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U.S. commodity inventories tighten

By Karl Setzer
The long-awaited January supply and demand figures were friendlier for corn than expected. The U.S. corn yield was lowered 3.8 bushels per acre (bpa) to a 172 bpa average. This lowered the U.S. crop size by 324 million bu (mbu) for a 14.18 billion bu (bbu) production estimate. The USDA also adjusted last year’s carryout down 76 mbu. Total corn demand was lowered 250 mbu, with reductions coming to feed, ethanol and exports. This is enough to put ending stocks at 1.55 bbu, down from last month’s 1.7 bbu estimate.
Soybean balance sheets also tightened this month. The U.S. yield was lowered ½ bpa to a 50.2 bpa average. This was enough to lower the U.S. crop to 4.135 bbu, down 35 mbu from December. On the demand side, the USDA increased crush 5 mbu and exports 30 mbu but decreased residual usage by 13 mbu. A 20 mbu increase to soybean imports was also made. These changes were enough to put the U.S. carryout at 140 mbu, down 35 mbu from December. This is a very thin 3.1 percent stocks to use ratio.
Wheat balance sheets were also adjusted with feed demand increased by 25 mbu and seed usage up 1 mbu. This lowered the U.S. carryout estimate to 836 mbu. The stocks to use on wheat tightened from 49 percent last month to 39 percent this month and continues to shrink. Winter wheat planting estimates for 2021 were also released and came out at 32 million acres compared to estimates for 31.4 million and last year’s 30.4 million.
Changes were also made on the global side of balance sheets. The world corn inventory came out at 283.8 million metric tons (mmt), just under trade expectations but well under the 289 mmt December estimate. Global soybean inventory was estimated at 84.3 mmt, which was above estimates but down from the 85.6 mmt projection from December. The world wheat supply also came in under expectations at 313.2 mmt compared to guesses for 315.3 mmt and December’s 316.5 mmt.
The USDA also released its quarterly stocks data. As of Dec. 1, the United States had 11.3 bbu of corn, 2.93 bbu of soybeans, and 1.65 bbu of wheat in storage. These compare to year ago volumes of 11.37 bbu on corn, 3.26 bbu on soybeans, and 1.84 bbu on wheat.
Even with all of this fundamental data, the underlying driving force of today’s trade remains managed money interest. Managed money longs in the commodity market are currently the largest since 2011. Thoughts are these will continue to increase as more government stimulus is provided and consumer spending rises.
Demand is always been a factor in price discovery, but we tend to see more interest on it when other fundamentals are scarce. For the majority of this marketing year the focus of exports has been on soybeans, especially once the ending stocks of the commodity fell to a level that would warrant price rationing. While this is still very much a factor in price discovery, trade is over the initial shock that ending stocks will be considerably lower than first estimated this year. The question in the complex now is if any washing-out of sales will continue and ending stocks could actually increase.
We are now seeing more interest on corn demand. The United States has sold a large volume of corn this year, but thoughts are it may increase even more. China is again shopping for corn and focusing on U.S. offers. The main reason for this is that the United States is the primary source for corn in the global market right now and will be until late spring. A concern with corn is that while sales have been large, physical exports have been sluggish. Thoughts are this will correct once ports start to slow down on soybean loadings when demand shifts to South America.
When it comes to demand nearly all interest right now is on exports, but we have seen some sizable changes to domestic usage as well. The most talked about recently has been ethanol where usage is definitely a two-way street. Ethanol production demand on corn has been averaging 435 million bu for the past few months. While this is under the pace seen a year ago it is above the volume needed on a monthly basis to reach the yearly USDA estimate. So even with reduced usage from last year we could still achieve the yearly prediction.
That said, ethanol manufacturing has been outpacing consumption for the past several weeks and stocks are now at a burdensome level. This could easily cause ethanol manufacturing to slow in the future and drop our demand. Feed demand remains high on corn though as poor pasture conditions have put animals into lots sooner than normal this year. It is possible these two could easily offset each other as the year progresses.
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