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‘This story is not over yet’

WASDE report comes with a lot of risk left to 2019 crop

The October World Agricultural Supply and Demand Estimates (WADSE) report was released last Thursday by the USDA and according to Todd Hultman, DTN grain market analyst, the report for corn is appearing bearish with soybeans doing the opposite and coming in bullish.

“Corn’s numbers were bearish,” he said. “They (USDA) did reduce the ending corn stocks estimate, but it was higher than most of the trade expected. As far as soybeans, just about everything in the report was bullish for the soybean price. The soybean crop estimate was reduced less than expected to a smaller total than expected. The ending stocks ratio coming back to 11 percent is more supportive for prices and even the world ending stocks total came in less than expected, so that was bullish for soybeans.”

There are a lot of crops that need harvested before anyone will know for sure how the 2019 growing season faired.

“This story is not over yet. These crops are not in the bin yet,” said Hultman.

Corn

Hultman said there were some demand changes made to the new corn crop estimates, with some positivity.

“The feed demand was increased from 5.175 up to 5.3 billion bushels, so that was positive for the corn situation,” he said.

But the other two changes were bearish.

“The largest one was the export total being reduced 150 million bushels from 2.015 down to 1.9 billion bushels,” he said. “That’s not surprising if you have been watching our export sales reports lately, you know that the corn export commitments just have not matched year ago levels. As of this morning’s report, the total commitments of corn exports is down 52 percent from a year ago — those corn exports are off to a very slow start and that’s what was behind the lower export estimate for corn.”

Putting those two reports together, Hultman said USDA essentially kept the crop estimate the same, adding they reduced the total demand by 90 million bushels (mb) and the ethanol demand was also reduced 50 mb.

“Put those demand changes together, USDA reduced the demand estimate by 90 million bushels and we did see a lower corn stocks estimate of 1.93 billion bushels. It was not as low as what analysts were expecting,” he said. “To give them a break, I think it’s fair to say, we have not seen the end of the story on the corn crop yet. As you know, we have a lot of weather risk still in this crop before it is harvested this year.”

Hultman said in the old crop estimate, the feed and residual demand estimate was increased 343 mb to 5.618 bb.

“That was a big increase and it’s hard to say exactly, but part of it was due to higher than expected feed demand, and I think part of it could possibly be due to the revision of the 2018 crop production estimate. If you recall, we had a very wet, difficult harvest period one year ago, so there might have been a reduction in the 2018 crop included in that residual estimate,” he said.

Ending stocks in the old crop period are estimate at 2.11 bb.

“Now, looking at the new crop season, we are looking at 1.93 billion bushels. That is a 14 percent ending stocks-to-use ratio. Even though today’s numbers were higher than expected, it does bring the ending stocks-to-use ratio down just a bit and offer a little better support than the previous report did to corn prices,” he said.

How does this look as far as history of cash of U.S. corn prices go?

With the 14 percent ending stocks-to-use ratio, Hultman said cash prices range from about $2.50 up to a little over $6 a bushel.

“The statistical center puts us right at about $3.60 for cash corn. That’s where, if today’s October ending stocks estimate was the end of the story, if all of the corn was in and we got the 13.8 billion bushels USDA assumes, we would expect roughly a $3.60 cash price for national average of corn, but, as I say, there is still much more left in the story this year for corn before it’s all in,” he said.

The world crop ending stocks estimate for corn was reduced from 306.3 million metric ton down to 302.6 million metric ton (mmt).

“That was a modest reduction,” said Hultman. “It was not as big as what the trade was hoping to see. The trade was actually hoping to see 296.1 million metric ton there. We did not get as big of a drop as expected.”

Crop estimates for Argentina, Brazil and Ukraine all stayed unchanged for the new crop season.

There was a slight reduction in world demand for corn, Hultman said.

“Almost 3 million metric tons of lower world demand estimate for corn. Basically, USDA having a lower demand estimate also kind of buffered the reduction that analysts were hoping to see today,” he said.

Soybeans

A completely different story came in for soybeans.

“Where the corn came in higher than expected, the soybean ending stocks number came in lower than estimated — 460 million bushels of ending soybean stocks is USDA’s best guess for the new crop, 2019-20 season,” he said. “That’s lower than expected. The trade was looking for about 510 million bushels. Now, this time, where they didn’t really reduce the crop estimate for corn, they did make some reductions for soybeans.”

Hultman said USDA reduced the harvested acres about 300,000 acres down to 75.6 million acres and they also reduced the soybean yield down to 46.9 bushels an acre.

The new crop estimate of 3.55 bb is a long way from the 4.4 bb the USDA gave a year ago.

“It’s also down 83 million bushels from last month’s estimate,” he said. “That soybean crop perception just keeps getting smaller and smaller, and there weren’t many demand changes this time.”

Hultman explained that demand stayed fairly steady, although there was a 5 million bushel increase in the crush estimate, the soybean export estimate basically stayed unchanged at 1.775 billion bushels.

“Soybean exports have actually been doing fairly well,” he said. “The soybean shipment pace is up 3 percent from a year ago.”

Total export commitments for soybeans, however, are still down 20 percent from a year ago.

“But, it’s early in the new season. We will have to see how that plays out,” he said. “The good news is, just a couple of months ago, we were talking about a billion bushels of ending stocks. The old crop season is ending with 913 million bushels. That’s still the second highest ending stocks-to-use ratio on record that they gave us, but now the new 460 million bushel estimate for the new season is much more back in the typical, normal range. That’s actually an 11 percent ending stocks-to-use ratio for soybeans. Much lower than the 23 percent that we ended up with in the old crop season.”

The 11 percent ending stocks-to-use ratio is what Hultman considers a plus for the soybean market — something we haven’t seen in a long time.

“It wasn’t that long ago in the old crop season we were talking about a 27 percent ending stocks-to-use ratio and I had concerns about $6 soybeans because of that,” he said. “The ending stocks-to-use estimate right now is back at 11 percent with today’s new totals from USDA — that gives us the statistical target of about $9.40 a bushel. That is a much better case for supporting soybean prices in today’s report. Of course, there’s still risk in the soybean market, and, as you probably know, part of that risk is the trade talks going on right now with the U.S. and China and the market. I am sure it is cautious and a little tentative about what’s happening there, so we are not seeing the $9.40 trade yet. But today’s improved fundamental situation from USDA does build a little better case for that soybean price.”

World ending stocks estimate for soybeans, Hultman said, fell modestly from 99.2 down to 95.21 mmt.

“That also was a little less than the trade was expecting and it had a little bullish influence for the price today,” he said.

World production for soybeans was reduced some and part of that was due to the contribution from the United States.

Hultman said when it came to Brazil or Argentina, the new crop estimate for soybeans was left unchanged.

“Brazil’s soybean planting pace is at its lowest in six years right now, so they still need a little more cooperation from the weather to get that crop going, but USDA is making no changes in the crop estimate from Brazil at this time,” he said.

China’s soybean imports are at 85 mmts — which Hultman said is the same estimate USDA had a year ago.

The crush premium for soybeans, Hultman said, had been one bright spot for soybeans this past year.

“It helped demand at a time when exports really were struggling and now we have basically, in the last couple weeks, have seen the crush premiums, as a percent of soybeans fall back to 15 percent. which is right back at its 10-year average,” he said. “It’s still supportive for the crush demand; it’s still supportive for soybean prices in general; it just doesn’t have the rich premium we have seen the last several years.”