July 25, 2021

Demand continues to drive market

NEW YORK — The U.S. Department of Agriculture reinforced its strong corn and soybean demand outlook in the recent supply and demand estimates report.

“USDA confirmed a strong demand story in today’s report and they have not yet adjusted their yields. The general sense in the market is that yields are going to be coming down. So, USDA maintained or even increasing their demand estimates in this report, but the expectation is supply gets tighter in future reports and that creates a story where we saw some of the money start to come into the markets once again today,” said Arlan Suderman, StoneX Financial chief commodities economist.

Suderman addressed a variety of crop balance sheet issues during his webinar on July 12.

Where do you see new crop ending stocks heading?

“USDA had wheat ending stocks at 665 million bushels. My estimate for final stocks is at 573 million bushels. Corn was at 1.432 billion bushels ending stocks and I think that eventually goes lower. I’m at 1.245 million now with my projection. Soybean ending stocks came in at 155 million bushels. Both corn and soybean new crop ending stocks are pretty tight.”

USDA has old crop soybean ending stocks at 135 million bushels, or 50.2 bushels per acre, and a stock-to-use ratio of 3%. Ending stocks of 155 million bushels for 2021-2022, or 50.8 bushels per acre, has a stocks-to-use of 3.5%. Digging deeper, what are the potential scenarios for the crop balance sheets?

“If we get up to my highest yield average scenario of 52.8 bushels per acre for 2021-2022 we do start building stocks, getting them up to 5.6% stocks-to-use ratio. From a historical standpoint, that’s still fairly snug. So, I think we’re going to see the soybean market kind of remain fairly well supported longer term because we’re still kind of riding the fence on supplies.

“But if we drop the yield to 48 bushels per acre this tells me that we’ve got to do some rationing with higher prices. So, there’s virtually no margin for error on the soybean balance sheet right now.

“There’s a little bit on corn. If we drop corn below 175 bushels per acre, that’s when we start tightening up supplies some more and we’re just above that at 176.2.”

What are you seeing on the soybean demand side?

“We’re seeing the soybean demand numbers go up, but not quite as fast because we are seeing a softening of demand. Crush numbers in China have been poor and that’s slowing crush activity and slowing projections for this next year.

“I think as we get into 2022 we’re going to see these China demand numbers come back more aggressively as they get past African swine fever and start rebuilding things again and get some more profitable returns. But we are seeing that slower recovery.

“We’re really close to where we need to be in the estimates for soybean exports. Sales are really lagging. The question is what’s going to happen going forward. In August, ahead of the end of the marketing year, typically we get a real bounce in demand.

“We really need to see weekly export shipments a little over 10 million bushels per week and we just haven’t been at that level for a number of weeks. So, we need to seasonally pick up the pace if we’re going to hit USDA’s target or we could see that export target come down a little bit more.”

All wheat production was lowered by 152 million bushels to 1.746 billion, primarily due to severe drought conditions in the Northern Plains.

“That 1.746 billion bushels was 100 million bushels below where the trade was at because of the size of the other spring wheat. USDA is assuming 3.5% abandonment for the spring wheat.

“We’re at 15% abandonment and we think it may go higher that, it just depends on the weather the next few weeks. That is another area that we can anticipate the spring wheat production estimate to go lower yet.

“Abandonment in 1988 was at 22%. Typically when you increase abandonment yield comes up a little bit, but overall net production will tend to come down. Keep your eye on that. We could see even tighter wheat production estimates yet.”

USDA included the planted acres from its June 30 report and stuck with the yield projections based on trend and weather.

“It sets the stage for a very interesting August report. The USDA left the corn and soybean yields unchanged in this report and we kind of expected that. They have a model that they can use if they feel like it’s justified changing the yield, but they have parameters that they used in the past to determine whether it’s justifiable to adjust their yields in July. They really don’t like to. They’ve adjusted their corn yield eight times since 1993, their soybean yield six times since 1993, but they prefer not to in July and get more data in August.

“For the August and September reports, USDA used to start with their objective yield surveys in August. That means taking samples from the field. A few years ago they decided to cancel that in August and move that to doing that for the first time in September.

“So, we expect the August estimate to be a combination of farmer subjective surveys, satellite data and their yield models. That will make up USDA’s estimate for the August report and then in September they’ll add the objective field survey data to that.”

What do you see going forward?

“There’s a lot that can happen in this grain complex going forward and it’s really going to hinge on the weather especially over the next six weeks. We’re really getting down to D-Day now on the weather for the grain and oilseed markets, so the weeks ahead are going to be critical and I anticipate we’re going to have some big price swings in both directions for these markets.”

Tom Doran

Field Editor