USDA Reports Preview

USDA does not adjust U.S. production figures in the December report, instead taking the opportunity to focus on the demand side of the balance sheet, which went largely ignored in the November report, much to the frustration of traders. The December WASDE report also offers slightly more confidence in the accuracy of USDA's estimates, albeit slightly, and there remain categories that have proven to be largely difficult to predict early in the marketing season.

Corn futures have traded largely mixed through November with the March board hitting its high for the month of November on the day of the previous WASDE report's release; prices then chopped steadily lower but regained some footing in recent sessions. The market was left somewhat frustrated last month by USDA's unwillingness to revise U.S. corn demand estimates despite a solid two-month start to the marketing year.

Despite a few shaky weeks in the middle of November, corn export performance remains firmly ahead of last year's pace with current commitments running 33% above 2023. USDA's current estimate of 2.325 billion bushels (bb) is only a 3% improvement on last year's total. Ethanol demand also remains strong, with the U.S. setting two weekly records for production during the month of November. The Energy Information Administration also reported that corn used for biofuels in September at 447 million bushels (mb), up 4.4% from 2023. A strong showing for the month of September which usually isn't a huge month for corn grind with many plants taking maintenance time ahead of the busy harvest season.

This demand performance a quarter of the way through the marketing season may be enough for USDA to cautiously raise corn demand figures Tuesday. The Dow Jones pre-report survey of 19 U.S. analyst firms reported an average trade estimate for U.S. ending stocks of 1.887 bb, down 51 mb from the November estimate as a result of corn demand increases.

On the world stage, traders will be watching closely for any changes to South American corn production, which in tandem with the U.S. will account for potentially over 60% of world corn production excluding China. Currently USDA is estimating Argentina and Brazil to combine for the largest South American corn production year on record at north of 7 bb. Thus far for the season, South American weather has done little to dissuade these estimates, with key growing areas receiving ample rains. We are still fairly early in the growing season and, the largest crop at stake, the Brazilian safrinha, won't even be planted until February/March. For now, I wouldn't be surprised to see USDA kick the can down the road on South American production.

The November WASDE featured the largest yield cut on record for the November report. Despite this, soybean futures have dropped roughly 50 cents on the January board since the release of the November report. Traders have been largely concerned with political issues and nervousness regarding U.S. export competitiveness against what is being estimated as a record crop in Brazil. Combined with Argentina soybeans, production in South America will hit a record for the third consecutive year if the estimate is accurate. Many private analysts are figuring increases in South American production largely on ideal weather thus far, which is evident in the Dow Jones analyst survey which is calling for an average increase of world soybean ending stocks of 1.2 million metric tons (mmt), or 44 mb, likely in the form of production increases in Brazil or Argentina.

Looking at the U.S. demand picture, USDA cut soybean exports and crush in the November issue. The export cut was fair considering a shaky trading relationship with China currently and large South American production as mentioned above. The cut in crush has come under scrutiny in recent weeks, especially after USDA reported October crush at a record 215.8 mb, however, the estimate would still stand as a U.S. record and by a decent amount above last year's current standing record. With the recent pace of U.S. soybean exports keeping slightly above USDA expectations and considering the amount of time left in the growing season, I don't expect any major changes to the demand side of the balance sheet for beans. Looking at the Dow Jones analyst survey, the average expectation for U.S. soybean ending stocks comes in at 471 mb versus 470 mb last month, indicating very few changes to U.S. soybean demand are expected on Tuesday.

Tuesday's report will likely be largely uneventful for wheat balance sheets, as the past month has proven to be devoid of many significant market developments for wheat other than what was already at least partially accounted for in the November report. Wheat prices in the meantime are fresh off setting new contract lows and, unfortunately for wheat bulls, the December WASDE doesn't look likely to offer much in terms of adjustments to light a fire under this fall's suppressed prices.

On the U.S. demand side, the marketing year has crossed over halfway complete, and U.S. export commitments for wheat are running 19% over last year with USDA currently estimating an increase of 17%. There may be room here, but I find it unlikely USDA chooses to do much in terms of revisions to the export figure, primarily due to current uncertainty of how the U.S. fits into the world export market in 2025 with U.S. prices remaining among the highest in the world. The Dow Jones survey of analysts concurs with the average of trade estimates pointing for a miniscule 1,000 bushel increase in U.S. ending stocks of wheat, more or less unchanged from November.

Looking at the world balance sheet, Argentina and Australia are currently harvesting, and their estimates will be of interest to world trade. However, the country of primary interest to traders will be Russia to see if USDA follows through on November production cuts with further cuts in Tuesday's report. Also tied to Russian production is their export program, which the Russian government announced would face tighter restrictions February through June, limiting exports to 11 mmt during this period. The question then becomes how much of USDA's export estimate of 48 mmt has Russia been able to accomplish thus far in the "free" export period which runs from June through January. The Dow Jones pre-report survey has analysts estimates on both sides of unchanged in regard to world ending stocks of wheat, but the average comes out to exactly even with the November USDA estimate. One possibility which would yield this result is if Russian production is cut, it is fair to assume given the strong correlation between production and exports to see an equal and offsetting cut in Russian wheat exports which would leave world ending stocks unchanged.

Join us for DTN's webinar at 12:30 p.m. CST Tuesday, Nov. 10, as we discuss USDA's new estimates in light of recent market events. Questions are welcome and registrants will receive a replay link for viewing at their convenience.

Register here for Tuesday's December WASDE report webinar:

https://www.dtn.com/…

Rhett Montgomery can be reached at rhett.montgomery@dtn.com

Follow Rhett Montgomery on X @R_D_Montgomery

(c) Copyright 2024 DTN, LLC. All rights reserved.