Current US Corn, Soy Supply Calls for Record Use in Coming Months: Braun

(Business Recorder) – There is no shortage of corn and soybeans in the United States right now, which is why record use of both in the next several months will be necessary to meet current year-end supply forecasts from the government.

Skepticism over whether this is possible is valid, given some of the major demand hurdles as of late. Digging into the numbers more closely should ease some of the concerns, though record use might prove more challenging for corn than soybeans.

The agriculture market was caught a bit off guard on Friday when the U.S. Department of Agriculture placed March 1 corn stocks at 8.61 billion bushels, some 270 million higher than the market was expecting.

Soybean inventory on March 1, which marked the halfway point for the 2018-19 corn and soybean marketing years, came in at a record 2.72 billion bushels, only 33 million above predictions. Although the soybean number was 29 percent higher than the previous year’s record, burdensome soybean supplies were already a given as China’s tariffs on the U.S. oilseed remain in place.

Taking March 1 corn stocks with USDA’s 2018-19 carryout forecast of 1.835 billion bushels, this implies that 6.77 billion bushels of corn must be used from March through August. That would be a record amount, expanding fractionally on last year’s record.

For soybeans, March 1 supply and a 900 million-bushel ending stock projection implies second-half soybean use at 1.82 billion bushels, also a record, topping last year’s high by 9 percent.

One factor that must be considered, especially for corn with the trade’s huge miss, is that the grain stocks figures do not include any product in transit, and that could have made a difference this year.

Although the flooding in the central United States worsened in mid-March, transportation logistics had been messy in the several weeks prior. Reuters highlighted these problems on March 1.

If much less grain was able to traverse the country a month ago based on clogged rivers and railways, that could have inflated stock numbers relative to previous years.

This could be a reason why analysts missed corn stocks because export, ethanol, and animal numbers should have been more or less known by last week. If the transit issue was not the culprit, it is possible that last year’s corn harvest was understated.

SOYBEANS

Exports usually account for about half of the annual use of U.S. soybeans, but shipments have slumped in 2018-19 due to the ongoing trade war with top customer China.

Soybean exports in the first half of the marketing year totaled about 1.01 billion bushels. This means second-half shipments need to combine for about 861 million to reach USDA’s current full-year target of 1.875 billion bushels, and sales are more than halfway there.

In a normal year, this volume would not be possible. Between 2012-13 and 2016-17, an average of 81 percent of the full-year exports were shipped in the first half. That share dropped to 68 percent in 2017-18 when non-Chinese buyers were loading up on cheap U.S. beans at the tail end of the year.

From September through February, roughly 54 percent of USDA’s full-year target had been shipped. Now, in the second half of 2018-19, China’s partial return to the U.S. soybean market means there are more outstanding orders than usual.

As of March 21, USDA’s weekly export sales showed that the United States still had 12.4 million tonnes (456 million bushels) of unshipped commitments. That compares with 9.4 million tonnes a year earlier, which was also a relatively higher volume than in previous years.

China has committed to another 60 million bushels of U.S. soybeans since March 21.

The record second-half export volume was set last year at 678 million bushels. Comparing that with the current schedule and considering potential future sales suggests that surpassing that mark in the next several months is not unreasonable.

On the crushing side, USDA data shows that between September and February, the United States crushed 1.061 billion bushels of soybeans, leaving 1.039 billion for the second half in order to reach the forecasted 2.1 billion-bushel total.

Last year’s second-half total reached 1.045 billion bushels, and the year before it was a more modest 925 million. On the board, crush margins are notably lower than a year ago, but higher relative to the previous years.

CORN

It might be more difficult for exports to lift U.S. corn demand to record levels in the coming months as South American crops will offer much stiffer competition than a year ago, when bad weather slashed output there.

Last year, March through August corn exports totaled 41.8 million tonnes, some 31 percent higher than the previous record for the period set two years earlier. That accounted for 68 percent of total 2017-18 exports, the largest-ever share.

But as of March 21, unshipped corn commitments for 2018-19 stood at 13.9 million tonnes versus 23.5 million a year earlier.

Corn use for ethanol production is unlikely to make as significant a demand dent as a year ago, either, as profit margins have slumped amid high supply. In the week ended March 22, U.S. ethanol stocks reached an all-time high of 24.45 million barrels.

According to the U.S. Energy Information Administration, March ethanol output was the smallest for the month in three years.

Corn use for feed might be one category in which demand outpaces a year ago during the second half of 2018-19. It also supports the idea that feed usage should have been at least similar to or greater than a year ago during December through February.

According to USDA data, the March 1, 2019, inventory of all hogs and pigs in the United States was up 2 percent from a year earlier. The total herd size on Dec. 1 was also up on the previous year by the same amount.

Chicago Mercantile Exchange lean hog futures have shot to five-year highs for the time of year on concerns about the deadly African swine fever spreading through China, and this could promote an expanding U.S. hog herd.

From December through February, cattle on feed was up 1.4 percent over the same period a year ago, though new placements were down 1.8 percent. However, the trend was positive through the end of the period as February placements were larger than a year ago.

Total live poultry weight and the number of chickens slaughtered were down fractionally on the year during December and January, though the January numbers were actually up on the year, suggesting another increasing trend. February data should be published next Monday.

China’s problems with African swine fever are expected to support global meat production in general as shrinking Chinese hog herds will generate the demand for replacement protein.