Special Market Update

Today marks the first WASDE report of the year and it’s a big one! The last time we heard from the USDA was on December 10^th and it was a big nothing; corn unchanged and soybeans used for crush were taken 15 mbu higher. Since then march Corn futures have increased by 71 cents, and soybeans have increased 2 dollars and 13 cents! On the January report we will get the final production numbers (planted and harvested acres, and yields), updated demand/usage numbers, and the latest estimates on the South American crops. Additionally, we will see the quarterly stocks report, which will report the amount of unused corn, soybeans and wheat as of December first.

Let’s focus on corn first. The trade is expecting for supply to be mixed, with harvested acres slightly higher and yields slightly lower from last month’s report. The trade average estimates are 82.543 million acres harvested and a 175.3 yield, versus 82.527 mln acres and a 175.8 yield on last month’s report. The bias to final production is lower from last months report, but the range is very wide. The average estimate comes in at 14.470 bln bushels, which would be about 37 mln bushels lower than last report. The demand numbers are much more debated than the supply numbers. While it is no secret that ethanol margins have been weak recently, have they been weak enough to warrant a cut to corn used for ethanol? Some argue the current number is already too low, and the number should be taken higher. Given how high corn prices are, feed numbers could be taken lower as inputs have been more expensive. Exports the last big piece of demand can also go both ways, it would make sense given export sale pace that the USDA would hold exports unchanged, but if South American production is taken lower then that would add a lot of pressure for US exports to be taken higher. Overall, this calls for carryout to be taken lower, with the average estimation at 1.6 bln bushels. So, the corn numbers can be debated very easily back and forth, and it doesn’t get any better when looking at the stocks number. Given the above back and forth on ethanol and feed usage, it becomes very difficult to estimate the stocks. The industry analysts’ estimations have over a 700 mln bu range, it just depends on who you ask! The stock number feels the hardest to estimate on this report, it will all depend on what the USDA prints for demand numbers!

Now onto the big action, soybeans. With futures prices not seen since 2014, soybeans have been the leader in ags. The expectation for tomorrows report is for demand numbers to be taken higher, and supply numbers unchanged to slightly lower. On the supply side, many expect for harvested acres to remain at 82.3 mln, with yield unchanged to possibly 3 to 4 tenths of a bushel lower. Imports are the last piece to supply, currently estimated at 10 mln bushels, we could see this number take 10 to 25 mln bushels higher. The big news will be the demand numbers. Starting with exports, given existing export sales the US has over 91% of estimated exports already on the books. This leads many to expect exports to be taken 25 to 50 million bushels higher. Crush is also estimated to be taken higher as the first 3 months of the crop year were an all time high for crush. Remember, the USDA raised crush last report too, this increase is expected to be 5 to 10 mln bushels. Since then we saw crush margins take a pretty steep hit, with deferred margins over 40 cents off their highs, so this one could go unchanged. Soybean carryout is estimated to come in around 140 million bushels, and this number will have all the attention. The range of carryout is low 100s to high 160s, and heavily debated. Soybean carry out has only gone below 100 mln bu one time, in 2013/14 carryout was 92 million bushels.

Finishing quickly on South American producer. “South America is dry” has been a very common headline in the marketplace over the last 2 months. The question now is, “how dry is South America?” Brazil has received very timely rains the last 3 weeks, Argentina not as lucky but still has gotten good coverage. As we stand today, Brazil is on pace for a record crop. Any significant reductions to their production will be very bullish for US commodities, as we will be looked to as the replacement. Buckle up, this report could be a wild ride!