USDA Reports Preview

By Darin Newsom
DTN Senior Analyst

USDA's May reports can be as confusing as the lyrics to Springsteen's rock classic, with the spotlight on the third round of initial new-crop numbers blinding many to important changes in old-crop supply and demand.

USDA will release its latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports at 11 a.m. CDT Wednesday.

Madman Bummers Drummers: Though he had no idea at the time, The Boss (Bruce Springsteen) perfectly described pre-report estimates for USDA's third initial guess at new-crop production and supply and demand in the song Blinded by the Light.

I put together a table comparing USDA's May guesses to its "final" estimates the following January for corn and soybeans beginning stocks, production, total demand, and endings stocks for the last three marketing years (I'll show this table in DTN's post-report webinar), and the results were not surprising.

Corn production has been understated by an average of 323 million bushels, total demand by 162 mb, and ending stocks by 136 mb in May. Soybeans are even more dramatic, as a matter of degree, with production underestimated by 307 mb, total demand by 127 mb, and ending stocks by an average of 45 mb. The last comes with an asterisk though, as beginning stocks (previous old-crop ending stocks) fall an additional 133 mb from January through the Sept. 30 Quarterly Stocks report, when nobody is looking at old-crop any longer.

With this very unpleasing sneezing and wheezing: This time around, pre-report estimates have 2017 corn production coming in at 14.204 billion bushels, extending the string of largest crops on record to five. Similarly, the soybean production pre-report average guess projected 4.246 bb, second only to last year's USDA estimated 4.307 bb. All wheat production came in at an average pre-report estimate of 1.920 bb, with winter wheat pegged at 1.328 bb. The largest dip is expected to be in hard red winter production, guessed to come in 287 mb less than USDA's latest estimate.

The average pre-report estimate for 2017-2018 corn ending stocks was 2.111 bb, down slightly from USDA's Outlook tabulation of 2.215 bb. Soybeans, though, showed an average pre-report guess of 572 mb as part of a 300 mb range between high and low estimates. All wheat ending stocks came in at 924 mb, well below the 1.162 bb expected for 2016-2017, but above USDA's Outlook guess of 905 mb.

The calliope crashed to the ground: The last three May report days have showed mixed results for new-crop grains futures with December corn falling once and rallying twice, November soybeans falling twice and rallying once, and July Kansas City wheat closing lower all three years. Corn can be volatile following the report, despite its average close of near unchanged. May 2014 saw the December contract lose 12 3/4 cents, while May 2016 saw the issue finish 10 3/4 cents higher. November soybeans have closed lower the last two May report days by an average of roughly 12 cents. Meanwhile, July KC wheat tends to close 7 cents lower every year.

Blinded by the light: Here's where the May reports get interesting, particularly for soybeans. In May 2015, with all the world's attention on its new-crop guesses, USDA increased total demand for 2014-2015 (old-crop) soybeans from 3.721 bb to 3.741 bb, with both up from the March estimate of 3.701 bb. But, and this is key, May was only the tip of the iceberg as by the Sept. 30 Quarterly Stocks report total 2014-2015 soybean demand had grown to 3.861 bb.

The next year saw the same, but even more dramatic, pattern. Starting with USDA's March total demand estimate of 3.690 bb, April increased to 3.705 bb, ahead of May's 3.750 bb, and ultimately the final 3.949 bb. In other words, the last two years USDA's May old-crop demand number has increased by an overage of 32.5 mb from April, and another 160 mb through the end of the marketing year.

Corn is nowhere near this variable, though last year's total demand numbers increased 60 mb from April to May, and then another 74 mb through September quarterly stocks.

The stage is set for hidden increases again this year, due in large part to the pace of exports. According to USDA's own total export shipment numbers (in the latest weekly report), corn is running 300 mb ahead of USDA's April projected pace, with soybeans a mere 30 mb ahead but pulling further ahead weekly.

But mama, that's where the fun is: Much will be made of this month's USDA reports, like it is every year. But the fact is this third look at new-crop numbers aren't set in stone but will change a great deal between now and January, and even more so through September quarterly stocks another year down the road. Proponents of these things think they're fun, some would try to argue necessary. They are what they are, similar to Springsteen's song only using numbers instead of rhyming words, with the end result being mostly nonsense.

Darin Newsom can be reached at darin.newsom@dtn.com

Follow Darin Newsom on Twitter @DarinNewsom

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