Depth Analysis US Grain Stocks Get Smaller

According to USDA report that  corn and soybean supplies are getting smaller than first thought. And the US government market-friendly anti bird net numbers, the CME Group’s farm markets have moved higher.

USDA pegged the Brazil corn crop at 85.0 million metric tons vs. the trade’s estimate of 84.4 mmt. and the USDA’s May estimate of 87.0 mmt. For soybeans, the USDA sees Brazil’s crop size at 119.0 mmt. vs. the average trade estimate of 117.4 mmt. and the USDA’s May estimate of 117.0 mmt. For Argentina, USDA pegged the corn crop at 33.0 mmt. vs. the USDA’s May estimate of 33.0 mmt. and the trade’s estimate of 32.5 mmt. And,USDA sees Argentina’s soybean production at 37.0 mmt. vs. the trade’s expectation of 37.9 mmt. and the USDA’s May estimate of 39.0 mmt.

This was clearly a supportive report for grain prices. U.S. corn ending stocks are projected to decline year-on-year by nearly 25%, soybean stocks by over 23%, and wheat stocks by about 12%. Record April U.S. corn exports and robust global demand for U.S. corn plant support net are likely to keep a floor under prices from current levels. Farmers have to be happy with this report because the fundamental picture is definitely shifting toward a tighter balance sheet for all the major grains.

The USDA reminded the trade that the world balance sheets are tightening in all categories. Also, these price pullbacks in corn/soy have been largely political as uncertainty surrounds key trade deals. The balance sheets tighten with trend line yields out of the U.S., so now we need to keep this 2018 crop an above trend line crop (where it currently it is being estimated). This report was a reminder that lower prices will not decrease usage as corn/soy usage was increased in both 2017 and 2018 crop years.

The PRICE Futures Group's senior market analyst, says that wheat reaction is all about the Russian data. This 3.5 million tons lower month-to-month is a big drop and the reason wheat is so strong now. U.S. data was neutral,maybe a bit negative. Corn is all export demand.

Brazil and Argentina losing crops in the direction of the trade, but not the magnitude of the expectation. But the strong export demand was great, and the domestic demand next year was, too, and a great reason to buy.

The soybean numbers are more neutral, as the crush is up, but not a wild report. Wheat and corn will carry the day with agriculture shade net the follower. It is actually the wheat market pulling prices higher despite world wheat stocks being 2 and 3 million tons higher than expectations in old crop and new crop respectively. U.S. soybean balance sheets will offer support now that ending stocks dropped to 385 million in the 18/19 marketing year.