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January 2021 USDA Reports Preview: Tightening stocks expected

Tatsiana502/ThinkstockPhotos Grain Bins behind Corn Field
2020 crop shortfalls, increased global demand will jockey to shrink global grains supply.

USDA releases what may possibly be the most highly anticipated batch of market reports for the year tomorrow. While traders have largely squared away their positions ahead of tomorrow’s reports, the market consensus is largely that USDA’s updated figures will be bullish for U.S. grain producers.

USDA will update 2020 crop yields, 2019/20 ending grain usage rates, domestic and international supply and demand estimates, South American production, and 2020 winter wheat sowing projections tomorrow. The series of reports will undoubtedly set off a cascade of market activity. Here is a preview of what to watch out for in tomorrow’s reports.

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At the forefront of everyone’s minds tomorrow will be 2020 production results. Trade estimates predict slightly lower corn and soybean yields for last year’s crops due largely to poor weather conditions.

  • For soybeans, this means that the 2020 crop will undisputedly be the fourth largest soybean crop in U.S. history.
  • The 2020 corn crop will likely be the third or fourth largest crop on record after brutal weather events across the Heartland late in the growing season hampered yield potential – for both crops.
  • The January 2021 Farm Futures Survey supports these projections, with corn and soybean yield estimates of 175.3 bpa and 49.9 bpa, respectively.
  • Holding usage rates constant, 2020/21 U.S. soybean stocks could shrink past 2013/14’s historically low ending supplies if USDA drops 2020 soybean yields by more than 56 million bushels (about 0.7 bpa). Most trade estimates seem to suggest USDA’s adjustment will not be that large, but 2020/21 ending stocks will remain at their second-tightest level on record in tomorrow’s report, at a bare minimum.
  • 2020/21 ending stocks from a smaller 2020 corn output are likely to tighten, though not as drastically as soybeans. Farm Futures forecasts of ending stocks at 1.652 billion bushels will still be plentiful enough to sustain current demand levels.

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Of course, prices will continue to rally if USDA makes any significant changes to usage estimates, especially amid tight 2020 corn and soybean crop projections.

  • USDA’s December 2020 Cattle on Feed report estimated 12.036 million head of cattle were being fed across the U.S. as of December 1. That’s a record high cattle inventory volume and we all know how much cows eat.
  • So will USDA revise feed demand estimates for corn higher tomorrow? It seems likely. With corn futures prices flirting with $5/bushel in Chicago, the current wheat-corn price parity just shy of 1.2 favors wheat to be a slightly cheaper feed alternative. If economists believe this substitution effect to be pressing, livestock feed demand for wheat could see an increase in tomorrow’s report as well.
  • The ethanol sector reported a strong rebound from pandemic lows in October and November 2020, as corn feedstocks for the fuel additive neared their highest points since February 2020. A vaccine on the horizon brightens optimism for biofuels, but the foundation remains shaky as the pandemic resurges during the winter months. Marketing year to date (MYTD) corn consumption for ethanol remains nearly 3% lower than the same time last year.
  • Soybean crush volumes have set records in each month of the 2020/21 marketing year so far. In fact, two of the three largest monthly crushes were recorded in October and November 2020. Domestic livestock demand, Asian soyoil consumption, and soybean export demand are all key factors. Economic turmoil in Argentina in late 2020 brought many foreign buyers to U.S. shores for soymeal after trade flows from the world’s largest soy product exporter dried up. USDA could take this demand boost into account in tomorrow’s report.
  • Exports will undoubtedly be the wild card in tomorrow’s WASDE report.
    • Corn exports are up nearly 17% over the five-year average due in large part to unprecedented demand from China. But other top buyers picked up shipping paces in December. A month ago, MYTD corn exports to the top five buyers last year were down nearly 4%. But a weak dollar late in the year helped send MYTD loading paces to those customers 2% higher than the same time last year.
    • Soybean loading paces to China are nearly 60% higher than the five-year average for the current MYTD. China surpassed 1 billion bushels of U.S. soybean shipments to end 2020 and likely has another 392.3 million bushels remaining on the books. But soybean harvest is already underway in Mato Grosso – how much longer will Chinese demand for U.S. soy last before the cheaper South American crop enters export channels?
    • Over the past month, U.S. wheat export loading paces have fallen closer in line to last year’s shipping rates for the time of year. Demand from China remains nearly 9 times higher for the current MYTD compared to last year, but 2020/21 MYTD shipments to top buyer Mexico is down 16%. Rising shipments to the Philippines and a weaker dollar reduce the chances USDA will cut wheat exports tomorrow, though it seems more likely the estimate will go unchanged.

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While ending stocks focus on aggregate demand, how quickly these grains are being used will come under focus after USDA’s Quarterly Grain Stocks report is released.

  • Amid rising export demand, livestock feed usage, smaller 2020 crops, and the new era of pandemic food economics, December 1, 2020 soybean and wheat stocks are largely expected to be lower than the same time a year ago.
  • A muted recovery to ethanol demand continues to plague corn usage rates, but unseasonably high cash offerings for ethanol offer another perspective. There may be the most room for surprise in tomorrow’s December 1 corn stock readings.
  • Will we see a repeat of September 2020’s massive 2020 usage adjustment for corn and soybeans? It seems unlikely, but from a strictly data perspective, 2020 was an abnormal crop and economic year and with that comes anomalous data. While revisions would cause significant market noise after 2020, adjustments should not be entirely unexpected.

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USDA will also be releasing its first round of acreage estimates for the 2021 wheat crop.

  • Six-year price highs last fall will likely drive the first increase in U.S. planted winter wheat acreage since 2013.
  • 2020 winter wheat acreage was the second smallest on record, following only 1908’s tally of 29.2 million acres. If the average trade estimate is to be believed, 2021 acreage will be the fourth smallest winter wheat sowing in U.S. history.
  • “Correlation is not causation.” Persistent dry weather in the U.S. Plains could limit yield potential in the now-dormant wheat crop, offsetting higher 2021 acreage. As of last Sunday, 46% of Kansas’ winter wheat crop was in good to excellent condition, up 13% from USDA’s last crop ratings in late November. Conditions were slightly improved in Nebraska, but continue to struggle in moisture-depleted soils in Colorado, Montana, North Dakota and South Dakota.

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Global trade flows are going to be a primary focal point in tomorrow’s WASDE reports. Crop shortfalls will largely drive decreasing world grains stocks. South American crop production will also be top of mind.

  • Smaller 2020 wheat crops in Russia have led to both an export quota and tax scheduled to take effect from February to July. Ukraine has also shipped nearly 67% of its 2020/21 wheat quota with over half of its marketing year remaining. Tightening exportable wheat supplies in the Black Sea region could send USDA export forecasts shrinking in tomorrow’s report.
  • Wheat yields in Argentina’s Pampas region are looking better than expected as harvest continues through the end of this month. The Buenos Aires Grain exchange published a 624.6-million-bushel forecast for their 2020/21 wheat crop late last week. USDA’s current forecast stands at 661.3 million bushels.
  • Strike activity at Argentine ports has ended. But as one of the world’s top grain exporters, continued economic turmoil in the South American country could lead USDA to cut its export forecast.
  • Rising corn prices could lead USDA to increase global wheat usage for livestock – again.

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  • A USDA attaché estimates the 2020/21 Brazilian crop will likely yield 4.831 billion bushels. Harvest kicked off last week in top producing state Mato Grosso. Crop conditions appear to be in good shape despite a dry planting season which was delayed by as much as six weeks as farmers awaited favorable planting conditions.
  • The attaché expects crush rates to hold steady at 1.672 billion bushels for the 2020/21 marketing year in Brazil, due in large part to strong domestic soyoil demand for biodiesel. Export rates are expected to rise by 4% to 3.1223 billion bushels – the majority of which will likely be shipped to China. USDA currently estimates that Brazil will ship 2.751 billion bushels into international channels next year.
  • Another USDA attaché in Argentina estimates the 2020/21 soybean crop to total 1.837 billion bushels. The forecast is optimistic as it relies on timely rains to replenish soil moisture levels in key Argentine growing regions. The attaché’s report is in line with current USDA estimates for the Argentine crop, which also stand at 1.837 billion bushels.

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Markets will undoubtedly be on the move as the trade digests tomorrow’s reports. Reports drop at 11am CST. Stay tuned to FarmFutures.com and @FarmFutures for live coverage and analysis of the updated numbers critical to your farm’s profitability.

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