Final Thursday’s Quarterly Grain Shares report from USDA was little question an thrilling market occasion, although corn and soybean costs didn’t escape the buying and selling session unscathed. Certainly, sentiments from the report are persevering with to resonate in markets and can doubtless proceed to take action till at the very least subsequent Tuesday’s October 2021 Crop Manufacturing and World Agricultural Provide and Demand Estimates stories.
The Sept. 1 knowledge launched final week gives the primary full have a look at whole 2020/21 corn and soybean consumption charges. The insights take slightly extra knowledge evaluation to search out within the Quarterly Shares report, so I’m devoting right now’s column to a deep dive on corn and soybean shares and utilization evaluation and the implications for farmers within the weeks to come back.
Soybean provide shock
USDA’s Quarterly Grain Shares report stunned markets final week after discovering 81 million extra bushels of outdated crop (2020/21) soybean bushels. The discovering bucked earlier market forecasts, which have been buying and selling on the prospects of the second-tightest ending crop provide on document previous to the information launch.
The 2020 soybean crop produced higher yields than USDA had initially forecasted based mostly on up to date utilization knowledge analyzed by the company’s Nationwide Agricultural Statistics Service in yesterday’s Quarterly Grain Shares report.
Slower exporting and crush paces this previous spring have been re-factored into June 1 soybean inventory estimates in right now’s report. USDA added 2.5 million bushels of soybeans to June 1 shares, pointing to decrease utilization charges amid excessive costs and seasonal shifts in Chinese language export demand to cheaper Brazilian shares.
The uptick in provide alleviates value stress on the U.S. soy complicated. USDA’s present stocks-to-use ratio for the 2020/21 advertising marketing campaign stands at 3.9%, following solely 2013 (2.6%) because the second tightest on document. The 81-million-bushel 2020 soybean manufacturing improve would develop the outdated crop STU to five.7%, which is definitely solely the 11th tightest ending provide on document.
Based mostly on the brand new provide revisions, it’s doubtless that USDA’s World Agricultural Outlook Board will go away 2020/21 mixture soybean utilization charges unchanged within the upcoming October 2021 WASDE report.
The soy consumption calculation
There’s little doubt the 2020/21 advertising 12 months was an anomaly for soybean utilization charges. First quarter consumption of 1.8 billion bushels accounted for 40% of whole 2020/21 utilization whereas second quarter consumption totaled 1.4 billion bushels, or 31% of annual consumption. Respectively, the prior six-year common for first and second quarter soybean consumption stands at 35% and 27%.
So it ought to come as little shock that third (18%) and fourth (11%) quarter consumption charges have been so low. Outdated crop costs peaked in July. With Chinese language demand targeting South America, U.S. soy processers have been unwilling to pay for the 1.56 billion bushels of soybeans left within the U.S. as of March 1, 2021, with many extending upkeep tasks to safeguard towards increased soy enter costs.
The decrease soybean consumption price over the previous six months grew 2020/21 supplies previous what was beforehand believed to be traditionally tight measures. To make sure, soy shares are more likely to stay tight once more this 12 months, however to not the diploma of 2020.
November 2021 soybean futures costs have dropped over $0.33/bushel since final Thursday. New crop November 2022 futures are down $0.09/bushel in the identical time interval. Prospects for each crops stay comfortably above breakeven ranges for many growers throughout the Heartland.
However the drop, paired with rising concern over China’s export demand prospects within the coming weeks, coaxed the market to purchase 2022 corn acres for the primary time since mid-July 2021.
2022 planting intentions shift
However farmers shouldn’t be too fast to regulate crop rotations simply but. The market doesn’t voice a powerful demand for corn till the brand new crop soybean-corn value ratio dips under 2.3. At market shut final Thursday, that determine stood at 2.38 and is sitting at 2.35 right now, hovering near the two.4 benchmark inflection level for corn versus bean acres.
That signifies that the market will not be overly keen to purchase both corn or soybeans, although a slight desire for corn has surfaced over the previous week. To make sure, a whole lot of time stays till the 2022 crop shall be planted, particularly when 2021 crops are nonetheless awaiting harvest.
Hovering enter prices will play a major think about subsequent 12 months’s acreage allocations, particularly as cries for product availability for subsequent spring’s fertilizers and pesticides are already being loudly voiced amid ongoing logistic disruptions within the provide chain.
Corn provide pressures ease
USDA made a rating of corn steadiness sheet revisions final Thursday that necessitated make adjustments all the way in which again to fall 2020 manufacturing estimates.
Revised shares knowledge led USDA to chop 71 million bushels of corn from 2020 manufacturing values. 2020/21 ending supplies got here in on the excessive finish of commerce expectations at 1.236 million bushels, nevertheless it was not excessive sufficient to set off a selloff, thanks largely to smaller starting 2020 shares.
However December 2021 corn futures costs have nonetheless depreciated $0.06/bushel over the previous week, particularly as 2021 yield stories proceed to level to bigger 2021 supplies. Factoring within the smaller 2020 crop and decrease utilization charges, the October WASDE report will doubtless present 121 million fewer bushels of corn utilization within the 2020/21 advertising 12 months.
It stays a toss-up over the place USDA’s World Agricultural Outlook Board will add in these bushels in its October 2021 World Agricultural Provide and Demand Estimates (WASDE) report later this month.
Nonetheless, the upper soybean shares added optimism to 2022 corn acreage expectations, sending deferred contract costs increased. Retaining 2021/22 utilization charges fixed at 14.80 billion bushels and new crop manufacturing at 15.00 billion bushels, new crop ending shares might rise a further 50 million bushels.
That may improve the stocks-to-use ratio as much as 9.9% from the present degree of 9.5%. Even with the additional increase from outdated crop supplies, shares will stay on the ninth tightest on document. Growers can breathe straightforward that worthwhile costs will not be more likely to disappear quickly.
Who didn’t use 2020/21 corn?
Spring 2021 corn consumption charges have been increased than USDA indicated in its June 30 quarterly shares replace. The Sept. 30 report noticed USDA slash 2.7 million bushels of off-farm shares, suggesting that fast export paces final spring have been doubtless extra brisk than markets had initially factored.
The info backs this up. Third quarter corn utilization has averaged 23% of whole advertising 12 months consumption charges over the previous decade. However an uptick in export demand from China introduced that whole to 24% this spring. And it didn’t take lengthy for fourth quarter utilization to undergo within the wake of a powerful third quarter consumption.
Fourth quarter corn utilization knowledge usually is among the many smallest of the advertising 12 months. However the Sept. 30 shares report noticed solely 19% of 2020/21 corn demand used up within the fourth quarter – the bottom quarterly utilization price since 2012/13 (18%).
Month-to-month corn utilization charges for ethanol manufacturing launched by USDA final Friday noticed 417 million bushels of corn consumed for ethanol in August 2021 – the fifth lowest month-to-month quantity for corn consumption for ethanol. In USDA’s September 2021 WASDE report, WAOB forecasted 2020/21 corn utilization for ethanol at 5.035 billion bushels.
Friday’s knowledge launch means that solely 5.032 billion bushels of corn have been used to make ethanol over the previous advertising 12 months. If WAOB decides to alter 2020/21 corn consumption charges for ethanol subsequent week, it doubtless is not going to be a major shift.
However the U.S. cattle herd is simply fractionally decrease (1%) than the identical volumes a 12 months in the past. And U.S. corn exports to China tapered off in July and August because it harvested a bigger corn and wheat crop. It appears doubtless USDA will deduct these additional 2020 corn bushels from a mixture of exports and feed and residual allocations in subsequent week’s WASDE.
Commerce launched from USDA and the U.S. Census Bureau yesterday pointed to record-setting U.S. corn and soybean exports in the course of the 2020/21 advertising marketing campaign. Excessive costs will make 2021/22 a powerful competitor with final 12 months’s export volumes. However easing demand from China might hinder one other 12 months of record-breaking utilization. Demand definitely will not be going wherever however anticipate volatility to stay ever-present within the months to come back.