

The old-crop data proved supportive of the cotton outlook, but was obviously overshadowed by the new crop production figure. As Doane has long anticipated, USDA finally boosted its estimate of 2016/17 U.S. cotton exports. Those rose 420,000 bales to 14.92 million. Department analysts also trimmed the domestic usage figure by 50,000 to 3.25 million (for both old- and new-crop years) to 3.25 million for 2016/17 and 3.35 million in 2017/18. The net of those changes, along with a slight adjustment to the ‘unaccounted’ figure was a 400,000-bale drop in estimated 2016/17 carryout, which now stands at just 2.8 million bales.

Given the strong export pace maintained by the U.S. through the end of the old crop year on July 31, it wasn’t very surprising to see USDA also boost its new-crop export forecast 700,000 bales to 14.2 million. This is clearly well below the old-crop estimate, but that’s understandable given the expected increase in global production in the coming months. The net result of these various changes was a 500,000-bale increase in projected carry-out for 2017/18, to 5.8 million bales. Again, the dominant factor was the huge production forecast at 20.55 million bales.

USDA made numerous slight revisions to its global data for 2016/17, with the most significant being an 830,000-bale increase in global exports. But the bottom-line figure represented by old-crop carry-out, dipped 280,000 to 89.99 million bales.

On the new-crop forecast, USDA generally increased its production forecasts, with the world total rising 1.95 million to 117.31 million bales. Of course, the domestic surge of 1.55 million bales accounted for much of the increase, with a 500,000-bale rise in the Chinese projection, to 24.5 million accounting for the balance of the rise (with a modest net decrease from the rest of the world). USDA also raised its global usage forecast for 2017/18 slightly (up 370,000 bales) to 117.40 million bales, with its import and export totals also rising moderately. The net result was a 1.36 million bale addition to the forecast 2017/18 carry-out, which now stands at 90.09 million bales. As with U.S. production figure, this result looks price negative, since it actually represents an annual increase in global ending-stocks at the end of the forthcoming crop year. That obviously contradicts the widespread idea that ongoing liquidation of China’s massive stockpile will greatly reduce excessive Chinese and global inventories over the next few years.