The USDA is releasing its Quarterly Grain Inventory Report and its 2021 Small Grain Production Summary tomorrow. The September 30 Grain Inventory Report provides the latest look at USDA’s best estimate for past supplies. crops, providing updated usage information for corn and soybeans for MY 2020/21.
Last year’s September 30 report saw lower inventories and higher utilization rates, triggering rallies for corn and soybean futures prices that only ended last summer. Will tomorrow’s reports start another rally?
Here are a few factors we’re keeping an eye out for that will point to a bullish – or bearish – harvest season for U.S. farmers.
Maize utilization rates grab market attention
According to the September 10 Global Agricultural Supply and Demand Estimate Report, USDA forecasts 2020/21 corn inventory volumes ending at 1,186 million bushels. That total widened as ethanol production rates and corn export rates slowed in the final days of the 2020/21 marketing year, which ended on August 31.
The number of corn stocks tomorrow will depend heavily on the utilization rates over the past three months. The average trade estimate suggests that around 30 million bushels of additional usage need to factor into the latest WASDE closing inventory value, but where will that come from?
Clearer advice on this is unlikely to be released until next month’s October 2021 WASDE report. The dismal ethanol production rates over the past two months reduce the likelihood of using ethanol as a source. Year-to-date cattle inventories are slightly lower (1%) than the same volumes at the same time last year.
The USDA cut its 2020/21 corn export forecast by 105 million bushels between July and September at lower than expected end-of-season loading rates. It is no coincidence that US corn exports to China declined in July and August, as corn and wheat harvests were larger.
If the trade estimates are realized, the 2020/21 closing stocks currently at the fourth tightest level (7.9% stocks-to-use ratio) would be reduced to the third tightest level and rival 2012 (7.4% ) for the second tighter. This could create lucrative cash flow opportunities for producers in areas where the harvest has not progressed as quickly.
Little change expected for soybeans
It’s no secret that soybean stocks are tight – and likely will remain so for a while. With a current stock-to-use ratio of 3.9%, US 2020/21 soybean stocks are currently the second tightest on record, behind only 2013 (2.6%). But will that change tomorrow?
Trade is skeptical. The current USDA ending soybean inventory estimate of 175 million bushels is in line with market estimates for tomorrow’s report.
But keep in mind that since June, the USDA has found an additional 56 million bushels of the old soybean crop in the form of unrealized crush production. A better than expected crash in August could lower the USDA number tomorrow.
Either way, given strong global soybean oil demand and increased domestic biodiesel production capacity, expect another year of tight supply for the soybean market. Export markets are already warming, especially as the Gulf emerges from flooding and damage from Hurricane Ida.
In the event that Chinese demand lags behind falling pork prices this year, expect domestic crush processors to be the first to grab those new bushels of crop.
It is not without precedent that the USDA will also make changes to inventory volumes from previous quarters. If you recall a year ago, the broad market rally was largely driven by revised stock readings from previous quarters, not just because of updated third quarter stock readings.
The USDA often receives more specific information on inventory and utilization after the release of quarterly reports. This was especially prevalent during the peak months of the pandemic last year. So don’t rule out additional changes in tomorrow’s reports.
Wheat supplies are shrinking
In addition to utilization rates, the USDA will today release updated estimates for 2021 wheat production. Historic droughts in the northern plains and the Pacific Northwest (not to mention the Canadian prairies) have delayed harvests of white, spring and durum wheat in the region.
As a result, supplies are expected to tighten to at least the tightest levels since 2013/14. But USDA utilization rates for the first quarter of the 2021/22 marketing year may be more attractive tomorrow.
The peak export season is about to end for the US wheat market. Since the start of the marketing year, wheat shipments are 18% lower than in the same period a year ago. Admittedly, the tight supply situation and the rising dollar have made American wheat a less attractive option on the world market. And the damage from Hurricane Ida in the Gulf of Mexico certainly reduced wheat loading rates during peak loading periods.
But will weaker supplies compensate for slower export loading rates? Today’s report will provide more information on this. Food consumption rates for wheat in the United States were increased slightly in last month’s WASDE report. And top USDA economists expect more wheat to be fed to cattle in the United States this year than last year.
Corn will undoubtedly be in the headlines in tomorrow’s report. But don’t sleep on wheat. The world’s major exporters are all under supply pressure this year, which could create unique out-of-season export opportunities for US wheat.
Today’s report may not have the firepower of last year’s report, but it will certainly lay the groundwork for another potentially profitable year for U.S. row crop growers.