September 30, 2019 / 9:38 AM / 19 days ago

Column: Some items to keep in mind ahead of USDA's stocks, wheat report

FORT COLLINS, Colo. (Reuters) - Agriculture market participants know that U.S. corn and soybean supplies have been building to multi-decade and even record highs over the past year. Monday’s data from the U.S. government will likely cement that, and then analysts can finally look ahead to the supply cuts expected over the next year.

A grain trailer empties wheat into the pit at the Farmers Cooperative Exchange in Bessie, Oklahoma, U.S., June 12, 2019. REUTERS/Nick Oxford

The U.S. Department of Agriculture’s National Agricultural Statistics Service (NASS) will publish quarterly grain stocks and the annual small grains summary on Monday at noon EDT (1600 GMT). The stocks will reflect year-end supplies for U.S. corn and soybeans for 2018-19, which concluded on Aug. 31.

Sept. 1 corn stocks, estimated by analysts at 2.428 billion bushels, would be the highest for the date since 1988. This is partially driven by very poor demand in June, July and August (Q4), which could leave some room for corn stocks to come in above the trade guess.

Soybean stocks, predicted at 982 million bushels, blow away 2007’s record of 574 million. Even though Q4 soybean use likely hit an all-time high, the U.S.-China trade war and reduced demand out of China led to the swelling of soy stockpiles. If realized, soybean bulls may view a sub 1 billion-bushel stocks figure as a psychological win, since many previously thought carryout would far exceed that mark.

Sept. 1 wheat stocks are seen at 2.318 billion bushels, down 3% from a year ago. The 2019/20 marketing year began on June 1.

Traders will also get a final look at 2019/20 U.S. wheat production on Monday, though the slow harvest of spring grains may prompt a reassessment from NASS.

2018-19 ENDING STOCKS

The trade estimates for Sept. 1 corn stocks implies that Q4 corn usage was the fourth-strongest on record at 2.77 billion bushels, down 12% from last year’s high. That figure would top 2015 by 2% and 2014 by 6%.

But sky-high Q4 corn prices, both in the futures and cash markets, stifled demand this year. During the period, Chicago-traded December corn futures averaged about $4.22 per bushel, some 22 cents higher than in 2014 and 29 cents higher than in 2015. The 2013 average was $5.03.

Corn exports fell to a six-year low in Q4 and ethanol production tapered after peaking at the start of June. In general, wheat prices were relatively favorable versus corn compared with past years. Hard red winter wheat maintained the smallest premium to corn throughout Q4 in more than a decade. This could have promoted more wheat feeding in some areas.

The average trade guess for corn stocks of 2.428 billion bushels would be up 288 million bushels over the year-ago figure. Stocks in the previous three quarters of 2018-19 were all down on the year, though.

It is incredibly rare to have lower December, March and June corn stocks with higher September stocks versus the previous year. The only other instance is 1930-31. This implies that the poor Q4 demand is at least partially baked in to the pre-report predictions.

On the other hand, record-high crush and unseasonably strong exports to China should have lifted Q4 soybean use to an all-time high. The trade predictions suggest use at 808 million bushels, some 3% higher than last year’s high but 20% higher than third place, 2016.

USDA earlier this month estimated 2018-19 U.S. corn ending stocks at 2.445 billion bushels and soybean stocks at 1.005 billion, higher than both trade guesses for Monday. Carryout for 2019-20 corn is currently pegged at 2.19 billion bushels, while soybean supply is seen plunging to 640 million bushels.

LAST YEAR’S SOY HARVEST

After analyzing the year-end stock estimates and usage numbers, NASS often adjusts the previous year’s soybean harvest in its Sept. 1 grain stocks report. Changes to production tend to offer the best explanation for the directional misses by the trade on Sept. 1 soybean stocks.

On average, analysts see the 2018-19 soybean crop shrinking fractionally by 16 million bushels to 4.528 billion bushels. Normally that would be a bit more influential on the balance sheet, but with record stocks this year, that is less than 2% of the predicted carryout.

NASS has revised the previous year’s soybean harvest in 17 of the last 19 September stocks reports, increasing the number 10 times and reducing it seven times.

WHEAT RESURVEY?

Analysts predict the full U.S. 2019-20 wheat crop to come in at 1.968 billion bushels, down fractionally from USDA’s previous estimate. That would be the largest wheat harvest in three years but nearly 2% lower than the five-year average.

Spring wheat production is seen at 585 million bushels, down 2% from USDA’s last peg. That would be the eighth-largest harvest on record since 1919, but 6% smaller than a year ago. The winter wheat crop is seen up fractionally from USDA’s previous figure at 1.327 billion bushels, which would be the largest in three years but 3.5% below the five-year average.

The annual Small Grains Summary sets out to finalize production for U.S. wheat, as well as other grains like oats, barley and rye. As with other NASS production estimates, objective yield and farm operator surveys are key components. The operator surveys occur during the first two weeks of September, and last year they included 66,300 producers.

But the harvest of spring-planted grains was historically slow by mid-month due to excessive rainfall. As of Sept. 15, only 76% of spring wheat was harvested, well behind the five-year average of 93%. The winter wheat harvest was basically complete by the end of August, on the other hand.

This means that NASS might be conducting a resurvey of those operations that had not harvested at the time of contact, similar to the spring crop resurvey earlier this year after an extremely delayed corn and soybean planting effort.

The last time NASS revisited production following publication of the Small Grains Summary was in 2014. It also happened in 2009. Spring wheat was 76% harvested on Sept. 15, 2014 and 74% complete on the same date in 2009, similar progress to 2019.

In both of those years, the results of the resurvey were reflected in the November Crop Production report, which is due this year on Nov. 8. Both the spring wheat and durum wheat harvests were reduced following the reassessments in 2009 and 2014. The biggest cut was 7% to durum in 2014, but otherwise the reductions were 1% or less.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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