The accompanying slide set for the August Commodity Market Update can be found at this link: August 2017 Supply and Demand
The complete August 2017 USDA Supply/Demand report can be found at: World Agricultural Supply and Demand Estimates
Soybeans, corn, wheat, and cotton prices turned sharply lower last week in response to the August 10 USDA reports. Ahead of these key monthly reports, traders and market analysts have a set of expectations in terms of what they think yields, production and ending stocks should be. Oftentimes it is not the numbers in the USDA reports, but the numbers relative to pre-report expectations that influence price changes in the futures market.
Given the fact that NASS crop ratings for corn and soybeans were on the decline for much of July, there was a general expectation for USDA to lower U.S. average yields and production in August. To the surprise of many, USDA increased the U.S. average soybean yield by 1.4 bushels per acre to 49.4 bushels. This in turn increased production by 121 million bushels to a record 4.381 billion bushels. These revisions also pushed 2017/18 ending stocks to 475 million bushels; up from 370 million in 2016/17. For the 2017 crop, U.S. average producer prices are expected to be in the range of $8.45 to $10.15 with the mid-point of this range being $9.30 per bushel.
August adjustments to the U.S. long-grain balance sheet included a 4 million hundredweight (mcwt.) cut in production to 132.4 million. This is a significant 34.1 mcwt. drop from 166.5 million last year. A specific long-grain yield estimate was not provided in the August supply/demand tables. Assuming USDA is using the acreage estimates from the June 30 NASS Acreage report, it would appear the current U.S. long-grain yield estimate is roughly 7,277 pounds per acre or 161.7 bushels.
Further adjustments to the new crop long-grain balance sheet included a 2 mcwt. reduction in domestic use to 90 million. Exports were unchanged at 77 million. Ending stocks were cut by 2.2 million to 17.7 million hundredweight, from 19.9 million last month and 31.3 million last year. The mid-point of the 2017/18 producer price range was increased by 13 cents to $5.40 per bushel. Overall, the August USDA report was fundamentally supportive for rice prices with lower new crop production and ending stocks.
The U.S. corn yield was pegged at 169.5 bushels per acre compared to an average estimate of 166.2, and above the high end of pre-report estimates at 168.5 bushels. Production came in at 14.153 billion bushels; 298 million bushels over trade expectations. Ending stocks came in at 2.273 billion bushels; 270 million bushels over expectations of 2.003 billion. For the 2017 crop, U.S. average producer prices are expected to be in the range of $2.90 to $3.70 with the mid-point of this range being $3.30 per bushel.
One issue market analysts continue to focus on is the variable weather across the Cornbelt. Parts of Iowa and the Dakotas have been dry for much of the growing season and topsoil moisture levels are low. In contrast, crops in the eastern Cornbelt have been too wet in some areas. During the month of July weekly NASS crop ratings declined for both corn and soybeans. This was driven largely on drought conditions in the western Corn Belt. A more accurate picture of U.S. yields would be expected in the October 12 WASDE as crops mature in the Midwest.
USDA showed higher than expected U.S. wheat production at 1.739 billion bushels. Total wheat ending stocks at 933 million bushels were also above expectations as a result of higher than anticipated Spring and White wheat production. No adjustments were made to the Soft Red Winter balance sheet. Ending stocks for the class are projected at a hefty 236 million bushels.
U.S. cotton production for the 2017/18 season was projected to reach an 11-year high at 20.55 million bales as compared with 19.0 million last month and 17.17 million bales last year. Ending stocks for 2017/18 were pegged at 5.8 million bales, up sharply from 2.8 million in 2016/17. The U.S. average yield was projected at record-tying 892 pounds per acre. New crop export demand was increased 700,000 bales from last month to 14.2 million. Production shortfalls in key exporting countries such as India, Brazil and Australia would certainly help alleviate the growing carry-over situation in the U.S. For the 2017 crop, U.S. average producer prices are expected to be in the range of 55 to 67 cents with the mid-point of this range being 61 cents per pound