(WASHINGTON D.C.) — Grain and oilseed futures closed out the week with a solid up day on Friday as traders digested USDA’s July World Agricultural Supply and Demand Estimates report, with a wheat-led rally fueled by overseas headlines and a friendlier set of U.S. balance sheets — even if some analysts say the math behind those balance sheets doesn’t quite add up.
USDA cut old-crop U.S. corn ending stocks from 2.145 billion bushels down to 2.020 billion bushels and slightly lowered old-crop soybean stocks from 340 million bushels down to 330 million. Old-crop wheat ending stocks came in at 920 million bushels, down from 935 million in June. On the new-crop side, corn ending stocks fell from 1.960 billion bushels down to 1.790 billion, soybeans were left unchanged at 310 million, and wheat was lowered to 722 million bushels from 744 million last month.
“This is typically a report that they just kind of punt,” said Joe Kooima of Kooima Kooima Varilek in Sioux Center, Iowa. “But the interesting point today is that they just shaved down the ending stocks for both corn and beans for this year and next year. You had kind of two bullish fronts here — hey, they made it a little friendly on the numbers, and let’s talk weather.”
How USDA arrived at those numbers drew some scrutiny. With quarterly stocks data showing corn supplies below expectations but no crop-size revision allowed before September 30th, the agency raised old-crop feed and residual usage by 150 million bushels while trimming corn for ethanol by 25 million.
“Some interesting math used by USDA here,” said Arlan Suderman, Chief Commodities Economist at StoneX. “They couldn’t cut the size of last year’s crop because they don’t do that before September 30th. And so, to account for it, they raised feed usage by another 150 million bushels, partially offsetting that by lowering ethanol demand by 25 million bushels.”
Bryan Irey of Crossroads Coop was more blunt. “I just think the 150 million bushel increase in feed and residual is just inexcusable,” Irey said. “How we continue to manipulate the feed and residual number is just beyond my wildest imagination with fewer cattle on feed than we had a year ago… Using that feed and residual number as the slush fund just seems almost sinful at this point.”
Irey said the export side of the ledger made more sense to him, noting old-crop sales have essentially already hit USDA’s target, and pointing to the roughly 50 million bushels USDA added to new-crop corn exports as “highly possible given the current global situation” — particularly with a heat dome parked over France and crop ratings sliding in Europe.
Suderman said the new-crop corn number is one to watch. “That combination dropped new crop ending stocks for corn down to 1.79 billion. So we’re getting closer to that pivotal 1.5 billion bushel level,” Suderman said. “It wouldn’t take much of a drop in yield to drop us below it, or unexpected export demand to China or somewhere else.”
It was the wheat complex, though, that led Friday’s charge with U.S. production down year over year in virtually every class. USDA’s first survey-based spring wheat estimate came in at 475 million bushels, about 21 million above trade expectations and new-crop wheat ending stocks of 722 million bushels still landed above the trade’s guess of 714 million, despite the smallest U.S. crop in over 50 years. But the bigger spark came from the Black Sea.
“I think that initial rally began with Russia and Ukraine, and Ukraine getting some drones or some type of firepower to one of the straits that Russia uses to export wheat and it slowed down vessel traffic,” Irey said. “That got the market excited and then definitely some friendly numbers out of the USDA today as well, especially in terms of hard red winter wheat production.”
Suderman said reports early Friday indicated the Kerch Strait, the narrow passage between Crimea and Russia, had been closed. “The Sea of Azov, through which roughly 30 to 35 percent of Russia’s wheat passes, has been shut down,” he said, adding that with reports the strait could reopen next week, the market was mainly adding weekend risk premium. “I think if the markets thought this was permanent, we’d be up the limit.”
Irey, meanwhile, argued USDA’s hard red winter cut doesn’t go far enough given what he’s hearing from the country in Colorado and Kansas, where he called this year’s harvest “an unmitigated disaster.”
“We’re on average a 72 million bushel state here in terms of hard red winter wheat production, and they have us at 19,” Irey said. “That might be twice as big as our crop is when you talk to people in the country.”
On the world balance sheets, USDA raised Argentina’s 25/26 corn production again this month, up to 63 million metric tons from 61 mmt in June. “That was the high end of the trade estimate,” Suderman said. “They’ve harvested about two-thirds of their crop now, so we should have a pretty good estimate on the size of the crop. No changes to Argentine beans or Brazil corn or soybeans this month.”
With the July report in the books, the analysts agree the market’s attention now swings back to weather. Kooima noted both the European and GFS forecast models are still pointing toward a drier stretch across the Corn Belt over the next couple of weeks. “If they inch up the heat just a little bit, you’re going to see the funds kind of push the pedal down a little bit there,” he said.
“After today’s reports, obviously, we’re going to go back to trading weather till we get to the August survey-based USDA reports,” Irey said. “You typically put your futures lows in in June, but I think there’s a possibility that that may have happened this year… I don’t know that futures set back a whole lot from here unless the crop does grow dramatically moving forward.”
View the full WASDE Report here: https://www.usda.gov/about-usda/general-information/staff-offices/office-chief-economist/commodity-markets/wasde-report
Watch the full interviews with Kooima and Irey below, along with the Midday Commentary audio from Arlan Suderman. ***Always remember the risk of trading futures and options can be substantial.***
