High supply, mixed export numbers: an analysis of the latest WASDE report

Today’s updated World Agricultural Supply and Demand Estimates (WASDE) report was by no means a market mover. But, it does pose some questions for the market to digest. Starting with the U.S. Supply and Demand, it was, for the most part, fully influenced by adjustments in export demand.

2017/18 U.S. corn ending stocks estimates were lowered by 125 million bushels from January’s estimate. Over the last few months U.S. corn export demand has been strong, influencing the USDA to increase export estimates by 125 million bushels to 2.05 billion bushels.

Estimates for U.S. soybean and wheat export demand were both lowered. The USDA increased 2017/18 soybean ending stocks by 60 million bushels to 530 million – directly a result of a decrease in export estimates of the same number. Prior to the report, only 75% of the USDA’s soybean export estimates were committed — 12% behind last year at this time.

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Time is ticking, and U.S. wheat exports also need a boost to reach the USDA’s estimate. As of last week, 79% of the USDA’s export estimate for the 2017/18 marketing year was committed – 10% behind last year’s at this time, and 8% behind the 5-year average. In a response to this lagged pace, the USDA decreased 2017/18 U.S. export demand by 25 million bushels. U.S. wheat ending stocks increased by 20 million bushels to 1.009 billion bushels.

And then there is the elephant in the room: South America production. Recent weather in South America has mostly been cooperative in Brazil, while Argentina remains very dry. The USDA reported Brazil’s soybean production at 112 million MT – only 2.1 million MT below last year’s record 114.1 million. Argentina estimates, however, would be the lowest production since 2013/14 at 54 million MT — 2 million MT lower than January’s estimate of 56 million.

The corn market has its eyes focused on South America as well. Brazil’s 2017/18 corn production is estimated at 95 million MT, unchanged from January.

Brazil’s USDA equivalent, CONAB, estimated the Brazil crop at 88 million MT today — 7 million lower than the USDA. CONAB’s reduction in yields, from their previous estimate of 92.3 million MT, was mostly due to a 4 million MT reduction in second crop corn production. With the recent wet conditions delaying soybean harvest in some regions, and in turn second crop corn planting, the weather market for corn could come from second crop production, where the season is just beginning. In Argentina, as a result of the dryness, the USDA lowered production estimates by 3 million MT to 39 million.

From a global perspective, today’s report was positive. Globally, corn, soybeans and wheat ending stocks estimates were lowered.

All-in-all, this was just another update of supply and demand in a market where the supply is, simply, large. One thing is near certain in high supply environments — there’s less volatility in prices. This is true for the downside and upside of the markets.

Aside from the Canadian Dollar, the bigger moves to your grain prices may be weather stories. Keep an eye on South America and the dry U.S. plains in the coming months. By the way, in such cases, more times than not, it pays to sell the story and not wait for the fact.

 

Matthew Pot

Matthew Pot is an Ontario-based economist and the author of Grain Perspectives. You can follow him on Twitter at @MatthewPot, and subscribe to his daily Grain Perspectives newsletter here.

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