USDA’s May WASDE report sent corn and soybean prices higher, it also caused wheat to soar. However, one analyst questions why the trade viewed the latest report as so bullish, considering the U.S. is still staring at large crops and carryout.
In Friday’s report, USDA provided a first look at the 2024/25 crop production picture. USDA is projecting a smaller corn crop compared to last year. Even with a trend-line yield penciled in at 181 bu. per acre, it’s fewer corn acres that’s causing a lower production picture with USDA penciling in 14.86 billion bushels.
In contrast, more soybean acres prompted USDA to pencil in a bigger soybean crop this year. With a projected soybean yield of 52 bu. per acre, production is forecast to reach 4.45 billion bushels, which is up considerably from last year’s crop size of 4.165 billion bushels.
USDA pegging 2024/25 corn stocks at 2.1 billion, which was below trade estimates. Soybean stocks are projected at 445 million bushels, above trade estimates, and wheat is forecast at 766 million bushels, below trade expectations.
“I didn’t see really anything in it that I thought was all that bullish from it; I thought it was more bearish than anything,” says Jon Scheve, president of grain trading for Superior Feed Ingredients.
Scheve says he took a look back at the May WASDE report from last year to compare USDA’s initial thoughts on the 2023/24 new crop, and USDA had penciled in a 2.2-billion-bushel carryout. He says December 2023 corn was trading at $5.15 then.
“It ends up that we come in now here at just over 2 billion on the carryout, and what we also saw was that the price that the USDA thought the farmer would get would be $4.80 for the average price,” Scheve says. “Now they’re already saying that price is down to $4.65, and we’re struggling to even maintain that value for cash for a lot of farmers across this country.”
Scheve says that’s also one reason he doesn’t see why a bullish reaction stemmed from the latest WASDE report.
“Future reports are going to be over 2 billion, and that’s assuming if we only plant 90 million acres of corn,” he adds.
One of the bullish revisions in USDA’s May WASDE report that might be viewed as bullish is the fact new crop corn carryover came in 180 million bushels below trade expectations.
“Old crop demand was 100 million bushels higher, and then they have new crop demand, higher as well. And so that ended up with a carryout figure that was well under the average estimate,” says Chip Nellinger, founder and owner at Blue Reef Agri-Marketing. “I think that’s certainly something that supports us going into the growing season here. We have to get the crop planted, and we have to make sure that we can get pollinated and have that big crop and that chance at 181- bu. [per acre trendline yield].”
USDA’s first look at the 2024/25 corn crop shows a yield of 181 bu. per acre. The latest look at the U.S. Drought Monitor clearly shows an improving drought picture with nearly 75% of the Midwest is now drought free. Recent rains have wiped extreme drought from Iowa, and the area of the country now in extreme drought is at its lowest level since April of 2020.
With just slightly over 15% of the nation in drought, the rain has been welcome for repairing dryness, but the planting pace is also starting to struggle.
Considering the moisture relief, but also the lagging planting pace in the U.S., can the U.S. hit a 181 bu. per acre corn national yield like USDA currently has projected? Nellinger says there’s a possibility we don’t.
“We’ve never hit it before, right,” Nellinger says. “If you use a five-year average of national average corn yield, it’s 5 bu. to 6 bu. below where they have the trendline at 181. I think the longer it takes to plant this crop, the higher the bar is to hit 181 [bu. per acre].”
He says the longer-term market outlook is really focused on how the weather is in June and July.
“Certainly, we have a lot better moisture than we did before, that’s a good thing to get this crop up and out of the ground, assuming we get the rest of it planted,” he says. “But it doesn’t mean you still can’t have isolated hot and dry weather, and heat, probably more than anything is what we need to worry about.”
Nellinger points out the lack of heat was the salvation for last year’s crop.
“And so there’s still plenty of time for scares out there,” Nellinger says. “In my mind, 181 it’s very doable, but we better get the crop in the ground a lot faster paced, and we have the last two or three weeks here.”
The planting pace will become more in focus over the coming weeks, and according to Scheve, the market is starting to get nervous about the current delayed planting pace.
“If we look at where the market is with a 2-billion bushel carry out, we should be at $4 corn,” Scheve says. “And so because of that, the market has already built 90¢ of weather premium into this, so I would be very concerned.”
Scheve says while it’s true the U.S. has never grown a 181-bu. per acre national corn yield, if you look back in history dating back to 1974, on average, the U.S. sets a new record crop one in every three years.
“So, I would say there’s a ton of weather premium at the moment, but if we don’t have this crop, you know three-fourths planted with within two weeks, then I think that the chances are 50% that we don’t necessarily have to hit trendline yield,” Scheve says.
The South American Production Wild Card
Portions of Brazil faced catastrophic flooding, and now there’s a lot talk about the impact on the crop in South America. The severe flooding that hit Brazil’s southernmost state of Rio Grande do Sul should cause farmers to lose an estimated 1.32 MMT of soybeans, according to data from consultancy AgResource this week.
USDA made slight adjustments to the South America crop in its report, cutting Brazil’s corn crop by 2 mmt to 122 mmt. The soybean crop in Brazil was trimmed by 1 mmt, to 154 mmt.
In Argentina, USDA cut the corn crop by 2 mmt, to 53 mmt, but left soybeans unchanged.
Related May WASDE Report News
WASDE a Mixed Bag for Grains but Rally Continues: Is the Market Trading the Report?
