USDA Report Review

USDA released supply and demand estimates for grains on Tuesday and, while the new U.S. ending stocks estimates were larger than official expectations for all three grains, the numbers were not out of line with broader market expectations.

Starting with corn, USDA increased its estimate of U.S. ending corn stocks from 1.802 billion to 1.837 billion bushels for 2015-16, or 13.6% of annual use. The 50-million-bushel reduction in the export estimate was no surprise, but there was also a 10-million-bushel boost in the import estimate and a 25-million-bushel increase in the estimate of ethanol production. Ethanol production kept a higher pace in the past four months, but is already slowing as inventory has reached its highest level in nearly four years.

DTN's Market Weather comments have been telling us that in spite of South American crops getting off to a dry, shaky start, timely rains have come through for both Brazil and Argentina, and it appears USDA agrees. USDA increased the corn crop estimate for Brazil from 81.5 million metric tons to 84.0 mmt and for Argentina from 25.6 mmt to 27.0 mmt. World ending corn stocks actually fell slightly, though, from 208.94 mmt to 208.81 mmt after the increases were offset by a 1-mmt crop reduction for South Africa, a 1.23-mmt increase in the estimate of world consumption, and a small bullish revision from 2014-15. Overall, corn's numbers were bearish-to-neutral on Tuesday and still support the larger bearish notion that the world is well-supplied in corn.

USDA's soybean estimates showed a small reduction in the domestic crush estimate, which put U.S. ending stocks at 450 million bushels, or 12.2% of annual use. Similar to corn, USDA recognizes good crop conditions down south and kept the estimate of Brazil's upcoming crop at a record-high 100.0 mmt while Argentina's crop estimate was increased from 57.0 mmt to 58.5 mmt. The estimate of world ending stocks increased from 79.28 mmt to 80.42 mmt, or a comfortable 25.6% of annual use, understanding that the estimates for Brazil and Argentina reflect midseason stocks. Tuesday's numbers were not surprising, but do reinforce the bearish fundamental outlook that is currently weighing on soybean prices.

USDA's estimate of U.S. ending wheat stocks increased from 941 mb to 966 mb and was officially more than expected, but if anyone was surprised, they haven't been reading DTN. Yes, the increase came directly from a 25-million-bushel reduction in wheat's export estimate and put the ending stocks-to-use ratio a fraction shy of 50%. While the U.S. is becoming the world's storehouse of wheat, USDA also reduced the estimate of China's wheat consumption by 6 mmt, 2 mmt of which were from 2014-15. The adjustment was a bearish surprise and resulted in a bigger-than-expected increase in the estimate of world ending wheat stocks, from 232.04 mmt to 238.87 mmt. Overall, Tuesday's numbers were bearish for wheat, but prices are already so cheap that it is tough to beat them down much further.

Right or wrong, Tuesday's USDA report did not stir up much dust and is already in the rearview mirror. Wednesday morning will find us looking at South America's weather again, but as of now, corn and soybean crops in Brazil and Argentina are looking good, a bearish weight around the neck of U.S. grain prices.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow him on Twitter @ToddHultman1

(CZ/AG)

Copyright 2016 DTN/The Progressive Farmer. All rights reserved.