Focus on Ag: WASDE report shows that tight stocks will continue

Kent Thiesse
Farm Management Analyst and Vice President, MinnStar Bank
Kent Thiesse

The USDA World Agricultural Supply and Demand Estimates (WASDE) report released on May 12 projected a continuation of tight corn ending stocks and very tight soybean supplies by the end of the 2020-2021 marketing year, or August 31.

The ending stocks for both corn and soybeans were estimated to show modest improvement by the end of the 2021-2022 marketing year. From a grain marketing standpoint, the initial reaction to the WASDE report was widely regarded as mixed, with corn futures down sharply and soybean futures also declining somewhat.

However, given the tight supplies of corn and soybeans, most grain marketing analysts remain bullish about the grain markets going forward.

Following are some highlights of the latest USDA WASDE report:

Corn

Based on the May 12 WASDE report, the projected corn ending stocks for the 2020-2021 marketing year are estimated at 1.257 billion bushels, which was a decline of nearly 100 million bushels from the April report and was fairly close to the average grain trade estimate.

The 2020-2021 level of corn ending stocks would be a decline from 1.92 billion bushels in 2019-2020. A year ago in May, the first USDA estimate for 2020-2021 corn ending stocks was 3.3 billion bushels. USDA is projecting that total U.S. corn use for 2020-2021 will be 14.87 billion bushels for livestock feed, ethanol, exports, etc., which is an increase of about 907 million bushels from the 2019-2020 level.

The increase in corn usage was mainly due to a significant increase in the estimated corn export levels, which has largely been driven by a major rise in corn sales to China. Corn used for ethanol is projected to show a slight increase in the marketing year, which was offset by an estimated reduction in the amount of corn fed to livestock. The 2020-2021 corn stock-to-use ratio is now estimated at 8.5%, which is at the tightest level since 2012.  

The May WASDE report also offered an initial USDA estimate for ending stock levels for the 2021-2022 marketing year, which ends on August 31, 2022. USDA is projecting corn ending stocks to increase modestly to 1.507 billion bushels, with the stocks-to-use ratio expected to increase to 10.2%, which is still fairly tight.

The projected level of 2021-2022 corn ending stocks would represent an increase of 250 million bushels, or about 20% above the estimated 2020-2021 corn carryover levels. USDA is projecting total corn usage in 2021-2022 to decline by 105 million bushels to just over 14.76 billion bushels.

The USDA is forecasting increased usage levels for ethanol production and steady feed usage in 2021-2022, but lower U.S. corn export levels. Many analysts are questioning the projected reduction in export levels, given recent purchases of U.S. corn by China.

USDA is estimating total U.S. corn production for 2021 to be just shy of 15 billion bushels. This would be an increase of approximately 6% from the 2020 U.S. corn production level and about 10% above the weather-reduced 2019 corn production level. The USDA report expects an estimated 91.1 million acres in 2021 will be planted to corn in the U.S., which compares to 90.8 million acres in 2020 and 89.7 million acres in 2019. 

USDA is projecting a record average U.S. corn yield of 179.5 bushels per acre in 2021, compared to 172 bushels per acre in 2020 and weather-reduced yield of 167.5 bushels per acre in 2019. Corn planting progress in 2021 has been running well ahead of normal in most areas of the U.S., which usually results in favorable national corn yields; however, there is growing concern with drought conditions in some areas.

As of May 12, USDA is estimating the average U.S on-farm corn price for the 2020-2021 marketing year at $4.35 per bushel, which was an increase of $0.05 per bushel from the April WASDE estimate. The current USDA projected corn price compares to the final national average prices of $3.56 per bushel for 2019-2020, $3.61 per bushel for 2018-2019, and $3.36 per bushel in both 2017-2018 and 2016-2017. USDA also released the first estimated average corn price for the 2021-2022 marketing year at $5.70 per bushel, which would be the highest market year average price in several years.    

Soybeans

According to the May 12 WASDE report, the projected soybean ending stocks for 2020-2021 are estimated at 120 million bushels, which is at the same level as the April estimate and was very close to the grain trade estimates. The projected 2020-2021 U.S. soybean ending stocks level represents a reduction of 405 million bushels from the 2019-2020 carryover level of 525 million bushels, and is a whopping 789 million bushels below the final 2018-2019 soybean ending stocks of 909 million bushels.

Total soybean usage for 2020-2021 is estimated to be just over 4.57 billion bushels, which is an increase of 623 million bushels above the total usage of 3.95 billion bushels in 2019-2020. The biggest change in soybean demand from the previous year was a projected increase of 598 million bushels for soybean exports in 2020-2021.

The increase in exports mainly resulted from brisk increase in soybean sales to China, following the initiation of the Phase 1 trade agreement between the U.S. and China in the second half of 2020. USDA projected a slight increase in the bushels used for soybean processing in the U.S for 2020-2021, compared to crush levels in 2019-2020. The ending soybean stocks-to-use ratio for 2020-21 is estimated at 2.6%, which would match the lowest ever stocks-to-use ratio recorded in 2013.

The May WASDE report projects soybean ending stocks to increase by 20 million bushels by the end of the 2021-2022 marketing year on August 31. The 2021-2022 estimated carryover level of 140 million bushels is the smallest initial May carryover level ever recorded.

USDA is estimating total U.S. soybean exports to decline by 205 million bushels in 2021-2022 as compared to export levels for the current year. Given the current strong demand for U.S. soybeans, some grain marketing analysts are questioning whether the anticipated 2021-2022 export level will actually decline, given the strong current and future foreign demand for U.S. soybeans.

Total U.S. soybean production in 2021 is estimated at 4.405 billion bushels, which would be an increase from the estimated U.S. soybean production of 4.135 billion bushels in 2020 and just over 3.55 billion bushels in 2019. Planted soybean acres for 2021 are projected at 87.6 million acres, which compares to 83.1 million acres in 2020, 76.1 million acres in 2019, and the record U.S. planted soybean acres of 90.2 million acres in 2017. USDA is estimating a national average soybean yield of 50.8 bushels per acre in 2021, which compares to 50.2 bushels per acre in 2020 and 47.4 bushels per acre in 2019. The record U.S. soybean yield was 52.1 bushels per acre in 2016. 

USDA is estimating the U.S on-farm soybean price at an average price of $13.85 per bushel for the 2021-2022 marketing year, which runs from September 1, 2021 to August 31, 2022. The preliminary price estimate for the 2021-2022 marketing year on May 1 is among the highest ever for that date. The projected market year average price for 2020-2021 is $11.25 per bushel soybean price, which compares to a final average soybean price of $8.57 per bushel for 2019-2020, $8.48 per bushel in 2018-2019, and $9.33 per bushel for 2017-2018.

Average soybean prices for 2021-2022 will likely be highly dependent on the level of U.S. soybean exports to China and other countries, as well as 2021 growing conditions in the U.S.

Market impact

The immediate grain market reaction following the WASDE report was negative for both corn and soybeans.

Current corn futures declined by $0.71 per bushel from the date of the report (May 12) until the market closing on May 14, while current soybean futures dropped by $0.56 per bushel over the two-day period.

New crop December corn futures were down by $0.50 per bushel from May 12 to May 14, while November soybean futures declined by $0.43 per bushel. While the WASDE report certainly had an impact on the grain markets, many analysts felt that part of the decline was due to profit taking by some of the grain traders.

Current corn futures had risen by over $1.50 per bushel since March 31 to reach $7.15 per bushel on May 12. Similarly, current soybean futures rose by over $2.25 per bushel from late March until reaching a $16.42 per bushel level on May 12.

For additional information contact Kent Thiesse, farm management analyst and senior vice president, MinnStar Bank, Lake Crystal, Minn., at (507) 381-7960 or kent.thiesse@minnstarbank.com, or visit www.minnstarbank.com.