Wheat Production Worries Headline July WASDE Report, Carries Corn Prices Higher

Grains and oilseed prices were able to hold gains on Monday after USDA released its latest report. Less than two weeks after USDA issued an updated June Acreage Report, which revealed fewer planted acres than expected, USDA says it still expects larger corn supplies and an uptick in ending stocks.

USDA’s July World and Agriculture Supply and Demand Estimates (WASDE) produced a surprise cut to all-wheat production this year. USDA expects a reduction in the all-wheat yield this year, dropping it by 4.9 bushels to a national average of 45.8 bushels per acre. As a result, the all-wheat production total is estimated to hit 152 million bushels less than June’s estimate. USDA says according to NASS, the biggest issues in wheat are coming from durum and other spring wheat classes, as drought plagues producers in the Northern Plains.

In total, USDA's forecast shows:

• Durum Wheat Down 46% from 2020
• Other spring wheat production down 41% from 2020

USDA did raise its winter wheat production forecast by 4% compared to June, as other production areas in the Plains are seeing higher yields. 

"I think the biggest storyline coming out today is in the wheat complex," says Ben Brown, an economist with University of Missouri. "We normally don't talk about wheat, from an analyst perspective and a U.S. producer standpoint, because wheat is often very complex and almost confusing for people to understand. We have so many different classifications of wheat, but then also, the U.S. only represents about 6.5% of world wheat production."

Despite the fact wheat often gets overlooked, Brown says the cuts USDA made in its July report were so significant, it spilled over into the corn market. 

"In general, winter wheat in general did very good," Brown adds. "You look at Kansas that produces about one-third of the U.S. winter wheat crop, and their yield was up 6% this year. But that was significantly overshadowed by the deterioration of the spring wheat and durum wheat crops that we see in the Pacific Northwest and the upper plains. Traders were expecting today, all wheat across the board to be down 51 million bushels from last month's report, and it ended up being down 152 million bushels. So, 100 million bushels more than what even the trade was expectation expecting in terms of a decline. That is that is big. And I think that's spilling over into the corn market."

Read more about the dire situation in wheat here. 

Bearish-Tilting Report for Corn

USDA didn't produce an overall bullish outlook for corn. While old crop corn stocks were lowered by 25 million bushels due to greater feed and residual use, new crop corn production is forecast to rise 175 million bushels on more planted and harvested acres.

"You look at this report, and I'm not gonna say a completely bearish day for corn, but this certainly was a bearish, bearish-tilting report for the corn market," Brown adds. "But because of the wheat complex, seeing the rapid rise in the deterioration and production pulling up the wheat prices that's pulling corn up, as well." 

USDA has a national corn yield penciled in of 179.5 bushels per acre, which is trend line and unchanged from the last report. 

"It's rare the World Board would adjust yield in July," says Brian Grete, editor of Pro Farmer. "It's happened before, but that's not the World Board's job. Yield is NASS jurisdiction."

Brown agrees with Grete. The no change in corn yield was expected, and it's something Brown thinks could be a theme for the next few months. 

"The way USDA works is they have to have substantial evidence to change yields, and they haven't had a history of changing yields in July; usually that comes in August, and then again in September when they start doing they send their numerators out into the field and do field studies," says Brown. "So, we did not expect USDA to change yield, and in general, USDA is going to have a hard time pegging this crop because the eastern Corn Belt has had almost perfectly timed rains, their crop looks very good. You would expect an above average yield in parts of Corn Belt in places like Western Illinois, Eastern Iowa, Missouri, Eastern Minnesota, even to some extent, you're going to have pockets of good versus bad. And then you've got course the upper Dakota, you know the upper plains western Minnesota and Iowa, western Iowa that have really struggled and continue to see stress, so this rain is going to help them out a bit in the short-term, especially on the bean side. But sorting out how all these yields play together and fit into a national yield picture is going to be a challenge. And so I'm gonna sit here and say today, I would not be surprised if we don't keep a trend line yield for a little bit longer because it is going to be difficult to peg this yield as we move ahead."

USDA did raise its corn export forecast, as the agency says it expects lower corn exports out of Brazil, which could bring some demand back to the U.S. for corn. But USDA says as supplies are expected to rise quicker than use, the agency still sees ending stocks trending higher.

"USDA lowered Brazil corn production down another 5.5 million metric tons. That brings them down to 93 million metric tons, many private analysts, again, are still below 90 million metric tons for that Brazil crop," says Brown. "They also lowered Brazilian exports. Now, given where they lowered and 5 million metric tons, we're going to have to lower that export number again in future months for Brazil. And that'll have to be made up in other countries. That was probably interesting to watch that we didn't see as bigger revisions in world trade as what we probably should have seen given the reduction in Brazil production."

The Story in Soybeans

As for soybeans, USDA left its soybean production forecast unchanged at 4.4 billion bushels, but 4.4 million bushels higher than last year’s production total. The agency also left soybean supply and use untouched from last month, as well as its soybean yield forecast of 50.8 bushels per acre.

As for old crop soybean supplies, USDA lowered imports, exports and the crush. USDA says it revised the season-average on-farm soybean prices 20 cents lower, now at $11.05 per bushel. Soybean meal is also lower, now at $395 per ton, down $10 from last month.

Globally, USA says higher stocks for Brazil and Argentina will be partially offset by the expectation for lower Chinese stocks. As a result, USDA increased the global soybean ending stocks estimate for the 2021/2022 crop to 94.5 million, which is up 1.9 million tons from the June forecast.