- USDA released its July supply and demand guesses Wednesday, completed with the expected decrease in old-crop corn exports and increase in US planted corn acres.
- On the soybean side, the big news was a small cut to old-crop exports and a substantial decrease in the new-crop export estimate.
- Reading between the lines, the trade war between the US and China is not expected to improve over the next 14 months.
I was asked my opinion about the July round of USDA supply and demand estimates, and those of you who have followed me over the years won’t be surprised by my response. In fact, I can sum it up in one sentence:
We know just as much about US grain and oilseed supply and demand as we did when the day started.
That’s the reality, regardless of what the rest of the folks making most of the noise try to tell you. Let’s look at the situation here in roughly mid-July:
Corn: To begin with, we knew the old-crop export guess was likely to come down. Based on the latest weekly export sales and shipment update, for the week ending Thursday, June 29 (so roughly the end of 10 months of the 2022-2023 marketing year), the US was on pace to ship 1.62 bb. If realized, this would be 31% less than the previous marketing year’s reported 2.353 bb. On top of that, unshipped sales were only 161 mb, putting total sales (total shipments plus unshipped sales) at 1.537 bb, down 35% from the same week a year ago. Recall USDA’s June guess had come in at 1.725 bb, a total that simply wasn’t going to happen this time around the calendar. When the July envelopes were unsealed, USDA had lowered its export guess to 1.65 bb, down 75 mb from last time.
But the fun didn’t end there. Remember corn has a three-legged demand stool, and export demand is the weakest leg. Ethanol demand was trimmed by 25 mb pushing the total reduction to 100 mb, with only feed remaining. And of course, with fewer cattle on feed being reported almost monthly, it seemed logical the best feed demand could do would stay unchanged at the June number of 5.275 bb. Nope. USDA increased feed demand by 150 mb, actually decreasing ending stocks by 50 mb. Why? As you likely recall, I’ve thought production the last number of years has been overstated, and what better way to correct production without changing any numbers than to create imaginary demand? But that’s how the system works.
As for new-crop, we didn’t know anything about 2023-2024 demand going into Wednesday’s session and we don’t know anything about it after the closing bell rang. All we did know about new-crop was planted area had increased from last year, not by the June 30 report but rather by watching the Nov23 soybean (ZSX23)/Dec23 corn (ZCZ23) futures spread from September 2022 through February 2023. Given Dec corn’s strength in relation to Nov soybeans, it was logical US producers likely planted 5% to 7% more acres of corn this spring. But how to avoid multiple days of limit down if national average yield was left at trendline 181.5 bushels per acre? It’s simple: Drop the yield despite improving weather through June. By doing that in combination with lowering beginning stocks (old-crop ending stocks) damage can be controlled by increasing expected supplies by only 5 mb.
Soybeans: It was a similar situation as discussed with corn, but different. The demand side of the ledger for soybeans consists of two main categories: Exports and crush. If we look at monthly crush reports, there was no reason to believe USDA would make a big change to its previous 2022-2023 guess of 2.22 bb. Lo and behold, it didn’t, leaving it unchanged in the July update. As for exports, at the end of June the US was on pace to ship 2.04 bb, down 3% from the previous marketing year’s reported shipments of 2.101 bb and in line with USDA’s June guess of 2.0 bb. USDA left it alone then, right? Wrong. The July update showed a decrease of 20 mb, coming in at 1.98 bb. It’s not a lot, but enough to increase ending stocks by 25 mb (imports were also increased by 5 mb). Keep in mind what I’ve talked about in the past: The long-term trend on the soybean cash index monthly close-only chart projects a sharp selloff with a projected target of $10.26. The index was calculated at $14.40 Tuesday evening.
On the new-crop table we knew USDA would lower its planted area to the June 30 figure of 83.5 ma. And since it didn’t have the same ulterior reasons for adjusting national yield away from trendline at 52.0 bpa, it didn’t. Adding in the larger old-crop ending stocks saw total supplies drop by only 10 mb. However, what jumped out at me was instead of leaving new-crop exports alone, USDA whittled an early 125 mb off its June guess of 1.975 bb. For the record, then, expected exports for the next year plus dropped 145 mb. Trade wars aren’t as easy to win when El Nino helps Brazil raise a record crop.
What do I consider the bottom line, then? It is obvious the powers that be see no end to the trade war between the United States and China, and that despite the collapsing US dollar the forecast doesn’t look any brighter for other countries getting interested in US supplies.
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.
