- It's important to keep in mind the numbers USDA releases aren't real, regardless of how many in the industry try to convince you otherwise.
- The May round of guesses is when folks completely lose interest in old-crop, opening the door to unexpected changes by USDA with few noticing.
- This time around, old-crop export demand for both corn and soybeans could be on the chopping block.
I always say I’m not going to do it, then I stop and think if I don’t, nobody will. I’m talking about setting the record straight about folks who get WASDEd on monthly Supply and Demand reports from USDA. It’s like a drug, with plenty of providers selling the story of just how great these things are. So before all common sense goes up in smoke Friday, here are some things to keep in mind:
- Everyone is going to get all worked up over how USDA’s latest guesses relate to average pre-report estimates. This always makes me laugh, for those pre-report estimates come from brokerage firms wanting folks to trade the report (for the most part). You don’t see the big physical grain entities sharing their numbers, or the large private research firms who sell their data to large investment firms having billions of dollars in the various markets. As I’ve long said, these reports are the Keno game in the large casino that is ag markets.
- Despite what ag media will tell you countless times, this is not the initial look at the new-crop. For those of us keeping score, this is the third first look at 2023. That’s right, USDA will use its acreage guesses from late March Prospective Plantings and the economists’ trendline yield presented at the Outlook Forum in February. And again, there is no science behind “trendline yield”, it’s just an important sounding way of saying “slope” between two points.
- Here’s everything we know about new-crop demand heading into the report and what we’ll know about new-crop demand when Friday’s closing bell rings and the drinks start to flow:
Let’s take a look at what the key points for the three major grain markets might be.
Corn: The most logical change USDA might make in its imaginary supply and demand table is to export demand. Why? First, because the official release removes last month’s old-crop numbers for comparison to make room for a comparison column for new-crop. I laugh every year when the comparison column is filled with nothing but “NA”. This also means the majority of folks will completely lose interest in old-crop, making it easier for USDA to make unexpected changes. For the record, USDA guessed 2022-2023 export demand to be a ridiculous 1.85 bb in April. My latest calculation shows the US on pace to ship 1.6 bb as of early May. As for new-crop, theoretically, if I had a fund trading Dec corn only there is nothing USDA could say in its May report that would make me change my position. Nothing. As I talked about last week, the fund would still be short Dec23 (ZCZ23) from last May with buy orders ready to go if a bullish reversal is completed on the continuous (Dec only) monthly chart.
Soybeans: There could be some interesting changes in old-crop soybean demand this time around. The latest weekly export sales and shipments update showed the US still on pace to ship 2.154 bb, 3% more than last year’s reported shipments of 2.1 bb. However, here’s where things could get interesting because the US only had total sales of 1.866 bb, down 13% from the same week last year. It’s unlikely US merchandisers will buy and sell 290 mb of soybeans over the last third of the 2022-2023 marketing year, again opening the door for USDA to make a downward revision. On the other hand, US crush for soybean meal could increase if USDA decides to reduce its Argentine soybean crop production and bean meal exports. What about new-crop (ZSX23)? As I said in the open, I’m not expecting USDA to stray far from its prospective plantings figure of 87.5 million acres with trendline yield holding near 52.0 bushels per acre. Friday’s most entertaining numbers will be whatever USDA pulls out of its hat for new-crop demand.
Wheat: Honestly, few will be talking about USDA’s imaginary wheat numbers at noon (ET) Friday. Nearly all, or roughly 99.9% of the attention will be focused on the silliness that is new-crop corn and soybeans. Frankly, wheat is limping along toward the end of the 2022-2023 marketing year with new-crop production almost completely in doubt. How much of the US HRW crop has been zeroed out across the Southern and Central Plains due to drought, to be replaced with dryland corn (or soybeans)? How much of the US HRS crop will go under prevent plant due to wet field conditions? We don’t know, and neither does USDA, at least not when it put this round of guesses together. What about new-crop demand? Does anyone want to make a guess what the Madman Across the Water (Putin) is going to do next in his attempt to create political upheaval around the globe? I don’t. When the closing bell rings we’ll still know what we know today: Kansas City and Minneapolis futures spreads are bullish while Chicago spreads are borderline bearish.
Pardon me for a moment, as someone has been knocking at the door the entire time I’ve been typing.
“Dave’s not here, man!"
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
