The U.S. Department of Agriculture surprised grain markets Friday with significant cuts to corn supplies, setting up a potentially volatile second half of the growing season. Grain futures saw a strong positive reaction following the report with December corn futures topping $4.60, November soybeans climbing above $11.90 and wheat rallying more than $.20 during the day’s trade.
Global corn ending stocks dropped to 275.3 million metric tons in USDA’s July World Agricultural Supply and Demand Estimates, nearly 24 million metric tons below last year. The agency also trimmed U.S. corn carryout and tightened supplies for soybeans and wheat.
The report’s message is clear: There’s little cushion left if weather cuts yields.
Corn Stocks Tighten
USDA cut old crop U.S. corn ending stocks by 125 million bushels due to lower quarterly stocks. Combined with higher usage, new crop ending stocks fell 170 million bushels from June to just under 1.8 billion bushels.
“The reduction overall to the old crop stocks was larger than expected. So that was a layer of the friendliness,” Brian Splitt of AgMarket.Net says. “And then what that does to the new crop balance sheet is it takes the new crop carryout number just slightly below 1.8 billion bushel carryout.”
Global corn stocks fell about 6 million tons from June, driven largely by a 3.7 million ton cut to the European Union harvest due to record heat and dryness which has trimmed the corn crop.
“I think if we were to maybe say what was the most friendly part of the corn report, it would be the overall reduction in the world stocks, the outlook for world corn ending stocks,” Splitt says.
USDA held corn yield steady at 183 bushels per acre, projecting production just under 16 billion bushels. While this would be the second largest corn crop in history, current weather patterns could change that.
“We obviously are going through some heat, especially in the western corn belt, so some of that crop may very well go backwards,” Splitt notes. “We do have a lot of areas that have too much moisture.”
Wheat Supplies Also Tighten
U.S. wheat production fell 7 million bushels to 1.536 billion.
Despite a 1.1 million-acre cut to planted acreage in the June Acreage Report, USDA offset that by raising yield 0.9 bushels per acre to 47.9 bu.
U.S. ending stocks dropped 22 million bushels to 722 million. World wheat stocks tell a similar story, falling 2.6 million metric tons to just under 272 million.
“So global stocks also reduced. The trade was looking for a reduction. However, it was a hair more than what was expected,” Splitt says.
Soybeans Face Weather Risk
USDA raised soybean production 40 million bushels on 665,000 additional planted acres and a 53 bushel per acre yield. But the agency lowered old crop ending stocks by 10 million bushels and raised new crop exports by 30 million, leaving new crop ending stocks at a tight 310 million bushels.
That number could shrink quickly if weather problems develop in August.
“If yield does come in less than trend, now we’re starting to put a two handle on the carryout potential,” Splitt explains. “And if you start talking potentially a 250, 280 million bushel carryout, then that’s going to prompt some additional buying. So it’s really important for weather to hold together as we get into the main period for soybeans.”
Global soybean ending stocks tightened by 0.7 million metric tons to 124.2 million, about 1 million tons less than the trade expected.
