Initial WASDE Reaction: January 12, 2022
Teucrium | January 12, 2023
Top Takeaways:
#1. Corn, wheat, and soybeans all rally as supplies remain tight relative to demand
#2. The ’23-’24 crop year will be critical to help ease balance sheet tensions
#3. Market will increasingly become focused on South American and US weather while looking ahead to the USDA Ag Outlook Forum in February
Quarterly Grain Stocks
US corn and wheat stocks were reported within range of analyst expectations, albeit at the lower end. US soybean stocks are lower than the lowest analyst estimate. Inventories for all three grains are lower year-over-year.
| Grain Stocks Year-Over-Year Change | |
|
Corn |
-7.15% |
|
Soybeans |
-3.67% |
|
Wheat |
-7.04% |
The WASDE Breakdown
Corn
Ending Stocks
The USDA estimates ’22-’23 corn ending stocks will be 1.242 billion bushels which is below the average analyst estimate of 1.314 billion bushels according to Bloomberg. This is a 15 million bushel decrease versus last month. The resulting stocks/use[1] ratio is 8.92%. Note the five-year rolling average stocks/use ratio is 12.3%.
Supply
The USDA estimates corn production will be 13.730 billion bushels which is below the average analyst estimate of 13.936 billion bushels. Yield estimates were raised to 173.3 bushels per acre (bpa) versus the estimate of 172.5 bpa.
Demand
The USDA estimates total corn usage of 13.915 billion bushels, which exceeds this year’s expected production. The domestic balance sheet is tightening.
Global
The USDA estimates global corn ending stocks will be 296.42 million metric tons (MMT) which is below the average analyst estimate of 297.7 MMT according to Bloomberg.
Market Reaction
Front-month corn futures jumped on the hells of the report. The USDA cut the harvested area estimate by 1.6 million acres. The demand side of the balance sheet was also revised lower, yet the supply estimates fell further than the demand estimates. The result, there is less corn versus expectations. This is bullish.
Wheat
Ending Stocks
The USDA estimates wheat ending stocks will be 567 million bushels which is below the average analyst estimate of 581 million bushels according to Bloomberg. The resulting stocks/use ratio is 29.8% which is significantly below the rolling five-year average stocks/use ratio of 46.5%
Supply
The USDA estimates wheat production will be 1.650 billion bushels which is unchanged versus last month.
Demand
The USDA estimates total wheat usage of 1.901 billion bushels up 33 million bushels month-over-month. This marks the 6th crop year in a row that wheat usage has exceeded production in the US.
Global
The USDA estimates global wheat ending stocks will be 268.39 million metric tons (MMT) which is in-line with the average analyst estimate of 268.3 MMT according to Bloomberg.
Market Reaction
Front-month wheat futures rallied as US ending stocks came in lower than expected based on strong domestic demand. The global ending stock number was in-line with market expectations. The wheat balance sheet remains relatively tight.
Soybeans
Ending Stocks
The USDA estimates soybean ending stocks will be 210 million bushels which is below the average analyst estimate of 233 million bushels according to Bloomberg. The resulting stocks/use ratio is 4.54% compared to the rolling five-year average stocks/use ratio of 11.64%.
Supply
The USDA estimates soybean production will be 4.276 billion bushels which is below the analyst estimate of 4.375 billion bushels. Yield estimates came in at 49.5 bpa versus an average analyst estimate of 50.3 bpa.
Demand
The USDA estimates total soybean usage of 4.355 billion bushels which exceeds the production estimate. This is the 3rd consecutive crop year where usage is set to exceed production.
Global
The USDA estimates global soybean ending stocks will be 103.15 million metric tons (MMT) which is above the average analyst estimate of 101.5 (MMT) according to Bloomberg.
Market Reaction
Front-month soybean futures advanced in the wake of the report as ending stocks came in 23 million bushels below expectations. The USDA revised lower both yield and harvested area estimates. US farmers simply did not produce as many bushels as previously thought. The domestic balance sheet remains tight and a 23 million bushel swing inn one direction or the other is meaningful.
[1] Stocks/Use Ratio: Ending stocks divided by total usage, whereas Ending Stocks (also called carry-out) represents the amount of a crop that will be available at the end of a crop year given the estimated or actual beginning stocks, production, and usage.