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Doane Comments after the September WASDE

Posted By Doane Advisory Services | September 12, 2017 9:09 PM CDT

 

USDA'S SEPTEMBER CROP PRODUCTION AND SUPPLY/DEMAND REPORTS

Corn

USDA revised 2017 U.S. corn production up 32 million bushels from August to 14.184 billion.  Even so, the crop is down 963 million bushels or 6.4% from a year ago. The yield is estimated at 169.9 bushels, up 0.4 bushels from last month. The higher yield appears to be based on a slight increase in the ear count per acre. In August, the ear count was reported as the fifth highest on record for the 10 objective yield states. This month the ear count, at 25,550 per acre, is the third highest on record, tied with 2016, but below 2014 and 2015.

State level yield changes tended to be modest at only 1-2 bushels per acre. However, South Dakota’s corn yield increased 5 bushels and Texas increased 8 bushels. The other state level revisions were largely offsetting compared to August. Even so, both yield and production came in above trade expectations at 167.9 bushels and 14.000 billion bushels, respectively. USDA’s yield came is at the high end of trade estimates and 2 bushels above the average, resulting in a production estimate that’s 184 million higher than the average trade guess. As a result, prices have responded negatively to the report.

USDA made a few adjustments to the 2016/17 demand forecast, resulting in a 20 million bushel cut to ending stocks from last month to 2.350 billion bushels. The revised figure was in line with trade expectations. USDA revised ethanol and other industrial use down a total of 50 million bushels, with lower corn for ethanol accounting for 15 million bushels of the cut. Lower food, seed and industrial use (FSI) was more than offset by a boost to exports. Exports are now estimated at 2.295 billion bushels, up 70 million from August. The season average price forecast is unchanged at $3.35 per bushel.

For 2017/18, the supply and demand revisions were negative for prices with USDA boosting production and trimming usage. Total corn supply is 16.585 billion, down only 355 million bushels (2.1%) from 2016/17. On the demand side, USDA raised feed and residual use 25 million bushels to 5.475 billion based on the larger crop. Lower FSI use for 2016/17 also impacted 2017/18. USDA lowered 2017/18 FSI use 75 million bushels from last month to 6.925 billion with lower ethanol accounting for 25 million bushels of the adjustment.  The seasonal average farm price is projected in a range from $2.80 to $3.60 per bushel. The $3.20 midpoint is down 10 cents from a month ago.

Globally, the supply and demand revisions were also somewhat negative for prices with lower consumption more than offsetting slightly lower beginning stocks and production. World corn production is estimated at 1032.6 million metric tons (mmt), down 0.8 mmt from last month but down from 1071.2 mmt a year ago. Global use is down 3.9 mmt from August to 1057.1 and down 1.0 mmt from 2016/17. But with lower production, ending stocks are now forecast at 202.5 mmt, up 1.6 mmt from August; that’s down just 24.5 mmt from 2016/17.

Soybeans

USDA revised its 2017 soybean production forecast to a record 4.431 billion bushels. That is up from its August forecast at 4.381 billion, as well as the 2016 harvest at 4.307 billion bushels. USDA’s yield forecast is at 49.9 bushels per acre, down from 52.1 bu/a in 2016, but up from 49.4 bu/a last month. Some 2017 yields versus month prior comparisons: Illinois (58.0 vs 58.0), Iowa (57.0 vs 56.0), Minnesota (47.0 vs 49.0), Indiana (56.0 vs 55.0), Ohio (54.0 vs 53.0), Missouri (49.0 vs 49.0). In the Plains: North Dakota (35.0 vs 33.0), South Dakota (45.0 vs 41.0), Nebraska (56.0 vs 58.0), and Kansas (43.0 vs 41.0).  Some southern states: Arkansas (51.0 vs 49.0), Kentucky (52.0 vs 52.0), Louisiana (52.0 vs 53.0), Mississippi (52.0 vs 52.0), North Carolina (38.0 vs 38.0), and Tennessee (48.0 vs 45.0).

USDA reduced its 2016/17 soybean ending stocks forecast by 25 million bushels to 345 million bushels. Trade expectations were higher at 364 million. It appeared that the trade had not done its homework on the export trade data, as those statistics clearly showed exports were running well ahead of 2150 million for the crop year, the previous forecast. Trade guesses should have then incorporated that to mean more use and lower stocks. USDA added 20 million to exports to 2170 million and 5 million to the crush at 1895 million for the soybean crop year. USDA is forecasting the average cash price at $9.50, unchanged from last month.

For 2016/17, USDA’s global demand forecast at 329.77 mmt was up 0.62 million tonnes from last month. Global ending stocks decrease by 1.02 mmt to 95.96 mmt. USDA reduced Argentine exports by 0.5 mmt but increased Brazil’s by 1.5 mmt. USDA increased its forecasts for Chinese imports and consumption.

USDA forecasts US new-crop 2017/18 ending stocks higher year-over-year to total at 475 million bushels. While that matches the August forecast, the difference is that it is now up 130 million bushels YOY compared to up 105 million previously. USDA lifted its production forecast by 50 million bushels. That was partially offset by a 25-million bushel increase in the export forecast to 2.250 billion. The carryin was 25 million lower. Thus, the higher use and lower carryin offset the 50-million more bushels of production.  The price range forecast was lowered by 10 cents to $8.35 to $10.05 with a mean price forecast of $9.20. That is down 10 cents from August.

USDA updated its global supply/demand forecasts for 2017/18. Global production is forecast at 348.44 mmt, up from 347.36 mmt last month. The US forecast was higher. There was a small slip in foreign production. We would note that there were no changes to the production forecasts for Argentina, Brazil, China and Paraguay. (Doane still believes USDA’s Brazil forecast at 107 mmt is much too low.) The total use forecast increased 0.98 mmt to 344.30 mmt. With carryin lower and new-crop use and production pretty much in balance, USDA forecasts ending stocks down 0.25 mmt to a still record 97.53 mmt.

Soybean prices traded sharply lower on the larger crop and stocks forecasts compared to trade outlooks.

SOYBEAN PRODUCTS

SOYBEAN OIL

USDA increased its soybean crush forecast by 10 million to 1900 million bushels for the 2016/17 product year. The soyoil yield forecast was lowered 0.01 at 11.60 pounds. The production estimate increased 95 million pounds. Soybean oil ending stocks are estimated at 1.827 billion pounds, down 155 million pounds from last month. Finally, USDA lifted its export and biodiesel use forecasts. Our Doane forecasts have been higher for quite some time. The price forecast was set at 32.50 cents, unchanged from last month.

In the U.S. outlook for 2017/18, there was the lower carryin discussed above. Production and crush were unchanged. Total supply followed the lower carryin and dropped 155 million to 24.657 million pounds. We had great curiosity to see how USDA would handle the new impediments to Argentine exports of biodiesel to the US. As it turned out, USDA matched Doane with a jump to 7.000 billion pounds of projected use. And following the Doane analysis, USDA trimmed exports, assuming there will be more supplies of that coming out of Argentina to compete with the US. USDA forecast month-to-month ending stocks down 305 million pounds to 1.757 billion, and down 70 million year-to-year. USDA forecast cash prices ranging from 32.50 to 36.50 cents per pound, mean at 34.50 cents, and up 1.5 cents from last month.

Globally, USDA increased the 2016/17 total crush forecast to 288.51 mmt from 288.23 mmt last month. The forecast for global soyoil production increased from 53.83 mmt to 53.94 mmt. Global soybean oil carryout was little changed at 3.66 mmt. USDA anticipates 2016/17 global vegetable oil ending stocks little changed from last month at 18.61 mmt, but down from 20.28 mmt in 2015/16.

USDA forecasts the global 2017/18 crush at 300.65 mmt, up from 300.46 mmt last month, and up from 288.51 mmt in 2016/17. USDA sees global new-crop use increasing to 55.74 mmt from 53.53 mmt in 2016/17. In terms of global vegetable oil ending stocks, those project higher for 2017/18 at 20.38 mmt from 18.61 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 increased its soybean crush forecast by 10 million to 1900 million bushels for the 2016/17 product year. The soymeal yield forecast increased 0.02 to 46.96 pounds. The production estimate added 250,000 short tons. The domestic use forecast was up 100,000 at 33.150 million short tons. The export forecast was boosted by 150,000 tons to 11.750 million. The price forecast was lowered $5 at $315. 

In the U.S. outlook for 2017/18, USDA left the crush forecast at 1940 million. There were no changes to either the supply or use forecasts. The price forecast was reduced by $5 on each end of the range to $290 to $330.

USDA forecasts the global 2017/18 crush at 300.65 mmt, up from 300.46 mmt last month, and up from 288.51 mmt in 2016/17. USDA forecasts global soybean meal production at 236.55 million tonnes, which was up from 236.00 mmt last month, and up from 226.34 mmt in 2016/17. USDA sees global 2017/18 use increasing to 234.38 mmt from its forecast of 233.88 mmt last month, and up from 222.07 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 does not address wheat production in this report. Final 2017 production will be released on September 29 with the Small Grains Summary. The U.S. 2017/18 supply and demand forecast is unchanged from last month. 2017/18 ending stocks are projected at 933 million bushel, down from 1,184 million in 2016/17. USDA did lower the season average price by 20 cents per bushel from last month with the midpoint now at $4.60 per bushel. This compares to $3.89 per bushel last season.

USDA made only small revision to the global wheat outlook. Global ending stocks are down 1.55 mmt from last month to 263.14 mmt, but ending stocks are projected up from 258.83 in 2016/17. Total wheat supplies are down 1.0 mmt from last month as a 2.7 mmt cut in beginning stocks more than offset a 1.7 mmt increase in production now forecast at 744.85 mmt. The most significant production revision at the individual country level was a 3.5 mmt increase to the Russian crop to 81.0 mmt. Global wheat use is now projected at 737.54 mmt, up 0.5 mmt from August.

Cotton

As one would expect given the surprisingly large acreage sign-ups for farm programs reported by the FSA in August, USDA revised its 2017 planted and harvested acreage numbers substantially higher. Planted acreage rose 560,000 acres to 12.62 million, while harvested acreage climbed 460,000 to 11.51 million acres. In addition, USDA’s forecast for the national average yield was boosted 16 pounds to 908 pounds per acre. This would be a fresh yield record. When these increases are combined, the result was a 1.21 million bale production increase to 21.76 million. This would be the largest U.S. production total since 2005-06, when the national total reached 23.89 million bales. This is also 1.17 million bales larger than indicated by pre-report industry forecasts averaging 20.659 million bales. Indeed, it topped the top pre-report estimate by 460,000. As one would expect, cotton futures tumbled in response.

USDA did take special note of the landfall of Hurricane Harvey on August 25 and Hurricane Irma on September 10. USDA recognizes that its data collection activities for September were impacted and that the full impact of the weather events may not be fully reflected in its production report. USDA is making plans for an extraordinary survey of several crops, including cotton, in the impacted areas with updates to be reported in October.

As usual, the WASDE report reflected the production shift, as well as other USDA changes to expected supply and demand. The only change to the 2016/17 data was a 50,000 bale increase in the ‘unaccounted’ usage total, which translated into a comparable reduction in old-crop carryout, which now sits at just 2.75 million bales.

As for the new-crop outlook, the big increase in U.S. production clearly boosted domestic supplies, with the indicated increase also persuading USDA analysts to increase their 2017-18 export forecast by 700,000 bales to 14.90 million. That essentially matches the old-crop figure at 14.92 million. Domestic mill usage was left unchanged at 3.35 million bales. USDA also raised their estimate of the ‘unaccounted’ figure to 270,000 bales. The net result of the various changes was a 200,000-bale rise in the projected carry-out to 6.0 million bales. USDA also trimmed the forecast range for the 2017/18 price average by one cent at both ends; that now sits at 54.00 to 66.00 cents/pound.

On the global front, USDA analysts made various changes. The first was a 500,000-bale reduction (to 25.9 million) in 2015/16 Indian production, which translated directly to ending stocks, which also fell 500,000 to 96.72 million bales. Conversely, they boosted 2016/17 global production by 250,000 bales to 106.74 million, with the reduced carry-in and other modest changes netting out to a 420,000 reduction in 2016/17 ending stocks to 89.57 million bales.

The reduced new-crop carry-in mitigated the increases in 2017/18 supply. In addition to the big increase in U.S. output, USDA projected major exports would increase their production 1.77 million bales, with only the ‘Central Asia’ region not registering an increase of some sort. The Indian output figure rose 1.0 million to 30 million bales. Production by major importers also rose 430,000 to 40.32 million bales. Both projected imports and exports rose approximately 600,000 bales, while predicted global usage increasing 350,000 bales to 117.75 million.

The net result was a 2.45-million bale surge in global carry-out, which now sits at 92.54 million bales. That would mark a 2.97 million year-to-year increase in ending stocks. As pointed out last month, these predicted increases in global stockpiles are threatening to reverse the downtrend in global cotton stocks seen over the past few years. Thus, this seems particularly bearish for the cotton outlook, especially when one considers the rise in the percent stocks-to-use figure to 78.6%.