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Views and opinions: June’s WASDE report is surprising bull on grains

The USDA shocked trade by cutting the national corn yield estimate by a full 10 bushels per acre in its June supply and demand report. This puts the average national yield at 166 bushels per acre. A reduction of 3 million was made to planted acres, as well. This combination will take 1.4 billion bushels off the U.S. corn crop, putting it at 13.68 billion.

The USDA is also reducing corn demand, though, mainly exports by a large 425 million bushels. Old-crop corn carryout was increased by 100 million bushels to a 2.195 billion total. Even with reductions to usage, new-crop ending stocks were reduced by 800 million to a 1.675 billion-bushel projection.

No changes were made to soybean production estimates, with yield holding at 49.5 bushels per acre and a crop at 4.15 billion bushels. The USDA lowered old-crop soybean exports by 75 million bushels due to recent trade issues, though, which was enough to raise old-crop ending stocks to 1.07 billion.

The USDA also increased its new-crop soybean carryout estimate to 1.045 billion bushels.

A slight increase was made to wheat production, putting the all-wheat category at 1.9 billion bushels. Only minimal changes were made to wheat balance sheets, with old crop at 1.1 billion bushels and new crop at 1.07 billion.

The global numbers also had changes, mainly on new crop. World ending stocks at the end of the 2019/20 marketing year are now estimated at 290.5 million metric tons on corn, 112.7 million for soybeans, and 294.3 million for wheat. The greatest change was to corn, with a 25 million-ton reduction, mainly due to the smaller U.S. crop.

The initial corn crop rating was released at 59 percent good to excellent. This is well behind the initial rating of 79 percent last year and the average of 73 percent. Another 32 percent of the crop is rated as fair. This leaves just 9 percent of the crop poorly rated, which is a surprise given recent weather conditions.

Long-range weather models continue to be monitored, with a shift to temperatures becoming a focal point. Some models indicate the United States is set to have one of the 25 coolest Junes since 1895. There is little doubt this will impact crop development, and only amplify issues already started with our late planting.

We are starting to see a different opinion when it comes to U.S. soybean production this year. While many forecasters are predicting a lower yield per acre, there are many who believe acres will be up. It is quite possible we could see a larger soybean crop than currently being used in balance sheets, even with reduced yield.

More questions are starting to arise on the impact of the late planting on harvest this year. One thing that is a given is harvest will be delayed for much of the Corn Belt. The initial reaction to this is a reduction to yields, but there are other ramifications – mainly crop quality.

One of the greatest concerns with a late-developing crop is an early end to the growing season, mainly from an early freeze. Historically, an early freeze is associated with lighter test weight in corn. It can also impact the oil content in soybeans and, in some cases, cause green oil if the crop is very immature.

Later-developing crops can also call for more handling, primarily drying. Even if this does not impact quality it adds to the cost of production and lowers net revenue.

Before long we will start to see a defined shift in market attitude. This will be from old-crop interest to new-crop. While old-crop balance sheets are still very much a market factor, they start to become more known at this time of the marketing year. This is also when we can see more interest placed on commodity demand.

An announcement has been made regarding the Market Facilitation Program (MFP) and potential payments. This is the federal support program designed to help offset farmer losses due to recent trade issues between the U.S. and our buyers, mainly China. According to the USDA, unplanted acres are not legally eligible for MFP payments.

This is a major concern for areas that are unable to get into fields because of spring flooding. The USDA is working on making payments available for farmers who plant cover crops. The USDA stated more details will be released in upcoming weeks.

 

Karl Setzer is Commodity Market Analyst for AgriVisor. His market commentary can be found on Twitter via @ksetzergrains

The opinions and views in this commentary are solely those of Karl Setzer. Data used for this commentary obtained from various sources are believed to be accurate.

6/20/2019