The U.S. Department of Agriculture’s latest quarterly stocks report was devoid of the usual surprises.
“Today’s report was fairly tame compared to many Sept. 30 reports that we’ve had,” said Arlan Suderman, chief commodities economist with INTL FCStone.
The one number that caught most analysts off guard was U.S. wheat stocks of 2.527 billion bushels as of Sept. 1. The average trade estimate was 2.397 billion bushels.
Suderman was the exception.
“I drew a few odd looks when I put out my wheat stocks estimate of 2.558 billion bu.,” he said.
Suderman’s number was higher than most because he isn’t buying the USDA’s forecast for 330 million bu. of feed demand in 2016-17. He believes it will be closer to 225 million bu.
“We are not seeing the shift from corn and grain sorghum over to wheat to the extent that the USDA projects this year,” he said.
The remainder of the report was good news with both the corn and soybean Sept. 1 stocks estimate coming in lower than the trade anticipated.
Corn stocks were pegged at 1.738 billion bu., which was below the average trade estimate of 1.754 billion bu., and the soybean number was 197 million bu., which was slightly below the trade estimate of 201 million bu.
The USDA also issued a new 2016-17 wheat production estimate of 2.31 billion bu., which is slightly lower than the average trade estimate of 2.323 billion bu.
However, the real tale is told when that number is broken down by class. There is more hard red winter wheat and durum than the trade was anticipating but less soft red winter wheat and spring wheat.
The average winter wheat yield was 55.3 bu. per acre. The previous record was below 50 bu. per acre.
“It’s outstanding, to say the least,” said Suderman.
Nothing illustrates the wheat surplus better than the aerial video of a five million bu. pile of wheat more than six football fields long on an old naval air base near Yoder, Kansas, which can be found at www.mkcoop.com/Blogs/Yoder-Bunker.
Mid Kansas Co-op was forced to transfer the wheat from grain elevators to base runway to make room for the fall harvest.
However, while there is a surplus of winter wheat, the spring wheat crop was disappointing. The USDA estimates that farmers will harvest 534 million tonnes of spring wheat, which is well below the trade expectation of 570 million tonnes.
Traders are worried about the shortage of high-protein wheat. There are also production problems in Australia and Canada.
Suderman believes 2016-17 corn ending stocks will be higher than the USDA is forecasting because he doesn’t think there will be a nine percent increase in feed demand due to strong competition from wheat and sorghum.
He also believes the corn export number will be smaller, especially if China decides to export some of its seven billion bu. stockpile of the crop.
Using the USDA’s average yield estimate of 174.4 bu. per acre, he is forecasting 2.592 billion bu. of ending stocks, up from the current USDA estimate of 2.384 billion bu. That would result in an estimated marketing year average cash price of $3.10 per bu.
He has less faith in the USDA’s soybean yield estimate of 50.6 bu. per acre.
“The yield reports are coming in so impressive that I’m anticipating that the trade is pricing in at least a 52 bu. yield,” said Suderman.
If that is the case, ending stocks would be 398 million bu., which again would be higher than the USDA estimate of 365 million bu. That would result in an average soybean cash price of $9.45 per bu.