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WASDE Preview: Brace for the bears?

Getty/iStockphoto Bearish scenario in stock market with bear figure in front of red price drop chart.
October 2021 WASDE likely to show corn, soybean supply increase.

USDA releases its monthly Crop Production and World Agricultural Supply and Demand Estimates reports tomorrow, with an updated look at 2021 corn and soybean yield and production estimates, 2020/21 supply adjustments, and potential 2021/22 demand revisions.

Here is an in-depth preview of tomorrow’s report as well as potential farm-level price implications for growers. Farm Futures will provide live coverage of tomorrow’s reports upon USDA’s release at 11am CDT, so stay tuned to our website, FarmFutures.com, or our Twitter feed, @FarmFutures, for the latest news and analysis.

2021 Production

2021-22 U.S. Corn and Soybean Production

The trade remains convinced that while soybeans are improving as harvest advances, corn yields could take a hit. It seems slightly counterintuitive, though frequent crop reports of leaf rust, tar spot, and spotty wind damage could end up taking a larger-than-expected toll on the corn crop. It may well play out in the markets that soybeans were the more resilient crop amid less-than-ideal weather conditions this year.

Trade estimates suggest soybean production this year will threaten the 2017 crop of 4.412 billion bushels as the second largest on record. The corn crop will likely remain the second-largest crop in the books behind 2016 (15.148B bu.).

U.S. 2021-22 Ending Stocks

U.S. Corn Outlook

Based on USDA’s September 30 Quarterly Stocks report, we know that 2020/21 corn and soybean supplies are going to end at 1.236 billion and 256 billion bushels, respectively. Corn will see 71 million bushels shaved off 2020 production estimates plus 121 million bushels of feed and residual usage removed from the 2020/21 demand pipeline, resulting in a 49-million-bushel increase for 2020/21 corn ending stocks.

Corn supplies in the 2020/21 marketing year are likely to end as the fifth-tightest volume on record, dropping slightly on the old crop supply revisions. And even with predictions for a smaller crop, 2021/22 supplies are slated to rise.

Of course, that could change if USDA adjusts the corn demand schedule for the current marketing year. The average trade guess factors in 25 million bushels of more corn consumption in 2021/22. Which sector will snap up those bushels – or will we see more supply-side adjustments tomorrow?

The U.S. cattle herd is just fractionally lower (1%) than the same volumes a year ago. U.S. corn exports to China tapered off in July and August as it harvested a larger corn and wheat crop. Marketing year to date weekly U.S. corn loadings are currently 32% lower than the same time last year as a result.

That leaves ethanol. Weekly production volumes are fighting to overcome pandemic-induced weakness faced late in the 2020/21 marketing year. Approximately 436 million bushels of corn were consumed in September 2021 for ethanol usage, though September 2021 WASDE forecasts suggest that volume currently stands at 423 million bushels.

September corn usage for ethanol is historically in the bottom quarter of monthly corn consumption rates for the fuel additive. But improving output paces and recovering consumer fuel demand suggest that ethanol may have the most bullish prospects of corn’s demand factors in tomorrow’s report – even if an upward adjustment is minor.

Ending stocks will hang in the balance of any supply adjustments. To me, it seems like USDA is likely to make the most significant downgrades to 2021 production and that any demand improvements will be slight.

Bearish pressure is certainly afoot. Trade estimates suggest that corn’s stocks-to-use ratio will increase to 9.7% in 2021/22 from current projections of 9.5%. But even with the extra boost from old crop supplies, stocks will remain at the ninth tightest on record.

Growers can breathe easy that profitable prices are not likely to disappear soon as stocks still remain at historically tight levels. Still, don’t be surprised if corn prices end tomorrow’s trading session lower, especially if USDA does not trim 2021 corn production estimates.

U.S. Soybean Outlook

For soybeans, the uptick in supply from the September 30 report alleviates price pressure on the U.S. soy complex. USDA’s current stocks-to-use (STU) ratio for the 2020/21 marketing campaign stands at 3.9%, following only 2013 (2.6%) as the second tightest on record. The 81-million-bushel 2020 soybean production increase would grow the old crop STU to 5.7%, which is actually only the 11th tightest ending supply on record.

The key takeaway from last week’s Quarterly Stocks report is that demand rationing worked for the soybean sector. High prices deterred processing rates and export shipments even with more supplies than the market had previously believed to be available.

That will add 81 million bushels to beginning 2021/22 stocks. If the trade average is to be believed, another 41 million bushels are waiting to be added to 2021 production as early yield estimates roll in off combines across the Heartland.

The average trade guess of 300 million bushels in 2021/22 ending stocks means that a 2021/22 stocks-to-use ratio of 4.2%, as forecasted by USDA in September, could grow to 6.8% in today’s report. That pushes soy supplies from the third tightest level on record to the fourteenth, alleviating supply pressures extensively.

Similar to corn, even with the larger supply forecast soy stocks are still going to end the marketing year historically tight. USDA’s findings tomorrow will likely add bearish pressure to the soy complex, especially if corn also sees an increase in supplies.

Most of the adjustments to the soybean complex in tomorrow’s reports are likely to center around 2021 production. Traders are not inclined to believe that many bushels will be added to 2021/22 demand forecasts.

Domestic crushing rates recovered somewhat in August to a three-month high as growers cleaned out bins in preparation for the 2021 harvest. Firming basis prices at crush facilities across the Midwest over the past week suggest that crush plants are eager to keep freshly harvested bushels coming in, especially amid rain delays.

Marketing year to date weekly export loading paces remain 70% lower than the same time last year with five weeks of shipments in the books so far in 2021. Shipping data is likely to ramp up in the coming weeks, aided in part by easing barge costs on the Mississippi River.

It seems likely volumes may not replicate record-setting paces from last year. At five weeks into the current marketing year, China only has two-thirds the volume of outstanding soybean export sales booked compared to the same period last year.

If USDA raises demand estimates in tomorrow’s report, it could potentially offset some of the looming losses that a larger 2021 crop will bring. Stocks may be tight, but the market’s current yield prospects are likely to open the door to some bearish price action.

U.S. Wheat Outlook

USDA’s September 30 Small Grains report found 2021 wheat production slashed another 51 million bushels to 1.65 billion bushels. First quarter 2021/22 U.S. wheat consumption came in at 846 million bushels. This is the highest absolute Q1 usage rate since 2016/17 (857 million bushels). Quarterly wheat usage rates typically are at the highest point in the first quarter, averaging 38% of annual usage over the past five years.

At current demand levels, this year’s Q1 consumption rate is at 41% of estimated new crop usage – the highest level reaching back to 2015/16 (43%). And that points to the lowest consumption volume for the remaining three quarters of this year since 2017/18.

Top exporters Russia, Canada, the European Union, and the U.S. all suffered production losses this year that could shake up global export markets over the next nine months. The U.S. is a residual supplier of wheat on the global market. As long as the dollar does not continue higher, U.S. exporters could capitalize on non-traditional international wheat buyers in the coming months.

But marketing year to date weekly wheat shipping volumes are currently 20% lower than the same time a year ago. If USDA does make any consumption adjustments to wheat tomorrow, it seems likely a 10-million-bushel downgrade to export forecasts are in order.

Trade estimates peg 2021/22 ending stocks for U.S. wheat at 576 million bushels, down about 40 million bushels from the September 2021 forecast. That will shrink the stocks-to-use ratio from 29.8% to 28.0% - the tightest supply level since 2013/14.

World Ending Stocks & Production

World 2021-22 Ending Stocks

China

A USDA attaché posted in Beijing expects China’s corn crop to fall short of previous forecasted production increases. A soggy harvest season and pest damage caused a reevaluation of yield and output projections. The post expects 39 million fewer bushels of corn to be harvested in China this year than USDA’s current estimate of 10.75 billion bushels.

The post cites record rainfall and abnormal crop development due to temperature variations, excess moisture, and fertilizer loss in the North China Plain as key reasons for concerns about the quality of China’s corn crop this year.

High wheat prices are likely to encourage Chinese feed mills to use more corn in rations in the coming year. But as the country’s hog expansion slows and livestock feeding rates moderate, so too will its corn import volumes.

USDA’s post in Beijing recommends dropping 2021/22 Chinese corn imports by 33% from 2020/21 to 787 million bushels. The attaché expects that Chinese corn imports topped a staggering 1.18 billion bushels in 2020/21.

Lower Chinese corn imports, paired with rising U.S. corn supplies, will likely play a big role in larger corn ending supplies around the world in tomorrow’s report.

Brazil

Brazilian agricultural consultancy CONAB expects Brazil’s 2021/22 soybean crop to reach a record-setting 5.17 billion bushels upon its harvest beginning next January. But USDA’s estimates remain higher than CONAB’s, making it less likely that it will change its 5.3-billion-bushel forecast for new crop Brazilian soy production.

CONAB expects annual increases of 2.5% and 4.75% for 2021/22 Brazilian soybean (98.6 million acres) and corn (51.6M ac.) acreages. The consultancy also forecasts total 2021/22 grain acreage 3% higher than last year at 176.7 million acres.

Barring any changes to Chinese importing paces, the newfound 2020/21 U.S. ending stocks and larger U.S. crop will likely play the most significant role in increasing global soybean supplies tomorrow.

India

Wheat crop shortfalls in the Northern Hemisphere this summer could create opportunities for residual suppliers like the U.S., but also lesser-known players on the global market. India is one such player.

Several industry sources suggest that India’s 2021/22 wheat exports are likely to increase four-fold to between 154 million – 162 million bushels as rising freight costs make Indian wheat an affordable option to ship to other customers in Asia. In contrast, shipping rates from Russia or Ukraine to Asia are currently $0.27-$0.41/bushel more expensive than Indian seller’s freight quotes.

India is the world’s second largest wheat producer and the tenth-largest wheat exporter. The Asian country is currently working through record-high 2020/21 ending stocks of 1.02 billion bushels. 2021/22 ending stocks are forecasted at another bin-busting 1.06 billion bushels.

USDA projected 2021/22 Indian wheat exports at 129 million bushels. Even with the increased bushels, the country will likely remain the world’s tenth largest exporter. But the shift in freight prices could send those forecasts higher in tomorrow’s WASDE report.

Strong importer demand and smaller wheat stocks in the Northern Hemisphere will continue to tighten global wheat supplies. Of the three main grain commodities, wheat has the best chance to see some bullish price action in tomorrow’s reports.

USDA World Production

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