February USDA Report

USDA report turned out to be a big nothing. On the Jan report, USDA significantly reduced the size of the 2020 US crop but they did not make much adjustment to demand. Everyone expected them to make some big adjustments to demand on this report. Big increases in exports were expected because we have already almost exported as much corn as they had projected for the whole year and we are only 5 months into the marketing year. China is setting more records for how much corn they have imported from the US and there are no signs of slowing down on corn. In fact, there are rumors they are hiding some purchases from USDA’s export reporting system by classifying them as domestic purchases so exports could be even bigger than we know. Corn is still well over $10/bushel in China and they have to keep buying (unlike beans which they are slowing down purchases in anticipation of Brazilian harvest which is delayed). USDA did lower bean carryout which was anticipated. They have bean carryout estimated to dwindle down to pipeline supplies. We may have to import beans late summer to cover our domestic needs. USDA did not adjust any South American production estimates despite many private analysts starting to lower those projections.

Once again it seems that USDA has kicked the can down the road to the next report to make much needed adjustments. USDA has been very slow to make needed adjustments to both production and demand the last few years. Without getting into the hot debate about why that is, one thing that we can all agree on is that USDA continues to undermine their credibility and lose their place as the preeminent authority in analyzing the market. This report is no exception. It is also possible USDA is correct and the market is completely wrong about the scale of demand growth we are facing. Only time will tell, but after the last few years of being completely reactionary and making adjustments long after the facts were in, color me skeptical that they have all of a sudden become much better able to project out forward.

Markets still have the tailwind of inflation fears. The US dollar has resumed its weakening which is helpful for commodities. South American bean harvest continues to be delayed reducing the size of that crop and preventing as many corn acres from going in after the beans. The US has not gotten the subsoil moisture recharged and China continues to buy everything. We still have a lot going for us but it is going to be volatile. Do not panic on any one day move. Be patient but when you do make sales, scale in small.