The year 2020 has undoubtedly been one of surprises and the United States Department of Agriculture delivered one of its own last week in the form of the quarterly US Grain Stocks report. Most in the trade were expecting quite benign numbers, but the USDA had other ideas posting tighter than expected corn, soybean and wheat supplies.
Old-crop corn stocks at the end of the 2019-20 marketing year were 50.7MMT, down 10.2 per cent compared to the same time in 2019. This was significantly lower than the average pre-report trade estimate of 57MMT. On-farm corn stocks were down 8 per cent from a year ago, while off-farm stocks were down 12 per cent year-on-year.
The most likely implication is higher feed and residual usage in the fourth quarter of the marketing year: a bullish surprise in light of the lower corn for ethanol usage due to the COVID-19 travel restrictions. However, despite the strong Chinese demand for US corn, the price outlook seems bearish unless there are some yield surprises when the US harvest hits the key production states.
The September 1 soybean stocks also came in well below trade expectations at 14.2MMT. This is down a staggering 42 per cent, or 10.5MMT compared to last year. This fall in US stocks definitely tightens up the global balance sheet and places increased importance on the current state of play in South America, especially if the Beijing buying binge continues.
Soil moisture levels in some regions of both Argentina and Brazil have been drier than is typically expected at this time of year due to La Niña. The below-average rainfall levels in Brazil have growers of both first-crop corn and soybeans a little concerned as sowing will be delayed, and yields could be affected.
US wheat stocks at the end of the first quarter of the 2020-21 marketing year totalled 58.8MMT, the lowest since 2015. This is a year-on-year fall of 8 per cent. Stocks held on-farm are estimated to be down 4 per cent from last September, and off-farm stocks are down 10 per cent from a year ago.
The lower than expected number implies that the June to August 2020 disappearance is up 4 per cent from the same period in 2019. The USDA also reduced its US wheat production number for the current harvest by a bit over 300,000 metric tonne to 49.6MMT on the back of slightly lower yield numbers from the field.
Barley stocks in all positions in the US at the beginning of last month totalled 3.9MMT, down 5 per cent from September 1, 2019, and old crop grain sorghum stored across the country as at September 1 was down 54 per cent on a year ago at 750,000 metric tonne.
All US futures bourses copped a speeding ticket as a result of the stock numbers with corn, soybeans and wheat surging by 4 per cent, 3 per cent and 5 per cent respectively after the release of the report last Wednesday. The funds went all in, buying an estimated 55,000 corn contracts, 30,000 soybean contracts and 25,000 wheat contracts. Collectively, that buying spree amounts to a staggering 14.5 million metric tonne (MMT) of grain in one day.
In the two trading sessions since the rally, both corn and soybean futures consolidated Wednesday’s price gains, but wheat gave up almost US$2 of the US$10.50 per metric tonne surge.
The market reaction to the wheat numbers was a little surprising. Stocks may be tighter, but the US is presently uncompetitive in the export arena, and the global balance sheet is quite comfortable at the moment. Some issues are playing out in Argentina, but that has been countered by higher Russian production.
Last week the Russian Ag Ministry lifted its wheat harvest estimate from 75MMT to 82MMT based on better than expected harvest receivals. The USDA is still lagging at 78MMT, but that is expected to be increased when the latest World Agricultural Supply and Demand Estimates report is released on Friday.
Russian export forecasts are on the rise as a result. Local agriculture consultancy, Sovecon, has raised its current season wheat export estimate by 1.7MMT to 38.9MMT, not far below the record of 41.4MMT set in 2017/18. It is forecasting exports at 24MMT in July-December half and almost 15MMT in the second half of the marketing year.
The extremely dry spring has taken its toll on wheat yields in Argentina with farmers in the north of the country reporting that some paddocks are so poor it will not be worth driving the harvester through the gate. The Buenos Aires Grain Exchange (BAFE) has decreased its 2020/21 wheat harvest estimate to 17.5MMT, down from 21MMT in August. It is now 2MMT less than the USDA number which is expected to be revised lower later this week.
When all is said and done the wheat price outlook remains bearish unless the dryness currently being experienced in the Black Sea region escalates and impacts next year’s winter crop output. It is not panic stations just yet as there is still plenty of time to plant the crop, but it is certainly the most relevant area of concern for global supply.
At the end of the day the potential issues in the Black Sea region, La Niña in South America impacting winter and summer crop production and last week’s USDA grain stocks bombshell are all great news for the Australian farmer.