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Source: By Todd Hultman, DTN Lead Analyst • Posted: Monday, March 7, 2022

Amid Russia-Ukraine War, USDA Ventures New Estimates

As the Ukrainian people try to repel a Russian assault and many are fleeing for their lives, USDA steps into a volatile market environment to offer new supply and demand estimates in March. On Wednesday, March 9, USDA is expected to lower its ending stocks estimates of U.S. corn and soybeans for 2021-22 and update its view of South American crops.

CORN

With the world’s fourth-largest exporter of corn under attack and spot corn trading near its highest level in nine years, the actual market for corn prices is a long way from the estimates USDA described in February. Given the limits of the World Agricultural Supply and Demand Estimates (WASDE) report and its focus on the 2021-22 season, there is only so much USDA will be able to change in the March report, but lower ending stocks of corn is apt to be one result.

Dow Jones survey of 16 analysts expects USDA to lower its estimate of U.S. ending corn stocks from 1.540 billion bushels (bb) to 1.476 bb in 2021-22. So far, export sales and shipments of corn are down 19% from a year ago, below USDA’s estimated pace, but a loss of exports in Ukraine could lead to a slightly higher U.S. export estimate.

U.S. ethanol inventory has ballooned to its highest level in nearly two years, likely slowing future production. However, so far in 2021-22, ethanol production is up 11% from a year ago, allowing room for another increase in USDA’s estimate.

Dow Jones’ survey expects USDA to lower its estimate of world ending corn stocks from 302.22 million metric tons (mmt) to 299.6 mmt, or 11.79 bb. Brazil’s larger, second corn crop is just being planted, and USDA’s estimate of Brazil’s corn production is expected to drop from 114.0 mmt to 112.9 mmt or 4.44 bb, still not as low as Conab’s estimate of 112.3 mmt.

USDA’s estimate of Argentina’s corn production is expected to decline from 54.0 mmt to 52.0 mmt, or 2.05 bb — a little higher than the 51.0 mmt estimate from the Buenos Aires Grain Exchange. Ukraine’s old-crop corn production estimate is not likely to change at this late date, but the export estimate could be reduced, due to the war. The market is highly concerned about Ukraine’s ability to produce crops in 2022, but the 2022-23 season is not within the scope of the March WASDE report.

SOYBEANS

Similar to corn, spot soybeans are also trading near their highest prices in nine years and are a long way from the world described by USDA’s supply and demand estimates in February. Dow Jones’ survey expects USDA to lower its estimate of U.S. ending soybean stocks from 325 million bushels (mb) to 270 mb, largely influenced by drought in South America.

Sales and shipments of old-crop soybeans are down 16% from a year ago and are below USDA’s estimated pace, but there is a chance Brazil’s smaller soybean crop could drive China back to the U.S. for more old-crop purchases, in addition to the increased amount of new-crop purchases that has already started.

Soybean crush value continues to offer a historically rich premium above the price of soybeans, which is keeping crush demand strong for U.S. soybeans. Friday’s report from USDA showed a bushel of $16.56 soybeans in Illinois could produce $19.95 worth of meal and oil, a strong enticement to keep crushing.

USDA’s world soybean estimates will get attention Wednesday, as Dow Jones expects USDA to lower its estimate of world soybean stocks from 92.83 mmt to 88.9 mmt, or 3.27 bb. Analysts expect USDA to lower its estimate of Brazil’s soybean production from 134.0 mmt to 128.2 mmt, or 4.71 bb, but that might be too much of a drop to expect from USDA. USDA’s soybean production estimate for Argentina is expected to decline from 45.0 mmt to 42.9 mmt or 1.58 bb.

WHEAT

Just recently, the spot price of Chicago wheat traded at new all-time highs, above the 2008 high of $13.34 1/2, and spot KC wheat traded above $12 for the first time since 2008. I can almost guarantee nothing USDA says on Wednesday will fundamentally justify those price levels, as this is currently a broken futures market, unable to serve the interests of commercial wheat trade.

With that understood, Dow Jones’ survey expects USDA to lower its estimate of U.S. ending wheat stocks from 648 mb to 633 mb. Sales and shipments of U.S. wheat in 2021-22 are down 23% from a year ago with three more months left in the season, so it is difficult to expect USDA to get too optimistic about demand for U.S. wheat, even with the war in Ukraine. Prospects for wheat prices look much more bullish when we look ahead to 2022-23 with war in Ukraine and a threat of drought hurting crops in North America and southern Europe. Estimates for the new season, however, are not included in Wednesday’s WASDE report.

Dow Jones expects USDA to slightly lower its estimate of world ending wheat stocks for 2021-22, from 278.21 mmt to 278.0 mmt, or 10.21 bb. It is difficult to know what USDA will do, given the war in Ukraine, but a lower export estimate for Ukraine is likely.

Given the volatile situation in Ukraine, short-covering panic in grains and today’s extremely high grain futures prices, I don’t expect USDA’s new estimates to have much impact on Wednesday’s prices, but there is always room for surprise.

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Join us at 12:30 p.m. CST Wednesday as we look at USDA’s new estimates and what they mean for the market. We’ll also look at the market’s own clues to help understand what is driving today’s prices. If you’re busy at 12:30 p.m., that is no problem as there will be a link for you to replay the webinar at your convenience later.

Register here for Wednesday’s WASDE report webinar: https://ag.dtn.com/…

WORLD PRODUCTION (million metric tons) 2021-22
Mar Avg High Low Feb 2020-21
CORN
Argentina 52.0 54.0 50.0 54.0 51.5
Brazil 112.9 116.1 110.0 114.0 87.0
SOYBEANS
Argentina 42.9 45.0 40.0 45.0 46.2
Brazil 128.2 134.0 121.2 134.0 138.0
U.S. ENDING STOCKS (Million Bushels) 2021-22
Mar Avg High Low Feb 2020-21
Corn 1,476 1,540 1,350 1,540 1,235
Soybeans 270 325 182 325 257
Wheat 633 661 598 648 845
WORLD ENDING STOCKS (million metric tons) 2021-22
Mar Avg High Low Feb 2020-21
Corn 299.6 302.2 293.0 302.2 292.1
Soybeans 88.9 92.0 86.3 92.8 100.4
Wheat 278.0 280.0 275.6 278.2 289.9

Todd Hultman can be reached at todd.hultman@dtn.com

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