By Darin Newsom
DTN Senior Analyst
In corn, it's hard to imagine projected production at a record 14.54 billion bushels and ending stocks of 2.081 bb, the largest since the 2004-2005 marketing year, as bullish. But that was the reaction to USDA's July Crop Production and Supply and Demand reports. OK, maybe the numbers weren't bullish, just not as bearish as expected going into Tuesday. Hence the modest rally of 5 cents shortly after the release.
As expected, USDA used its June 30 planted area figure of 94.1 million acres and trendline yield of 168 bushels per acre, creating the above-mentioned production estimate that was slightly below the pre-report average of 14.532 bb. However, the table is now set for potential yield and production changes in August's "first survey" reports.
On the demand side, the most notable features were 50-million-bushel decreases in both old-crop and new-crop feed use offset by a 75-mb increase in old-crop exports and a 100-mb bump in new-crop exports. The bottom line is new-crop ending stocks increased to 2.081 bb, up from June's estimate of 2.008 bb, putting the ending stocks-to-use ratio at 14.7%.
Globally, corn ending stocks were increased to 206.9 million metric tons (old-crop) and 208.4 mmt (new-crop) despite a 7.5 mmt reduction in Brazilian production and a 1 mmt increase in Argentine production estimates. The former was close to being in line with what was seen from Brazil's CONAB last week. Old-crop total demand was reduced by almost 7 mmt while new-crop total demand was trimmed by almost 4 mmt.
Soybeans were posting double-digit gains before the release of USDA's numbers, extended their gains immediately after, fell back to near unchanged, then rallied 15 cents again. Given that most of USDA's numbers came in near expected, initial analysis would conclude that the market wasted no time turning its attention back to weather forecasts of hotter and drier weather in late July and early August.
Old-crop soybean ending stocks were trimmed slightly to 350 mb, down 20 mb from June, created in an imaginative way, even for USDA. Imports were reduced by 5 mb, decreasing total supplies by a like amount. Export demand was increased 35 mb while the always-reliable residual use was trimmed by roughly 20 mb. The result was the aforementioned dip in ending stocks and an ending stocks-to-use figure slipping to 9.2%.
As for new crop, ending stocks increased by 30 mb to 290 mb. Production was increased by 80 mb to 3.88 bb, in line with the average pre-report estimate. Demand was bumped up 30 mb on a 20-mb increase in exports and a 10-mb adjustment in crush. The bottom line, domestically, is that ending stocks-to-use increased to 7.3% from June's calculated 6.6%, though still well below what is projected for the old-crop 2016-2017 marketing year.
No major changes in production for either Brazil of Argentina resulted in world old-crop soybean ending stocks declining only slightly to 72.2 mmt. Similarly, a slight increase in new-crop demand was offset by the increase in U.S. production, leading to a less-than-expected increase in new-crop ending stocks to 67.1 mmt.
Wheat numbers were neutral to bearish, with the most outstanding category the increase in 2016-2017 ending stocks to 1.105 bb. New-crop production was pegged at 2.26 bb, up from June's 2.077 bb, with the largest class increase of 96 mb projected for hard red winter. One of the few bullish nuggets for wheat was a 100-mb increase in feed demand, not surprising given the price relationship between wheat and corn this summer. Also, the new-crop ending stocks projection was trimmed by 4.14 mmt due to stronger demand more than offsetting increased global production.
All told, USDA's July round of reports could be viewed as neutral. Yes, the numbers were still big, just not as big as many had thought heading into Tuesday. After the initial flurry, as stated above, attention rightfully turned back to weather.
Darin Newsom can be reached at darin.newsom@dtn.com
Follow Darin Newsom on Twitter @DarinNewsom
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