No major moves in USDA balance sheets

KANSAS CITY, Mo. — The U.S. Department of Agriculture’s supply and demand estimates and crop production reports featured a mixed bag of many moving parts for the trade to digest.

Arlan Suderman, StoneX Group chief commodities economist, gave his insight on the USDA reports in a webinar Oct. 12.

Were there any surprises in the crop production report?

Suderman: The thing that really sticks out right here is the soybean yield — 49.8 bushels per acre. That is the lowest of the trade guesses going into this report. The average trade estimate was 50.6.

When you look at changes from the previous month, most of the Midwest, outside of Minnesota and Illinois, saw declining yields this month.

The corn yield of 171.9 bushels per acre was essentially at the average trade guess. In the states where we saw corn yield decreases in this report, those areas that had more moisture that helped filled kernels saw a yield increase from last month.

Those states that had the lack of moisture in the plains saw a decrease in corn yield. There was no change in Iowa or Minnesota.

Turning to the crop supply and demand balance sheets, were the 2022-2023 ending stocks in line with trade expectations?

Suderman: Soybean ending stocks stayed right at 200 million bushels. The average pre-report trade estimate was 248 million.

On the corn side, USDA’s ending stocks number of 1.172 billion bushels was almost identically to where I was at (1.174 billion bushels) and about 48 million bushels above where the trade was at.

That’s why we saw the market react to that, first going higher on the lower yield and then coming down when they really looked at what ending stocks were already priced in.

Wheat ending stocks came in higher than the trade expected by 22 million even though we saw a sharp drop in production of over 130 million in the small grains summary report that came out Sept. 30. Why, because USDA assumed a much smaller wheat feeding and exports.

I don’t think that’s necessarily a correct assumption on wheat, but I’m not going to argue with USDA. Its numbers are what are going to be traded.

My estimate of 477 million bushels ending stocks is assuming that feed usage did not stay the same. I actually had a higher feed usage number prior to the Sept. 30 stocks report because we were seeing wheat being fed in the feedlot district because of the extremely high corn basis because corn simply wasn’t there.

It doesn’t matter what we see. USDA is either wrong on their feed usage for wheat or they’re wrong on the production number. They’re not going to back down on their production estimate, at least not for a while.

So, therefore, we have to assume what USDA says that the wheat feeding is not there, and I will adjust my balance sheet and my estimates accordingly.

USDA increased 2021-2022 soybean ending stocks by 34 million bushels from the previous estimate to now 274 million. That carried over into the new crop beginning stocks. However, new crop production is down by 152 million bushels to 4.313 million bushels.

Suderman: Our yield at 51.3 bushels per acre from our customer survey puts our production 129 million bushels above USDA. That’s going to make our balance sheet come out a lot different.

My ending stocks are 305 million and USDA 200 million. So, we’ll continue to monitor this.

Maybe USDA will come up to it, maybe our customer survey comes down, probably some combination, but we really don’t know yet.

The bottom line is we’ve got enough soybeans to get through the next four months and then the Brazilian crop will be available. They’ll start harvesting in late December.

The first soybeans from that will reach China by Feb. 1. So, our export season is going to be curtailed this year if that continues on that path.

That’s why my export target has been 2 billion bushels and that could come down a little bit more yet as we go forward, as well.

My crush number is considerably higher (at 2.315 billion bushels). So, if we see exports come down I do think crush will go up.

What are some take-home points from this latest USDA data and what’s happening overall in grain trade?

Suderman: The reports had a lot of moving parts, factoring in what we saw in the change in production, the stocks reports and the small grains summary report — all of that are in this report.

The major feedlot states saw a drop in corn, milo and wheat production approaching 1 billion bushels this year. So, we still have a major feed deficit in that area.

The strong dollar and river barge freights are rationing exports for both corn and soybeans. That’s a break for domestic users.

I don’t want to make it sound like things are easy for domestic users, but at least they’re not having to battle the export market as hard for these limited supplies.

The focus now is increasingly going to be on South American weather from a fundamental standpoint, but we’re still going to be subject to headlines.

That includes what’s happening in Ukraine and includes what’s happening with inflation and the Federal Reserve.

High prices do eventually cure high prices by stimulating demand. Right now the place to most benefit from that is Brazil.