Posted on September, 10, 2024 at 11:57 pm
The September World Agricultural Supply and Demand Estimates (WASDE) report is due this Thursday. Going into the report, here is some context for the corn, soybean, and wheat markets, and what we at Grain Market Insider will be looking for in the updated balance sheets.
In August, the USDA updated its planted acreage estimates from the June Acreage report with a reduction of 700,000 planted acres. This, combined with an estimated yield of 183.1 bushels per acre (bpa) and a 75-million-bushel increase in export sales, put new-crop ending stocks at 2.073 billion bushels, 24 million bushels below the July estimate and below trade estimates as well. Since then, the market has drifted lower to a fresh contract low in the December contract as producers brought old crop supplies to market and the Pro Farmer Crop Tour showed strong yield potential at a projected 181.1 bpa.
That said, looking toward the September WASDE, there are thoughts that the USDA could be overstating yield at this point, given less-than-ideal crop conditions in the eastern Corn Belt around Ohio and southern Indiana, and in the north-central Corn Belt around southern Minnesota. Since crop ratings have remained historically strong nationally, we at Grain Market Insider would expect yield estimates to remain relatively steady for now.
There are also thoughts that the USDA could be overstating export demand, considering China has no U.S. corn purchases on the books for the 2024/2025 marketing year that began Sept. 1. Although, that could change as the U.S. is currently the cheapest origin on the world export market.
Grain Market Insider has seen one estimate for new-crop corn carryout be over 2.175 billion bushels, an increase of over 100 million bushels from last month, possibly due to the currently slow export pace. On the ethanol side, there have been thoughts that the USDA could raise its demand estimates for ethanol production slightly, which would help offset any decline in exports.
Last month, the USDA shocked the soybean market by raising new-crop carryout to 560 million bushels, a whopping 125 million bushels from its July estimate. Much of this increase came from an additional 1 million planted acres from the June estimate. Additionally, the USDA raised yield to 53.2 bpa from 52 bpa in July, and somewhat offset the increased supply by increasing export demand by 50 million bushels.
Like corn, new-crop soybean sales have been incredibly sluggish — the slowest since 2019 — and some think that current export projections could be overstated. Although, it may be too early to see any downward revisions, especially since sales to China have increased lately. Looking at the supply side of the equation, the recent crop tour estimated soybean yield at 54.9 bpa. It is possible that the USDA could maintain, if not raise, its current soybean yield estimate given the overall high crop ratings and overall non-threatening August weather.
Domestic crush margins have also remained strong, supporting strong crush demand. An argument could be made that the USDA could raise domestic crush demand, potentially offsetting other supply side increases. Grain Market Insider has seen an early projection that lowers overall new-crop ending stocks from the current 560 million bushels to 537 million.
When looking at the wheat market, there has not been much change in sentiment since last month. The USDA lowered 2024/2025 ending stocks 28 million bushels to 828 million, largely due to a 900,000-acre reduction in planted and harvested acres. The spring wheat crop is still considered large with historically high crop ratings, though there are some growing concerns regarding quality with recent wet weather during harvest.
Canada recently estimated their wheat crop at 34.4 million metric tons versus the USDA’s estimate of 35 million. Australia’s crop looks good and should be larger than last year, while Argentina is dealing with dry weather, which could limit their potential. World supplies have decreased with smaller Russian and European crops, though Russia continues to dominate the world export market with aggressive pricing.
U.S. wheat export sales have been decent with year-to-date commitments up 31% from last year versus the USDA’s August projection of a 17% increase. With that in mind, there may be some expectations of the USDA raising its U.S. export forecast, which could in turn lower carryout.
From a statistical perspective, based on data drawn between 1993 and 2021, internal research at Grain Market Insider indicates that the volatility of the September WASDE report day tends to have more negative reactions than positive across all three commodities.
For corn, this report is tied with both the February and March reports as the most negative leaning of the WASDE reports. The likelihood of a negative close is about 59% versus a 41% chance of a positive close on the day of the report. Interestingly, when looking at settlement prices, it appears that when the report triggers a positive move, the market’s reaction is among the sharpest, showing an average historical gain of 2.5% versus a 2% loss following a negative report.
While soybeans also show a tendency towards a negative September report, it’s not quite as severe as corn. Fifty-five percent of the time, soybeans have posted a negative close following the report versus 45% positive close. Similar to corn, it appears the trade may have a bias towards a negative report, so a positive surprise tends to have a larger reaction, posting a 2% gain on average, compared to an average 1.4% loss.
Looking at wheat, the September report has the same statistical averages as corn: 59% of the time, the market has a negative reaction versus a positive reaction 41% of the time. Unlike corn and soybeans, the net change does have a slight bias toward larger negative moves versus positive. The average negative close posts a 1.7% loss, whereas the average positive close shows a 1.5% gain.
Source: Successful Farming