USDA’s slate of reports released Tuesday held some positive news for wheat, which could lead to higher new-crop prices. The lack of dramatically positive news for corn and soybeans, however, does not eliminate the chance of a price rally in the near future.
“We expected today’s reports to have some surprises and fireworks, but they underperformed in that area,” said Brian Hoops with Midwest Market Solutions. Hoops was the commentator on an MGEX post-report press conference.
“We have higher levels of stocks, particularly in soybeans and wheat, compared to historical standards, and that will limit the upside,” Hoops said.
At the same time, though, investment funds are heavily short the three major commodities—corn, wheat, and soybeans—while U.S. producers are sitting on large volumes of unsold supplies. Basis levels are already widening in anticipation of farmer selling when funds start covering their short positions, which will cause prices to rally and create a selling opportunity for producers.
Corn Still Piling Up
According to January’s World Agricultural Supply and Demand Estimates (WASDE) released today, USDA lowered the national average yield by 0.9 bushel per acre from its previous forecast to 168.4 bushels. The average corn yield was lower than the average trade estimate of 169.2 bushels per acre. The department dropped 2015-16 corn production by 53 million bushels, but at 13.6 billion bushels, the crop is still the third largest on record. Total corn production was lower than the average estimate of 13.646 billion bushels.
At the same time, USDA dropped total projected corn use for 2015-16 due to lower exports and lower projected use in the food, seed, and industrial category. The department left feed and residual use unchanged. USDA dropped exports by 50 million bushels due to continued strong competition from South America. Estimated corn used to produce ethanol was unchanged.
USDA’s quarterly Grain Stocks report, also released today, showed corn stocks as of December 1 at 11.212 billion bushels, largely in line with expectations of 11.237 billion bushels and nearly unchanged from USDA’s December estimate of 11.211 billion bushels.
According to the WASDE report, projected U.S. corn ending stocks of 1.8 billion bushels are 17 million bushels higher than USDA’s previous forecast and the highest since 2005-06. The projected carryout also beat the average estimate of 1.785 billion bushels. With higher stocks and lower use, USDA lowered its projected seasonal average farm price for corn by 5 cents on each end of the range to between $3.30 and $3.90 per bushel.
Lower Soybean Production Than Anticipated
USDA also lowered its forecast for soybean production by 51 million bushels to 3.93 billion bushels due to lower harvested area and yields. Harvested area was reduced by 0.6 million acres to 81.8 million acres, and the average yield was dropped 0.3 bushels per acre to a still record 48 bushels per acre. The lower yield forecast was also 0.3 bushels lower than the average trade guess.
USDA lowered soybean exports by 25 million bushels to 1.69 billion. Ending stocks were lowered an offsetting amount to a projected 440 million bushels. USDA now estimates the 2015-16 U.S. seasonal average farm price for soybeans at between $8.05 and $9.55 per bushel, down 10 cents on the midpoint.
According to the Grain Stocks report, soybean stocks as of December 1 were 2.715 billion bushels, which is substantially higher than USDA’s December forecast of 2.528 billion bushels but lower than the average trade estimate of 2.72 billion.
Winter Wheat Acres Lower
“There were some positives for wheat in the reports,” said Hoops, referring to the Winter Wheat Seedings report also released today. “Winter wheat plantings were 2.7 million acres below the average trade estimate and 2.8 million lower than a year ago. That’s a positive for new-crop wheat prices.”
Heavy flooding in the winter wheat planting areas of Texas, Missouri, and Illinois could cut plantings of winter wheat even further in future reports, setting the new-crop wheat market up for future price gains.
“The negatives are the big increase in world reserves, stocks are higher than the average trade guess, and exports are at 45-year lows,” Hoops added.
Global wheat supplies were raised to 232 million metric tons, up from last month’s 229.86 million metric tons and higher than the average trade estimate of 229.6 million metric tons.
USDA raised projected 2015-16 U.S. ending stocks by 30 million bushels and narrowed the 2015-16 seasonal average farm price to between $4.90 and $5.10 per bushel. The department raised global wheat supplies for 2015-16 by 1.2 million metric tons on both increased beginning stocks and production.
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