Although the report noted some interesting production shifts, grain markets neglected to make any significant adjustments in Friday morning trading, notes Bryce Knorr, Farm Futures senior grain market analyst.
“The market has already discounted USDA’s acreage estimates, believing growers will opt to plant more soybeans and less corn because soybeans offer a better shot at profits,” he says.
USDA projects corn production in 2018 will reach 14.930 billion bushels, which is 1% lower compared to last year. That number is based on fractionally lower planted acres, plus a return to trend yields. Because of that, corn supplies could decline from record highs from 2017/18, but they remain relatively large.
If corn yields follow weather-adjusted trends, and assuming a normal growing season, they could reach 174.0 bpa in 2018, down from a record-breaking 176.6 bpa the year prior.
USDA reports mixed results for corn usage, meantime. Corn feed and residual use could drop 75 million bushels to 5.475 billion bushels, according to the agency. On the other hand, food, seed and industrial use of corn for 2018/19 could rise by 150 million bushels to a projected record of 7.145 billion bushels. And corn used for ethanol is also projected at record levels this coming year – rising 125 million bushels to a record 5.650 billion bushels.
Corn export estimates are somewhat cooler. For 2018/19, they’re projected at 1.9 billion bushels, which is 150 million bushels below the 2017/18 forecast. USDA cites pressure from Argentina, Brazil and Ukraine as a major cause of the downward trend.
All told, these movements could push U.S. corn ending stocks in 2018/19 down another 3% to 2.272 billion bushels, with a stocks-to-use ratio of 15.6% versus 16.1% a year ago.
Soybean supplies, in contrast, are projected up 3% from 2017/18, at 4.875 billion bushels. Production could land 2% lower based on “fractionally lower planted area and trend yields,” to 4.320 billion bushels. USDA projects an average soybean yield of 48.5 bpa – just 0. 6 bpa lower than 2017 and 3.5 bpa below 2016’s record-breaking effort.
For soybean domestic use, USDA projects a 1% increase next year to 2.115 billion bushels, thanks to a 30 million bushel increase in domestic crush (1.980 billion) along with an expansion of domestic use and exports of soybean meal.
Soybean oil domestic use is also projected up, by 1.2%, to 21.35 billion pounds. That leaves soybean oil ending stocks in 2018/19 at a projected 1.576 billion bushels, 3% higher year-over-year.
Soybean exports for 2018/19 could climb 200 million from the year prior to 2.3 billion bushels. USDA attributes rising global demand coupled with lower South American harvests for this higher estimate.
In total, USDA estimates U.S. soybean ending stocks will drop 70 million bushels to 460 million bushels in 2018/19. A smaller harvest and increase in disappearance could leave the ending stocks-to-use ratio down to 10.4%, compared to 12.7% a year ago.
“The number that really jumps off the pages is USDA’s forecast for 2018 crop soybean exports,” Knorr says. “They show sales returning to record levels after a disappointing 2017 season. We’ll see how that plays out, especially with Brazil still increasing production and China rattling the sabers of a trade war.”
Wheat production for 2018/19 is also projected higher than a year ago, by 98 million bushels (a 6% increase). USDA revisions are largely based on the modest increase of wheat acres this year.
Acreage estimates are mixed, with all-wheat acres up 500,000 acres to 46.5 million acres. However, 2018 winter wheat seedings could drop 2%, pushing it to the lowest levels in 109 years.
But higher production could be more than offset by lower carry-in. USDA suggests this reduction could be as much as 172 million bushels lower than 2017/18. That leaves supplies 93 million bushels lower this marketing year.
USDA projects domestic use of wheat marginally higher (10 million bushels), reaching 1.127 billion bushels due to a slight increase of feed and residual usage. Food and seed usage should remain steady at 955 million bushels and 62 million bushels, respectively.
Wheat exports could drop by 25 million bushels compared to 2017/18, to 925 million bushels. Strong international competition from the EU, Australia, Canada, Russia and other major wheat-producing regions will remain a challenge moving forward. USDA expects to retain its core export markets but anticipates an uphill battle breaking into new or emerging markets.
Added up, U.S. wheat ending stocks for 2018/19 could slide by about 78 million bushels (8%) to reach ending stocks of 931 million bushels. If that projection holds, it would reach the lowest ending stocks since 2014/15 – but still hovering above the five-year average of 902 million bushels.
The projected 2018/19 tocks-to-use ratio of 45.4% is slightly below 2017/18’s 48.8% but is also ahead of the five-year average of 42.7%.