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Doane Comments After the October WASDE

Posted By Doane Advisory Services | October 17, 2017 9:59 PM CDT

USDA'S OCTOBER CROP PRODUCTION AND SUPPLY/DEMAND REPORTS

Corn

USDA revised 2017 U.S. corn production up 96 million bushels from September to 14.280 billion and 110 million above the average trade estimate. The yield is up 1.9 bushels from last month to 171.8 bushels and compares to the average trade estimate of 169.8 bushels. This is the second highest yield on record, trailing only 2016’s record of 174.6 bushels. Similar to last month, the ear count per acre is the third highest on record.

At the state level, yields increased for 8 of the 10 objective yield states and the other two were unchanged from September. Yields are up 2 bushels for Illinois, 2 bushels for Indiana, 4 bushels for Iowa, 1 bushel for Kansas, 2 bushels for Minnesota, 8 bushels for Missouri, 2 bushels for South Dakota and Wisconsin. Nebraska and Ohio are unchanged from September.

While USDA revised the yield up 1.9 bushels, the impact on production was partially offset by lower acreage. USDA’s lower acreage came as a modest surprise because the Farm Service Agency data didn’t signal a significant change. Still, USDA lowered 2017 planted acreage by 457,000 acres from a month ago to 90.429 million. Harvested acreage is down 377,000 acres from September to 83.119 million acres. Generally, acres were revised down in the eastern and northern Corn Belt while revisions in the western Corn Belt were mixed. The largest changes centered on the Dakotas with North Dakota’s down 280,000 to 3.420 million while South Dakota’s corn area increased 500,000 acres to 5.7 million.

USDA incorporated last month’s September 1 stocks estimate along with revised production into the 2017/18 U.S. supply and demand forecast. As a result, total supply is now 16.625 billion bushels, a 40 million bushel increase from a month ago. USDA raised feed and residual use 25 million bushels to 5.500 billion. Corn for ethanol is unchanged, but other industrial use is up 10 million bushels to 1.460 billion. Exports held at 1.850 billion. Total use is 14.285 billion, up 35 million from September, but down 362 million from 2016/17. Ending stocks are forecast at 2.340 billion vs. 2.295 billion in 2016/17 and only 5 million bushels higher than the previous forecast.  The season average price range is unchanged at $2.80 to $3.60 per bushel. The $3.20 midpoint is down from $3.36 last season.

Globally, the supply and demand revisions are slightly positive for prices as increased consumption more than offsets higher production. World corn production is estimated at 1038.2 mmt, up 6.2 mmt from last month but down from 1075.3 mmt a year ago. Global use is 1064.8 mmt, up 7.7 mmt from September and up 2.5 mmt from 2016/17. Ending stocks are now forecast at 201 mmt, down 1.5 mmt from last month and 26 mmt below 2016/17.

Sorghum Acreage

Sorghum acreage this year is now pegged at 5.709 million acres, down 278,000 from USDA’s previous estimate of 5.987 million. Lower acreage was driven by cuts to the two largest producing states. Sorghum plantings were revised down 100,000 for each Kansas and Texas to 2.6 million and 1.7 million, respectively.

Soybeans

USDA essentially left its 2017 production forecast unchanged at a record 4,430.6 billion bushels. That is down so slightly from its September forecast at 4,431.0 billion, but up from the 2016 harvest at its recently adjusted 4.296 billion bushels. USDA’s yield forecast is at 49.5 bushels per acre, down from 52.0 bu/a in 2016 and from 49.9 bu/a last month. Eleven states had higher yields and ten had lower yields, but higher acreages in the lower trending yield states weighed negatively on the national total. Included in those lower yielding states were major states Illinois, Indiana, Iowa, Minnesota, and Ohio. Some 2017 yields versus last month comparisons: Illinois (57.0 vs 58.0), Iowa (56.0 vs 57.0), Minnesota (46.0 vs 47.0), Indiana (55.0 vs 56.0), Ohio (52.0 vs 54.0), Missouri (49.0 vs 49.0). In the Plains: North Dakota (36.0 vs 35.0), South Dakota (45.0 vs 45.0), Nebraska (56.0 vs 56.0), and Kansas (41.0 vs 43.0).  Some southern states: Arkansas (51.0 vs 51.0), Kentucky (53.0 vs 52.0), Louisiana (54.0 vs 52.0), Mississippi (52.0 vs 52.0), North Carolina (39.0 vs 38.0), and Tennessee (50.0 vs 48.0).

As it routinely does in October, USDA revised the acreage forecast. Based on input from the Farm Service Agency acreage compliance data, USDA adjusted the soybean planted acreage to 90.207 million acres from 89.513 million. USDA estimated harvested acres at 89.471 million compared to its previous forecast at 88.731 million. Last year’s planted and harvested acres were 83.433 million and 82.696 million respectively. There were individual states that saw large adjustments. Examples included Illinois up 200,000 acres to 10.6 million, Kansas up 400,000, Oklahoma up 110,000, and South Dakota up 250,000 acres. Alabama dropped by 100,000 acres. For any other state where the acreage changed, the adjustment was less than 100,000 acres. USDA also updated its acreage estimates for the sunflower and canola oilseed crops. Based on the FSA data, the sunflower acreage was adjusted up to 1.404 million from the June forecast at 1.265 million, but down from 1.957 million in 2016. With respect to canola acres, the revised estimate is 2.076 million compared to 2.161 million in the June forecast and 1.714 million planted in 2016.

Following the recent report on 2016/17 ending stocks, USDA tightened up its estimates for the supply/demand components. USDA adjusted the imports to 22 million bushels from 25 million, the crop year crush to 1899 million from 1895 million, exports to 2174 million from 2170 million, seed use to 105 million from 104 million, and residual use to 36 million from 14 million. The season average price is $9.47, down 3 cents from last month.

For 2016/17, USDA’s global demand forecast at 330.28 mmt was up 0.51 million tonnes from last month. Global ending stocks decrease by 1.10 mmt to 94.86 mmt. USDA increased Argentine exports by 0.4 mmt and Brazil’s by 0.64 mmt. There were minor production adjustments, such as for Brazil and the US. USDA increased its forecast for Chinese imports by 0.5 mmt.

USDA forecasts US new-crop 2017/18 ending stocks higher year-over-year to total at 430 million bushels. The stocks forecast is now up 129 million bushels YOY compared to up 130 million in the September WASDE. With the USDA production forecast essentially unchanged and the major use categories unchanged, the bottomline reflected the adjustment to the final ending stocks as reported on September 30.  The price range forecast was unchanged at $8.35 to $10.05 with a median price forecast of $9.20. 

USDA updated its global supply/demand forecasts for 2017/18. Global production is forecast at 347.88 mmt, down from 348.44 mmt last month. The US forecast was lower. There was a small slippage in the foreign production. We would note that there were no changes to the production forecasts for Argentina, Brazil, and Paraguay. USDA did lift China by 200,000 tonnes. The total use forecast increased 0.07 mmt to 344.37 mmt. With carryin lower and new-crop use and production pretty much in balance, USDA forecasts ending stocks down 1.48 mmt to a still record 96.05 mmt.

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

SOYBEAN PRODUCTS

SOYBEAN OIL

USDA’s 2016/17 soybean crush forecast is unchanged at 1900 million bushels. The soyoil yield forecast was lowered 0.01 at 11.59 pounds. The production estimate decreased 20 million pounds and imports were reduced 25 million. Soybean oil ending stocks are estimated at 1.632 billion pounds, down 195 million pounds from last month. Finally, USDA lifted its biodiesel use forecast by 150 million pounds. The price forecast was set at 32.48 cents, down 2 points from last month.

In the U.S. outlook for 2017/18, there was the lower carryin discussed above. The production and crush were unchanged. USDA lowered its import forecast by 25 million. Total supply dropped 220 million to 24.437 billion. We had great curiosity to see how USDA would handle the news that EPA was proposing lowering RFS blending requirements. As it turned out, USDA matched Doane by maintaining a steady 7.000 billion pounds of projected use. USDA forecast month-to-month ending stocks down 220 million pounds to 1.537 billion, and down 95 million year-to-year. USDA forecast cash prices ranging from 32.50 to 36.50 cents per pound, median at 34.50 cents, and unchanged from last month.

USDA forecasts the global 2017/18 crush at 301.25 mmt, up from 300.65 mmt last month, and up from 288.40 mmt in 2016/17. USDA sees the global new-crop use increasing to 55.79 mmt from 53.46 mmt in 2016/17. In terms of global vegetable oil ending stocks, those project higher for 2017/18 at 20.59 mmt from 19.19 mmt year-to-year.

Soybean oil prices were little changed following the reports, even though ending stocks forecasts were lower. Bull spreading of soybeans and meal likely found soyoil taking the bearish side of that trade.  

SOYBEAN MEAL

USDA’s 2016/17 soybean crush forecast is unchanged at 1900 million bushels. The soymeal yield forecast increased 0.03 to 46.99 pounds. The domestic use forecast was up 150,000 at 33.300 million short tons. The export forecast was reduced by 100,000 tons to 11.650 million. The price forecast was increased $1.88 at $316.88. 

In the U.S. outlook for 2017/18, USDA left the crush forecast at 1940 million. The soymeal yield forecast increased 0.03 to 47.53 pounds. The carryin was reduced 25000 tons, with the higher yield an offset to the lower carryin in the balance sheet. The domestic use and export forecasts were unchanged. The price forecast was unchanged in the range of $290 to $330.

USDA forecasts the global 2017/18 crush at 301.25 mmt, up from 300.65 mmt last month, and up from 288.40 mmt in 2016/17. USDA forecasts global soybean meal production at 236.62 million tonnes which was up from 236.55 mmt last month, and up from 226.19 mmt in 2016/17. USDA sees the global 2017/18 use increasing to 234.44 mmt from its forecast of 234.48 mmt last month, and up from 222.20 mmt last year.

Soybean meal prices traded sharply higher on the steady soybean crop and lower stocks forecasts compared to trade outlooks.

Wheat

U.S. 2017 wheat production was finalized last month at 1.741 billion bushels. Total supply, at 3.071 billion bushels, is down from 3.402 million bushels in 2016/17. On the demand side, the only revision is to feed and residual use. Based on larger than expected September 1 stocks, USDA cut feed and residual use by 30 million bushels to 120 million. If realized, this would be the lowest feed and residual since 2006/07. USDA narrowed the season average price range, but the midpoint is unchanged from September at $4.60 per bushel. This compares to $3.89 per bushel last season.

Global production increased to 751.19 mmt compared to 744.85 mmt previously. Production increases from September are noted for the EU, Russia, India and Canada. Australia’s wheat crop is revised down 1.0 mmt to 21.50 mmt. Global wheat use is now projected at 739.63 mmt, up from 737.54 mmt in September. The production increase exceeds higher use so global ending stocks climb 5 mmt from last month to a record-high 268.13 mmt.

Cotton

As expected, USDA revised its estimate of 2017 cotton production in the wake of Hurricanes Harvey and Irma after doing a special re-survey of affected areas this month. It cut the anticipated harvest result by 640,000 bales to 21.12 million bales, which fell short of industry expectations around 21.31 million.

The estimate of 2017 U.S. planted acreage was unchanged from September at 12.62 million acres, but the harvested acreage forecast fell 100,000 acres to 11.41 million acres. But the biggest shift was in the projected national yield from 908 pounds to 889 pounds/acre. Hurricane Harvey caused a 12 pound drop in projected Texas yields from 757 pounds to 745 pounds/acre. Harvey apparently chopped Louisiana yields 45 pounds to 982 pounds/acre. Hurricane Irma was the likely cause of the respective cuts to Georgia, North Carolina and South Carolina yields of 113 pounds, 59 pounds and 20 pounds/acre. However, one has to wonder how destructive the storm actually was since Florida and Alabama yields were revised upward by 49 pounds and 23 pounds/acre, respectively.

The USDA made no changes to its U.S. 2016/17 supply/demand figures, but did make several revisions to its 2017/18 forecasts. The downward revision to domestic production likely caused the 400,000-bale reduction in the export forecast to 14.50 million bales. This drop was larger than industry analysts predicted, since pre-report forecasts averaged 14.75 million bales. Domestic usage was unchanged at 3.35 million bales, so total usage declined by the same amount to 17.85 million bales. The ‘unaccounted’ figure slipped 40,000 bales to 230,000 bales. The net result of these various changes was a 200,000 bale reduction in forecast 2017/18 carry-out to 5.8 million bales. That was quite close to the average pre-report estimate at 5.74 million bales.

Global statistics for the 2016/17 crop year were virtually unchanged, which was exemplified by the old-crop carry-out at 89.57 million bales, unchanged from September. The new-crop situation didn’t change a great deal either, with forecast carry-out declining just 160,000 bales to 92.38 million. Global production for 2017/18 was revised up 110,000 bales to 120.86 million bales, with moderate gains in output from Brazil, Mexico and the EU more than offsetting the cut to projected U.S. production. Global usage was also revised, with the 118.01 million bale usage figure rising 260,000 bales from September. Most national figures were unchanged, with the only significant shift being a 250,000 bale rise in forecast Vietnamese consumption.

Futures initially reacted to the report rather negatively despite the diminished U.S. production and carry-out figures. But futures rebounded strongly soon thereafter, which very likely reflected strength spilling over from the surging soybean market. Conversely, the market gave back a significant portion of those gains before the trading session ended.