USDA's January Grain Stocks Reports Shocked The Market One Year Ago, Will It Happen Again?

USDA is preparing to release a batch of reports on Wednesday that will not only reveal the final crop production numbers for the 2021 growing year, but also provide an updated look at crop potential in South America. Considering the weather concerns in South America have been the main driver of the soybean market lately, an updated look at the supply and demand balance sheet will also be closely followed this week.

In USDA's December report, the agency left both its soybean and corn yield estimates untouched, with soybeans coming it at 51.2 bu. per acre and corn at 177 bu. per acre. Garrett Toay of AgTraderTalk says it’s possible USDA makes adjustments in its crop production report this week.

“I think the biggest thing that could be a surprise on the production side, because the heavy rains in the Eastern CornBelt that the November report got the market leaning toward, they're expecting a bean yield portion in the 51 to 51.5 [bu. per acre]. They didn't account for the rains that we had in Indiana, Ohio, which kind of set those Eastern Corn Belt yields back,” says Toay.

Toay says on the supply side, it seems unlikely USDA will raise yields in the January report this week. That’s why he thinks the bigger question is if USDA will post a larger than expected decline in yields due to weather issues in the East.

The Big Question About Demand

January is the only month when the WASDE and Grain Stocks reports are released on the same day.

While private firms are starting to make cuts to their South American production estimates, USDA will have to choose in the big crop reports next week whether the agency is ready to make adjustments to the USDA forecast just yet. 

“The demand side, though, we're going to probably see a production decline in South America, whether the USDA wants to or not in this report, it’s just the question of whether they do it or not,” Toay adds. “But that's going to potentially narrow up that 300-million-bushel gap that we've got in the export as estimates versus the actual commitments, which is going to be responsible ultimately, for the increases in US soybean carry out from this point forward.”

The Big Miss in 2021 

Toay says last year, USDA drew some criticism in the Grain Stocks report. That's as the trade expected grain stocks to come in at 11.951 billion bushels, but USDA reported grain stocks as of December 1 were actually closer to 11.321 billion bushels, which was a 600 million bushel gap. USDA said the lower stocks were due to lost production from derecho, as well as test weight issues. Toay thinks that type of "surprise" probably won't happen this year. 

“The Grain Socks report is really where the tire meets the road, but I think the fact of the matter is I don't think that we can expect to see another 600 million-bushel miss like we saw last year,” says Toay. “And obviously with the South American weather, the beans have been the leader and it’s pulled corn higher, but if this USDA report was held late last week, March soybeans are the exact same price as what they were this this point last year, but corn is $1.10 higher.”

The Story in Basis 

Brian Splitt of AgMarket.net. says basis seems to be telling the story best right now, as he thinks the balance sheet is tighter than what USDA has revealed so far.

“We have a client in Liberal, Kansas that has a local feed yard out there bidding $1 over the board,” says Splitt. “So this is something that I think is going to potentially show lighter than expected stocks. And we'll see how the overall production numbers come out. But the structure of the market is telling us right now that things may be a little bit tighter than what the USDA is leading on for corn

As farmers face a situation where local buyers are aggressively trying to source and buy corn right now, Splitt thinks that sets the stage for USDA big reports this week.

“There is an awful lot that's going to happen on these numbers next week,” says Splitt. “I think based on some of the signals the market is telling us, and specifically for corn, we continue to look at the lack of carry in the market. March and May corn are essentially trading at the same price. Both of those are trading a few cents over the July contract.”

Current Export Demand 

Splitt says the corn export pace compared to soybean exports tell a slightly different story.

“Exports are good are running well above the five-year average on exports. And that might not be the case on soybeans, we're running right at about the five-year average. But as Garrett had mentioned, I think those sales will come down the road, especially if we continue to see these numbers in South America drop.”

Splitt says South America is a mixed bag for production right now. Some key growing areas have been seeing steady doses of rain, but other areas across Brazil and Argentina haven’t been that fortunate.

“The areas in central northern Brazil are looking very good, and we saw the acreage increases in the areas that are seeing good productive production potential,” says Splitt. “But we're going to be kind of looking at what the weather looks like in those areas over the next two weeks. Because if we keep getting rain, and maybe as much as 150 to 200% of normal, that's going to slow down harvest and that is going to delay the planning of the Safina corn crop which was a problem last year that pushed their corn crop into the dry season. That might bring some concerns about their corn crop down the road several months. So, I think we've got a lot of reasons to still be friendly about the demand potential.”

Demand Risk? 

With corn export pace sitting ahead of the five-year average, what type of risk is there in the overall demand picture? Toay thinks that could sit with the domestic side of the equation, specifically with feed and residual use.

“We have a reduced herd in the cattle market, but I think it's a short term issue, rather than a long term issue in demand,” says Toay. “I think when you look at this corn rally that we've had on the heels of the South American weather issues, ethanol prices are moving in the opposite direction , but now with this issue in Kazakhstan and crude back above $80. So maybe that helps the ethanol market. But these ethanol margins have really kind of come under pressure, it's probably a short-term issue.”

On the demand side, South America is a factor analysts are watching, but China is what Toay calls “the $64,000 question.”

“I'm not necessarily sure that they're going to be buying corn right now,” says Toay. “They've got the book on and they bought at substantially cheaper prices. But if you look at what's going on here, we had the hurricane in the U.S., and they’re [China] astute traders, they shifted their buying to Ukraine, they bought all the cheap Ukraine corn maybe arbitraged out some of their U.S. shipments. The shipment pace is going to pick up for China here.”

Toay says China continues to be strong buyers of U.S. sorghum, and considering the weather and crop concerns in South America, China could come in with more interest in corn from the U.S. again.

“If you get a nervous China, they may step in here and buy some corn. But as Brian said, I think it's more about execution than purchases at this point,” says Toay.