Using the immortal words of comedian Oliver Hardy, “Well, here’s another nice mess you’ve gotten me (us) into.” I do not think I can recall a USDA report that more embodied the old saying, I’ve got some good news and some bad news, as they heaped on plenty of both on the corn market, in particular, leaving many collectively scratching their heads. While I will not go into all the finer details, on the domestic front, the good news, average yields came in toward the lower end of expectations at 178.9, giving us a production number of 14.626 billion bushels and ending stocks of 1.736 billion. This should have been enough to send corn sharply higher, but then everyone looked over at the world stocks, the bad news, and discovered that the USDA took the inventory adjustments that the Chinese had released just previous to this report and made enormous changes in the world corn inventory. In fact, from last month the world corn ending stocks were ratcheted up 93% to 307.51 MMT. At first glance, global corn inventory went from the lowest stocks to usage ratio since 1996 to an entirely new stratosphere. After the dust and confusion settled down though, the realization set in that this really did not change the global outlook significantly. 90% of the increase was directly related to the change in Chinese inventory, and 67% of the global ending stock sit in that country. Comparatively, it was previously thought that 37% of global ending stocks were in China. Taken a step further, when they (China) released the adjustments, it was also noted that they would still be running a corn deficit. Granted, two and two do not seem to add up to four here but of course what we do not know are conditions of the said inventory nor do we know what that country considers acceptable inventory for security purposes. While price have dipped lower this morning, I thought it was encouraging that corn closed higher yesterday and continue to believe there is little downside risk in this market for now.
Beans though are of course another story. Yes, the domestic yield for this year was trimmed more than expected coming in a full bushel less than last month at 52.1 bpa and the production figure of 4.6 billion was below the lowest estimate, but when you see exports understandably cut 160 million bushels, it deflates the bullish balloon pretty rapidly. Projected ending stock of 955 million was not above the highest estimates but were still 70 million above last month and will potentially set another new record for both raw inventories and as a stock to usage ratio at 23%. There is just no way to make that pretty. Of course, on the world report, we did not have to contend with any Chinese adjustments, but it mattered little. Global endings stocks were adjusted up 2.04 MMT to a new record of 112.08 MMT, with a stock to usage ratio of 31.93%. Now, part of this is predicated on a combined Brazil/Argentina/Paraguay crop of 185.8 MMT, which would be an increase of 18.39 MMT from last year and is a crop that is just getting underway so of course, not in the bin. That said, they are off to a very good start.
In spite of all of that, beans really performed quite well, and in fact, on long-term charts appear to be carving out a bottom. This may suggest that the market has already digested the negative for now and I dare say, does not want to get caught short if the possibility of better trade relations between the U.S and China are on the horizon. Of that, we should know more towards the end of the month when President Trump and President Xi are supposed to meet.