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Exports, demand eyed in WASDE report

In the first World Agricultural Supply and Demand Estimates (WASDE) report, ag economists found a few surprising numbers.

“May is the first month that the USDA begins providing the WASDE, the forecast for the next marketing year for the crop that is currently being planted,” said Frayne Olson, NDSU Extension crop economist and marketing specialist, during the latest NDSU Ag markets and Situation Outlook webinar series. “The market is watching two columns of numbers, the old crop and the new crop numbers.”

Pre-report industry estimates

Large news agencies like the Wall Street Journal and Reuters will sometimes survey private forecasting firms on what they expect the USDA numbers to be.

“This is really about expectations – an estimate of what they expected the USDA information to look like versus what we actually get,” Olson said.

The estimates show the average trade estimate versus the highest and lowest estimates, along with the actual USDA numbers.

Wheat and corn come in within range

Wheat and corn numbers came in slightly higher than expected for carryover crops. As it gets closer to the end of the marketing year, the range in trade expectations narrow.

The pre-report industry estimates for ending stocks for the U.S. 2021-22 crop: for wheat, the average trade estimate was .730 billion bushels (BB), and the actual numbers from the USDA were .774 BB.

For corn, the estimate was 1.34 BB, with the actual numbers from the USDA coming in at 1.51 BB.

For soybeans, the estimate was .138 BB, with the actual numbers from the USDA coming in at .140 BB.

Diving in deeper

“We are looking a long way into the future when we look at the USDA forecast for 2021-22. That is the crop in the bin on Sept. 1, 2022,” Olson said. “My point is don’t put a lot of pressure on these numbers yet. The USDA will update the numbers every month and produce a WASDE report every month. However, these forecasts do set the baseline.”

Olson summarized the U.S. corn supply and demand table for the 2019-20 crop, the crop two years ago; the 2020-21 crop, the crop harvested last fall that the U.S. is selling now; and 2021-22 crop, the current USDA forecast for the crop just planted.

Looking at corn, the 2019 crop ending stocks were 1.92 BB; the 2020 crop ending stocks were 1.26 BB; and the 2021 crop ending stocks were forecast at 1.51 BB.

“Weather is going to have a huge impact on these numbers,” he said.

Survey reports to be updated

The 91.1 million acres of corn per acre of planted corn is from the March planting intentions report – the report where farmers reveal what they were intending to plant.

“That number was a surveyed report and will be resurveyed at the end of June for actual plantings,” he said.

Yield is expected to be 179.5 bushels of corn, but that is the national trendline yield for corn.

“USDA looks back 30 years and says, ‘What is our average trendline growth yield over time given the high technology we have available in 2021?’” he said.

That number of nearly 180 bushels will be updated in late summer or early fall.

“We are looking at a 1.5 BB corn crop. The crop is not a record, but is very close to a record,” Olson said.

Looking at corn demand

“For the corn that is used for feed and residual, the current forecast is status quo,” Olson said.

Corn that goes into livestock feed remains the same as last year at 5.7 BB.

Ethanol consumption is slightly up from the 2020 crop of 4.97 BB to 5.20 BB.

“For ethanol, there is a slight increase and that is really a recovery from a downward trend we had been in for the last couple of years,” he said.

Olson was surprised about the corn exports number, which came in at 2.45 BB, down from 2.78 BB in 2020.

“We’re recognizing this is a very early forecast and we’re recognizing the old crop forecast is at a record high number. USDA did cut that number back to what would be more average than what we saw over the past 12 months,” he said. “In my personal opinion, I do think that number is a little low, but we will see what happens as we move forward in time.”

Olson looked at the U.S. corn total production and use, including examining the stocks-to-use ratio, which is ending stocks divided by total use.

“What percentage of our typical needs are we going to have in reserve in case there is a problem in the upcoming year?” Olson asked.

The forecast for the crop the U.S. is currently planting will change and vary over time.

Rapid rise in corn prices

“If you look back historically at that 2011-13 time period, which was the last time we had really high corn prices, our current ending stocks are getting into that same or very typical range,” he said. “That is why we are seeing the pretty rapid rise in corn prices.”

If farmers have average yields this year, the U.S. will start to rebuild those ending stocks and it will soften prices.

“That’s the reason we’re seeing a price spread or inverse in the market between what the old crop prices are and what the new crop prices will be,” Olson explained.

Focusing in on demand

What is the demand for corn and will high prices ration use?

For feed, the amount of grain going into the livestock sector should be stable, but a small increase is expected in amount of corn used for ethanol.

“That is because we are opening up our economy and driving more,” Olson said.

But the corn exports are the wild card.

“There will be tremendous focus on exports and export pace,” he said. “For old crop corn, we’re looking at a record corn export level.”

USDA did back off its corn export forecast for next year, but Olson is not sure that will happen.

“It is one of those wait and see what happens scenarios,” he added.

Soybean acres needed

Based on the March report, there will be an increase in soybean plantings, to 87.6 million acres.

“We do expect an increase in soybean plantings,” Olson said.

The trendline (based on new technologies) yield is 50.8 bushels.

“It is going to be a very large soybean crop, around 86.7 million acres. However, given the demand base, we are going to need those bushels,” he said.

The two major sources of demand are crushing and exports.

Soybeans for crushing is expected to increase to 2.23 BB, up from 2.19 BB in 2020.

“Soybeans are crushed for oil and meal, which the meal goes to the livestock sector and the oil goes to a large variety of uses, including biodiesel,” he said.

The USDA forecasts steady growth in crushing demand.

“We just had an announcement here in North Dakota that ADM is going to build a new crushing facility in Spiritwood,” he said.

USDA also looked at a “significant” cutback in the forecast for exports. That number went from 2.28 BB to 2.08 BB.

“The old crop number, however, was a very large number,” Olson said. “However, I do think USDA will end on the conservative side.”

Olson said the U.S. would be able to rebuild ending stock for beans.

“We will be able to slightly rebuild our ending stocks, but the rebuilding of our inventory is relatively small,” he said.

Soybeans stocks-to-use ratio

In the soybeans stocks-to-use ratio, the ratio for the old crop is equal to the record low seen in 2013-14.

“Unlike corn, if there is an average soybean crop, we are going to be sitting at a very similar place next year that we are now because of the strong demand base,” he said.

Volatile soybean prices

Based on history, Olson expects soybean prices to remain relatively high, but extremely volatile.

“One of the things we’ll have to get used to as we go through the growing season is we are going to have volatile grain prices,” Olson said.

Soybean crushing demand continues to increase, but USDA may be a little low on the bean export demand numbers, he pointed out.

“The expectation is that Brazil will increase its soybean acreage. This is a global market, and we have to recognize that,” he said.

Wheat supply and demand conditions

With wheat, markets are still unsure of how many acres will be devoted to durum versus spring wheat. However, winter wheat plantings are complete.

According to the U.S. Wheat Supply and Demand table, some 46.4 million acres will go to wheat, with yield expected to rise to 50 bushels per acre. That is a national trendline yield adjusted for technology.

“We are now trying to determine the size of the winter wheat crop, even though there is a trendline yield in the June report. We are starting to get an idea of what it might be,” he said.

Total production for wheat is expected to stay relatively stable at 1.87 BB.

“When we look at food use, basically domestic milling, it has stayed very stable,” he said.

Some 963 million bushels (MB) is expected to go to food use, with 62 MB going to seed.

Some 179 MB is expected to go to feed and residual, up from 100 MB last year.

“USDA is looking at a slight increase in the feed and residual number for the new crop wheat. Part of that is the rise in corn prices and livestock producers are looking for alternate feed sources,” Olson said.

Softening of wheat exports?

Wheat exports are expected to be down from 965 MB from last year to 900 MB in the new crop.

“What is surprising to me is this softening of export demand for wheat. In the global wheat market, we have tremendous competition, particularly in the Black Sea region, and we have to be aware of that,” he said. “We do have these core traditional customers we rely on, but the question is how price sensitive are they going to be as we move forward in time?”

U.S. wheat stocks-to-use ratio

With the U.S. all wheat total production and use table, the U.S. is starting to take wheat inventories. Looking back historically, the numbers are still at the upper end of the normal range.

While there is still hard red winter wheat available in the system, what is the spring wheat yield potential in the U.S. and Canada?

“Obviously, that is something that is driving the spring wheat market as we move forward. The weather and dry conditions in North Dakota extending into Saskatchewan and Manitoba are definitely something the spring wheat market is watching very closely,” he said.

Wheat export forecast stabilizing

For all-wheat, the forecast for wheat exports appears to be stabilizing.

“We are losing some of that international market base, those countries that would sometimes buy from the U.S. if it were cheap enough but would often go someplace else have left the U.S. market,” he said.

That leaves the U.S. with a few core customer countries that are stable buyers, but they are good buyers.

“We have to be careful to not ignore those markets and we have to protect our markets. They are stable, but we need to protect them,” he said.

While USDA is predicting an uptick in feed and residual use of wheat, Olson feels some of that is due to the strong rise in corn prices.

Acreage report coming

Olson ended with a reminder that the USDA acreage report will come out on June 30. It will be a survey of 70,900 farmers during the first two weeks of June of what they actually planted.

“I know that report will be followed closely,” Olson said.

The WASDE follows traditional feed/grain/oilseed/food crops: sorghum, corn, barley, oat, soybeans, all classes of wheat, cotton and rice.

As a reminder for corn and soybeans, the marketing year begins on Sept. 1, and for wheat, the marketing year began on June 1.

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