March 31, 2020 / 9:02 AM / 2 months ago

Column: What USDA’s corn and soybean stocks could mean beyond Tuesday

FORT COLLINS, Colo. (Reuters) - Tuesday’s data from the U.S. government will indicate how much corn and soybeans were stored in the United States at the halfway mark of the 2019-20 year. Even though analysts see those volumes down substantially from last year, there are speed bumps that may prevent those stockpiles from continuing to dwindle as much as some expect over the next several months.

Farmer Blake Erwin drives a combine as he harvests corn on his farm near Dixon, Nebraska, U.S., October 26, 2017. REUTERS/Lucas Jackson/File Photo

History also suggests that the final trading day of March has the tendency to be a relatively volatile trading day, since it not only earmarks supply but gives a first glimpse into the 2020 U.S. planting season. The U.S. Department of Agriculture will publish its quarterly grain stocks report along with planting intentions on Tuesday at noon EDT (1600 GMT).

Average trade estimates peg March 1 corn and soybean stocks at 8.125 billion and 2.241 billion bushels, respectively. For corn, that would be down 6% from a year earlier and the lowest March 1 supply in four years. The most recent corn harvest was also a four-year low.

For soybeans, that number would be the second-highest in history but down 18% from the year-ago March 1 record, fueled by the 20% drop in production.

Comparing the corn and soybean trade estimates for March 1 versus the Dec. 1, 2019, stocks, use in the second quarter of the 2019/20 marketing year would be seven-year lows for both. It does not make sense for December-February soybean use to have been below the previous year, but that is a trickier assessment for corn because there are more unknowns.

Corn exports during the quarter were down 30% from the previous year, but exports account for only about 12% of annual use. Ethanol production accounts for about 39% of U.S. corn demand, and that was up about 4% during the quarter.

The feed and residual category uses another 39% of U.S. corn, and that number is the most difficult to estimate because of the inclusion of residual, which lumps together things such as unreported use, processing losses, and estimating errors.

Using USDA’s year-end prediction of 1.892 billion bushels, the estimates for March 1 corn supply suggest corn use in the second half of 2019-20 at a four-year low, down a little more than 2% on the year. Ethanol might offer the biggest headwind to corn use over the next several months, as the virus fallout has shattered oil demand and prices. Exports have already been on traders’ list of concerns.

USDA will also report March 1 wheat stocks on Tuesday, which will represent three-fourths of the way through the 2019-20 marketing year. Analysts predict March 1 supplies at 1.432 billion bushels, which would be down 10% from a year ago and the smallest for the date in four years.

The wheat estimate would also imply that wheat use in the third quarter was down 3% on the year.

RECENT AND FUTURE SOY USE

Official crush and export data for February is not yet available, but other information streams indicate that soybean exports in that period were up 5% on the year and that crushings were up 4%, contradicting the implied trade assumption. USDA predicts exports and crush to account for 52% and 45%, respectively, of total U.S. soybean use in 2019-20.

If March 1 soybean stocks come in lighter than expected, that will bode better, but not well, for USDA’s current prediction of 425 million bushels for Sept. 1, 2020, the end of the 2019-20 marketing year. USDA’s prediction and the March 1 trade guess puts soybean use in the second half of 2019-20 down just 1% from the previous year’s record of 1.82 billion bushels.

Second-half soybean exports in 2018-19 were a record 752 million bushels, completely driven by well above average sales for the time of year to top buyer China as trade tensions began to ease. Soybean crush was record-high in 2018-19, but the second-half volume was slightly below the previous year’s high.

China is still expected to buy a record value of U.S. farm products in 2020, including a lot of soybeans, but U.S. soybean sales to the Asian country continue to be relatively quiet. This, along with Brazil’s huge crop, has caused many analysts to doubt that 2019-20 will enjoy a second-half export jolt as the previous year.

U.S. soybean processors have been cranking out record volumes in recent months, and most-active soybean meal futures last week hit the highest levels since August 2018, largely on an expected jump in demand. Virus-related logistical issues in top soybean meal exporter Argentina have also fed the bullish story as of late.

But meal could come under pressure given the virtual standstill of the country’s food service industry, which makes up a large portion of American meat consumption. That could cause a quick buildup in domestic meat and feed supplies, especially since the U.S. government has extended the stay-at-home guidelines for the entire country through April 30.

TRADE BIASES

On average, analysts have been too low on March 1 corn stocks for the last five years, but futures have tended to react more in line with the acres number rather than stocks during that time. It is interesting to note that in the past five years, the trade has missed March corn acres by double the degree they did in the previous five years, and those misses were in both directions.

In four of the past five years, the most volatile March day for corn futures occurred on the last trading day of the month, i.e. report day, but that is true for only two of the last five in soybeans.

March 2020 has already been a very eventful month for grain and oilseed futures. March 16 featured the biggest daily move for most-active soybeans during March since 2013, including report days. When excluding end-of-month report days, most-active corn on March 19 recorded its largest percentage move for the month in five years.

Macro markets have been more influential than usual on agriculture futures as of late due to the coronavirus pandemic, and this probably has CBOT traders a little more distracted than usual heading into Tuesday’s reports. But the final trading day of March has very often been one of the most prolific sessions of the entire year for corn and soybeans, regardless of activity in other markets.

As of Monday’s close, most-active corn futures were at a 14-year low for the time of year, and most-active soybeans were at a 13-year low, though just a couple cents per bushel off of last year’s levels.

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

Editing by Matthew Lewis

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