The May reports from the U.S. Department of Agriculture marked the official start of the new crop supply and demand season. While the trade and many in the industry have been calculating the 2024-25 outlooks for months, this USDA report acts as a true starting point for the year ahead. Typically, this is interpreted as “bearish” by the trade given the agency’s use of lofty outlooks. This year, however, the trade was interested in many other aspects of the report, which gave the bulls momentum following the release. Don’t get me wrong, there is still plenty to debate.
Old crop domestic ending stocks usually get the back burner of this report. However, there were some interesting adjustments that had an impact on other elements of the release. Domestically, soybean ending stocks were left unchanged from last month. That isn’t surprising as it aligned with estimates ahead of the report. Corn and wheat, on the other hand, were lowered more than the trade anticipated. Old crop corn demand was raised by 100 million bushels based on higher exports and ethanol usage. That brought 2023-24 corn ending stocks down to 2.022 billion bushels. The 2 billion bushels mark is important to the trade and the move will likely keep old crop futures supported. 2023-24 U.S. wheat ending stocks were also adjusted lower due to higher demand (exports). That pushed old crop wheat ending stocks below trade estimates and 10 million bushels lower than last month.
Remember, old crop ending stocks are important to the new crop balance sheet. These numbers become beginning stocks for the upcoming crop year and adjustments in this area will have an impact on the outlook for new crop ending stocks. With the “bullish” surprise of lower old crop stocks for corn and wheat stocks, it started the outlook for 2024 on a positive note. Now, we get into the heart of the report.
The highlight of the May report is always the initial production numbers for the three major grains. Interestingly, corn and soybean production was reported inline with trade estimates. With acres being known from the March 28 report, the trade was assuming trendline yields would be used. They were right. Wheat production, on the other hand, was reported slightly below trade expectations but still above last year. Without any large surprises in this highly anticipated aspect of the report, the trade was left to analyze new crop ending stocks. This is where the report got interesting.
Without any friendly adjustments to old crop soybean ending stocks or new crop production, domestic new crop soybean ending stocks were reported higher than expectations. That more than offset increases to domestic crush and export demand. Disappointing and it certainly added to the bearish tone in soybeans following the release. Corn and wheat, however, had a much more supportive outlook. New crop ending stocks for both corn and wheat were reported below trade estimates thanks in part to lower beginning stocks, higher export demand and domestic usage. Bullish.
Corn in particular, had a friendly report from a domestic standpoint. Given the USDA is using a trendline yield, it will become even more important that it is achieved or domestic stocks could quickly fall below the important 2 billion bushels mark. Wheat is in a similar situation. With higher domestic winter wheat production expected, the pressure is now on for the crop to yield. Unfortunately, both crops are dealing with weather concerns that are putting the updated outlook in jeopardy. That added fuel to the fire following the release. Rains through the Corn Belt and the lack there of through the southwestern Plains could certainly change the outlook in the months to come — if it continues. Again, welcome the 2024 weather market season.
As you are likely aware, weather concerns stretch far beyond the U.S. right now. This has certainly stood out this spring. In fact, I don’t remember another year that had so many global weather and production concerns this early in the U.S. growing season. I’m not complaining about the impact to price movement but it certainly could add volatility this year. Regardless, it had the trade watching the global balance sheets more closely this month for any sizable adjustments. Sizable can be debated, but there were notable changes.
It’s no surprise that corn and soybeans are continuing to monitor South America’s production estimates. Given recent weather headlines, the trade was expecting sizable cuts to Brazil and Argentina’s corn and soybean production. Unfortunately, the USDA, once again, kicked the can down the road. While the USDA left Argentina’s soybean production estimate unchanged they did lower the country’s corn production from last month. Remember, this area is dealing with disease and pest issues which have many other analysts below 50 million metric tons. Brazil’s corn production was also lowered but it was still higher than trade expectations. With the crop entering key pollination and the wet season just ending, it may be too early for the USDA to justify a larger adjustment. The agency did note a 1 million metric tons drop in Brazil’s soybean production due to
flooding in Rio Grande do Sul
. Is it enough? Many in the trade are estimating losses of 3 million to 5 million metric tons due to the recent flooding. The question now is whether that should be subtracted from the USDA’s current estimate or from CONAB. The trade is clearly debating the issue which may have limited losses following the report.
In the end, all three major crops saw tighter old crop global stocks compared to last month which was supportive. Global new crop stocks, however, were more mixed. Keeping with the current theme, soybean stocks are seen ballooning to over 128 million metric tons. That’s a big number and an all-time record high. Global corn stocks were reported below trade estimates but are still forecast to hit a six-year high. Wheat stocks were also pegged below trade estimates but are up marginally from last year. The highlight for the wheat market was the global breakdown of production. The USDA currently estimates Russia’s 2024-25 production at 88 million metric tons versus 91.5 million this past year. That’s a sizable cut and likely proves weather conditions are going to lower the country’s production in the year ahead.
Simply put, the report was friendly corn and wheat while neutral soybeans. I am hesitant to label the report bearish or bullish because money flow is also key to price direction at the moment. While the report sparked another round of short covering by the funds, follow through still remains important. Once the funds become neutral, grain futures will need to stand on their own fundamentals to keep prices supported. Can they do that? Global weather will be the deciding factor.
Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family’s Mahnomen, Minnesota, grain farm.
