Quarterly stocks reveal bearish corn, neutral wheat markets
After the release of USDA’s Quarterly Stock and Acreage report, DTN Economist Dan Newsom noted on June 30 that stocks numbers set the stage for the markets moving into the remainder of the year.
“There were some interesting stocks numbers, to say the least, in this year’s report,” Newsom commented.
June, July and August are the fourth quarter of the marketing year, said Newsom, and at the end of the third quarter, stocks came in at much stronger than the pre-report estimate.
“When USDA released the number 4.72 billion bushels, that was more in line with what we were thinking, but well above the pre-report averages,” Newsom said. “The immediate reaction was corn sold off hard.”
At the same time, particularly concerning the old crop, July and September contracts start to come under pressure.
“The corn number was bearish,” Newsom said. “We have 4.72 billion bushels of corn on hand, as of June 1. We don’t have the breakdown of what’s on-farm and what’s off-farm yet.”
However, he says that regardless of distribution, the number is very large.
“We are well above what we had last year at this time, which was 4.45 billion bushels,” he remarked. “I think the real implication here is where it now projects ending stocks.”
With ending stocks predicted at 2.27 billion bushels, Newsom noted that the number seems dramatically inflated, but all indications show that it may be right.
“Right now, USDA is estimating in its June supply and demand report just a shade over 1.7 billion bushels. It all comes down to how we are estimating demand,” Newsom said.
Newsom estimates demand for the fourth quarter at just over 13.1 billion bushels, but USDA uses 13.6 billion bushels as their number for old crop.
“These are all just hypothetical numbers, and we won’t know until we get there, but this is a burdensome number,” he commented. “Regardless of the size of this year’s harvest, we still have a lot of stocks on hand, as we did June 1. The basis market knows that, and it’s been reflecting that. This is going to be a problem for corn, certainly over the next quarter.”
The last several years have shown consistent growth in corn demand, with demand in the third quarter skyrocketing last in 2009-10.
“Last year, we climbed back up to about 3.3 billion bushels, and this year, third quarter demand came in closer to 3 billion bushels,” Newsom explained. “We need a much stronger number.”
While Newsom realizes that demand numbers will adjust slightly throughout the summer, he noted that much larger than normal demand will be necessary in the fourth quarter to reinvigorate corn markets.
“Total demand now, through the first three quarters, was a dip below what we saw last year, and we’re below what we saw the year before that,” he said. “When we consider that we had such huge production in 2015, filling our pipelines, our bins and our stocks, we’re lagging right now.”
Newsom added, “This is not a bullish development for the corn market. We need to see stronger numbers.”
Overall Newsom noted that quarterly stocks of old crop corn will continue to weight on the markets.
While acreage isn’t as influential in his mind, Newsom noted that acreage reports are market movers.
“They are hand grenades, not horseshoes,” he said. “There’s nothing accurate, but it certainly looks like that’s what is at play in the markets.”
“I think the market reaction we’re seeing today, the drop in corn and the strong rally in soybeans, all has to be tied to what we see in the acreage numbers,” he said.
However, he further noted that the acreage planted numbers will change.
“There’s nothing set in stone about these numbers,” Newsom commented. “As I like to say, they’re written in pencil or invisible ink.”
The report showed 94.1 million acres of corn will be planted this year, which is an increase over the 92.76 million acres forecasted before the report.
“This is down from what was projected in Prospective Plantings report,” he said. “The general consensus was that corn acres were going to lose out to soybeans.”
He noted, however, that farming practices don’t lend themselves to large swings between crops.
“Corn was above the high end of the Prospective Plantings report,” he said.
Wheat stocks came in at 981 million bushels in the June 30 report.
“This number was in line with USDA’s June report and June supply and demand report,” Newsom said. “This is also about the 977 million from 2009-10, and wheat has a large ending stocks.
Bearish futures spreads have been seen lately for wheat, with winter wheat going into variable storage.
“They’ve increased the storage rates because the carry is so strong,” Newsom said. “This report doesn’t do anything but confirm how large supplies are, so there’s no real surprise here.”
Looking at acres planted, Newsom said, “If ever there was a market that needed something bullish, some nugget to hold on to, they didn’t get it. All wheat acres came in at 50.8 million. We saw a little bit over a 1 million increase from March’s Prospective Plantings report.”
“There were no bullish numbers in the wheat market and nothing to support the five to seven cent rally in the market, unless there’s one of relief,” Newsom added. “As winter wheat harvest rolls along, we’re starting to see a bearish situation.”
Saige Albert is managing editor of the Wyoming Livestock Roundup and can be reached at firstname.lastname@example.org.