The February World Agricultural Supply and Demand Estimates (WASDE) report was pretty much in line with what traders had expected. The focus was squarely on the Argentine crop losses due to drought. If there was any surprise, it was that U.S. corn exports were not reduced. The minor changes in the U.S. were in the demand category, with a 25 million-bushel (mb) reduction in corn for ethanol use, and a 15 mb reduction in domestic soybean crush. In wheat, most of the changes were small and in foreign countries.
CORN
Traders were looking for a modest bump in U.S. corn ending stocks, and that's exactly what they got, but in a roundabout way. Most traders would not have been surprised by a fall in U.S. corn exports, as sales commitments are down 43% from a year ago. However, export sales were left unchanged. Instead, USDA lowered corn used for ethanol by 25 mb, with that exact amount being added to the ending stocks, making it 1.267 billion bushels (bb). The Dow Jones pre-report survey had an expectation for 1.264 bb, but most thought that would come from a drop in exports. There were no other changes to the domestic balance sheet, and the average seasonal price was left unchanged, at $6.70 per bushel.
Most traders had anticipated a sharp cut in Argentine corn production due to the months-long drought, and they got more than they bargained for. Argentina's corn production was lowered by a hefty 5 million metric tons (mmt) to 47 mmt (1.85 bb) -- about 1.1 mmt (43 mb) below the average trade guess. That is still far higher than many of the private analysts and crop scouts are touting. Brazil's corn production was left unchanged, at a record-large 125 mmt (4.92 bb) -- slightly higher than the CONAB estimate of 123.7 mmt prior to the report.
Other changes for Argentina were a decline in feed use by 2 mmt, and corn exports were reduced by 3 mmt to 35 mmt (1.38 bb). Brazil corn exports made up for that, as WASDE raised those by 3 mmt to 50 mmt (1.97 bb). Ukraine corn exports were boosted by another 2 mmt to 22.5 mmt (886 mb), and EU corn imports rose by 2 mmt to 12 mmt (472 mb). Global ending corn stocks fell about as expected, by 1.1 mmt to 295.3 mmt (11.63 bb). There were no other changes for corn.
SOYBEANS
On the domestic side, USDA chose to lower soy crush by 15 mb to 2.23 bb. That translated right to the ending stocks number, which grew 15 mb to 225 mb. The average price for soybeans was raised by 10 cents to $14.30 per bushel. No other domestic changes were made.
On the global front, there was no change to Brazil's record-large soybean production estimate of 153 mmt (5.62 bb). Argentine production was lowered by a greater-than-expected 4.5 mmt to 41 mmt (1.50 bb); the trade had expected 41.5 mmt. In addition to that, Argentine soy imports were increased by 1.25 mmt to 6.25 mmt (230 mb), Argentine soy exports were reduced by 1.5 mmt (55 mb) and Argentine crush was reduced by 700,000 mt. EU soy imports fell by 500,000 mt to 13.9 mmt (510 mb), and China's crush fell by 1 mmt. Brazil had a minor increase in domestic crush. Brazil's soy exports were raised by 1 mmt to offset much of the Argentine export shortfall, with Paraguay having a minor increase in exports as well. Ukraine soy production was decreased by a modest 400,000 mt. World ending soybean stocks, estimated to be 101.6 mmt (3.73 bb), came out at 102 mmt (3.75 bb) -- down 1.5 mmt from the January WASDE.
WHEAT
There were few changes expected on the domestic side for wheat, and that is just what we got. Food use was lowered by 2 mb to 975 mb, but still record large, while seed use increased by 1 mb to 70 mb. Exports were left untouched at 775 mb. The average seasonal price on wheat declined by 10 cents to $9 per bushel. Ending stocks of wheat rose by 1 mb to 568 mb -- about 11 mb lower than what traders had expected. There were some by-class changes: soft red ending stocks rose by 12 mb, while white wheat fell by 11 mb, and hard red winter declined by 1 mb.
It was on the world side that several minor changes occurred for wheat. The Australian and Russian wheat crops were increased to 38 mmt (1.40 bb) and 92 mmt (3.38 bb), respectively. Australia was up 1.2 mmt from January and had record-large production for the third consecutive year. Russia's crop rose to 92 mmt, but that is still far below the 100 mmt (3.67 bb) number that Russian consultancies are touting. Brazil's wheat crop increased by 400,000 mt to 9.9 mmt (363 mb). EU wheat imports rose by 1 mmt to 9 mmt (330 mb), while China's imports were raised by 500,000 mt to 10 mmt (367 mb). Feed use in both the EU and Russia increased by 500,000 mt each. Canadian exports were lowered by 1 mmt, while 500,000 mt increases in exports were penciled in for the EU, Australia, Russia, and Ukraine, with a 400,000 mt bump for Brazil. The net effect of all these small changes was a 900,000 mt increase in world ending stocks to 269.3 mmt (9.89 bb), or about 1.5 mmt lower than trade expectations.
FINAL THOUGHTS
The February WASDE report hardly moved the needle. Traders were focused on Argentine production changes for corn and soybeans, and we got very close to those expectations. The slightly larger decline in production could probably be taken as slightly price friendly in an otherwise neutral report.
Perhaps the biggest surprise, in my view, was the failure to lower the USDA yearly export projection for corn. With what appears to be a very narrow window to accelerate sales from March to June, it seems unlikely that the U.S. can achieve the 1.925 bb export market ahead of what could be a record-large Brazilian crop. The report only barely changed the ongoing narrative of historically tight supplies in corn, wheat and soybeans. The focus will again turn to Argentine weather, the timely harvest of Brazil's record-large soy crop and, of course, weather for Brazil's safrinha corn crop.
Dana Mantini can be reached at dana.mantini@dtn.com
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