USDA Quarterly Stocks Report

Today USDA gave us final stocks numbers from last crop year corn and beans. The stocks reports come out each quarter (compared to monthly for the supply and demand updates). The stocks reports are like anchors for the supply and demand updates. Supply and demand updates are estimates whereas the stocks reports are as close to actual counts of inventory as we can get. Each month through the year, USDA estimates what carryout will be at the end of the year and then the Sept stocks report is an actual count of what the carryout actually was. The last several years there have been really big swings on the stocks report as USDA had to make a big adjustment for something that was missed earlier in the year like yield or demand. USDA has also gone back and adjusted the other stocks reports from earlier in the year on this report. They did not have to make big adjustments on previous stocks reports on this one but they did adjust both corn and beans higher.

On corn, they only adjusted stocks higher 50 million bushels from their carryout estimate. Even though that is higher than it was (and 82 million bushels above market expectations), that is still an extremely tight carryout. USDA actually lowered last year’s (2020) yield to 171.4 (compared to the last estimate of 172) but raised carryout. This means we have lost demand from somewhere. We will see where they think we lost the demand on the October supply and demand report.

What To Do
This does not drastically change the picture for corn. We still need to know the yield from this year and we are coming in with a very tight carryout. We are too early in harvest to have a sense of how big the crop is yet. Some areas are a little better than expected, some a little worse. Nothing that i have seen points to massively better yields anywhere. The bullish report on wheat will also help support corn. I think we continue to try to churn back to $5.50. I would not be in a hurry to do a lot below that level.

Soybeans were a different picture. USDA actually raised yield from last year (2020) from 50.2 to 51 bushels per acre and almost all of that increase was added to the final carryout count as of Sept 1st. Soybean carryout was raised 81 million bushels from the last ending stocks estimate to 256 million bushels. This is still a tight carryout historically, but much more cushion than the market has been expecting. It does help explain why the basis got so soft at the end of July and into August. It was not as obvious at the time because of the effect the hurricane shutting down New Orleans in late August gave additional downside pressure on the basis and futures price. It was difficult to determine at the time how much of that was due to carryout in excess to expectations and how much was due to the logistic issues.

What To Do
Beans can tolerate a smaller carryout because we have so much production in South America so we get two big crops per year instead of just one. We have more of a cushion in the US but we still need a decent crop in the US and a decent crop in South America. We have more carryout but far from burdensome so far. Market will be closely watching yields in the Midwest and weather in South America. We could get back to $13 but we are going to need a problem somewhere or more demand to get back to $13.50. Be scaling in sales close to $13. Soybean basis has been getting stronger in the Southeast despite harvest getting started.

All summer the majority of the headlines were about corn and bean tightness, wheat was mentioned as an afterthought many times. Spring wheat had time in the headlines but overall world stocks looked more comfortable than other grains. Now is wheat’s time to take the lead. USDA found less wheat stocks and less harvested acreage so that points to more usage than the market was expecting. Wheat prices are going up all around the world and wheat importing countries are trying to make sure they get their hands on supply and wheat exporting countries are trying to slow it down from leaving their countries to keep food inflation in check. Wheat needs more acreage and with energy and fertilizer prices so high, its going to take a higher price to attract acres than in previous years. Strength in wheat will help support corn as well.

Get some hedges working at $7.50 if you are planting wheat this year.

I can keep saying I do not see the fundamental reason for cotton to keep rallying all I want but that will now slow the market down. We have a big crop in the US and questions about demand. What cotton seems to be reacting to is big rains on mature crops in Texas, India due to Cyclone Gulab, and reports of summer flooding in China. Cotton market is more thinly traded than the grains so individual orders move the market more. I think money flow is as much of an explanation as these weather headlines. I think everyone that still has some old crop to price should be selling some here to pull the average up. This is a gift.

This map is precip anomaly. There has been much less rain in central brazil than normal. By the end of October, 60% of Brazil’s soybeans should be planted. It is too early for the dryness to matter as there is still time to get the rain and get the crop planted. However if this continues, soybeans will react.