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Grains Weekly Analysis

By: StoneX Intelligence Brazil, StoneX Intelligence Brazil

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October WASDE brings less tight balances for grains, cotton and soybean oil
 
Ana Luiza Lodi
analuiza.lodi@stonex.com
Marcelo Bonifácio
marcelo.bonifacio@stonex.com
Arthur Machado
arthur.machado@stonex.com
João Pedro Lopes
joao.lopes@stonex.com
  Luigi Bezzon
  luigi.bezzon@stonex.com
FOR WHEAT, THE SCENARIO WAS THE OPPOSITE, WITH REDUCED PRODUCTION AND ENDING STOCKS
The October monthly supply and demand report from the US Department of Agriculture (USDA) was highly anticipated by the market due to the possibilities of further adjustments, mainly in the US 2021/22 crop as the harvest progresses. In addition, the figures released on September 30 were incorporated.
Soybean

The report was within the market's expectations for soybeans, which pointed to an increase in productivity for the North American crop, with private institutions already indicating this trend.

With this, the national average yield was 3.46 tonnes per hectare with production at 121 million tonnes, very close to the figures released by StoneX in early October of 3.45 tonnes per hectare (the central states of the belt offsetting the drop in North Dakota) and 120.7 million tonnes, respectively. 

This increase in expected production, of about 2 million tonnes, combined with the revision of ending stocks for the 2020/21 crop year (due to the revision of production to 114.75 million tonnes), led the estimate for the US ending stocks to rise to 8.71 million tonnes, a level that indicates a looser balance, even higher than those recorded in crop years before the trade war with China.

It is also noteworthy that estimated world stocks for the 2021/22 crop year rose to 104.6 million tonnes, with production exceeding consumption by 7.87 million tonnes.
 

 

Trend of US soybean carryout and stock-to-use ratio 

image 20056
Source: USDA. Design StoneX.

Given this scenario, the South American crop will be in the spotlight in the coming months on the supply side, while Chinese demand is closely monitored after imports in September were 6.88 million tons, 30% below the same month in 2020. Even so, the accumulated between October 2020 and September 2021 reached 99.8 million tonnes.

Export sales of US soybeans to China in the 2021/22 harvest are much weaker than in the same period last year, at a time of ample availability of US grain, and the last quarter of the year is the best period for shipments of the oilseed in the country.  Thus, the coming weeks should be central to defining how much soybeans China will import from the US this cycle.

Corn

The USDA raised the US corn production estimate for the 2021/22 crop by 570,000 tonnes to 381.5 million tonnes, a number, as with soybeans, very close to that released by StoneX earlier this month. 
The advance in the Department's number resulted from a slight increase in the yield estimate to 11.08 tonnes per hectare, up from 11.07 in the previous report. However, it is also worth noting the 1.14 million tonnes cut in domestic consumption, to 311.9 million, and the 630,000 tonnes increase in exports, to 63.5 million.

Thus, the estimate for ending stocks of the new crop advanced from 35.8 million tonnes in September to 38.1 million tonnes in the last report, exceeding the market's average expectations of 36.4 million tonnes. Thus, the North American balance would be looser than previously forecasted, with the stock-to-use ratio exceeding the 10% level. However, it cannot be said that the market would enter a comfortable situation since the ratio would remain below the figures observed between the 2014/15 and 2019/20 crops.

Trend of US corn carryout and stock-to-use ratio

image 20057
Source: USDA. Design StoneX.

Chinese 2020/21 imports were raised to 28 million tonnes, while there were no adjustments in Brazil balance sheets and Argentina. As the North American harvest advances, market attention is increasingly turning to South American crops, especially amid concerns about another La Niña phenomenon occurrence, which could damage the continent's crops.

Wheat

For wheat, the WASDE update brought revisions above those expected by the market, which resulted in an immediate uptrend in futures markets. According to the Department, after important producing countries in the northern hemisphere, such as the US and Canada, made cuts on production estimates for 2021/22, mainly due to weather conditions, the final global stock should reach 277.18 million tonnes – its lowest volume in the last five years. It is worth noting that the reduction in the USDA estimate of world consumption, from 789.63 to 787.05 million tonnes, caused by rising wheat prices around the globe, should not be enough to alleviate the supply and demand balance.

According to the available data, USDA estimates that world wheat production should reach 775.87 million tonnes, about 4.41 million tonnes below the previous estimate (Sep/21). As pointed out earlier, the most significant cuts come from the US and Canada, expected to produce 44.79 million and 21 million tonnes, respectively. The revised national data goes along with those released in the September 30 Small Grains Annual Summary for the US. The drop in production for all wheat subclasses (HRW, HRS, SRW and White), except for Durum wheat, results from lower harvested area and yields. In the European Union, the world's largest wheat producer, the USDA indicated an increase of 400,000 tonnes for production. However, it is worth remembering that the European crop shows low quality after heavy rains at the beginning of the second half of 2021.
 

Wheat S&D balance 2021/22 - EUA (million tonnes)

image 20058
Source: USDA. Design StoneX.

Vegetable oils

As with soybean, the October WASDE revisions also brought a bearish bias to soybean oil prices, driven by an increase in global and US ending stocks expectations for the 2021/22 season. 

The upward revision of 145,000 tonnes (+21.6%) in the US ending stocks for 2021/22, totaling 815,000 tonnes of soybean oil, as a result of an 11% increase in ending stocks for the 2020/21 crop and a slight increase in expected production for the new crop. 

For Brazil's 2021/22 crop, there were no major changes in the soybean oil production, consumption and export scenario expected for the WASDE report. Instead, the main movement presented by the Department in October was the 6% downward revision in the expectation for Brazilian exports in the 2020/21 season, which increased the outlook for oil ending stocks by 17% for the 2020/21 cycle and by 18.3% for 2021/22. 

With that, in the global picture, soybean oil ending stocks were revised up by 0.8% this month, totaling 4.1 million tonnes. However, the expected increase in ending stocks for the new crop should still be 7% lower than the global ending stocks expected for the previous season. In other words, the perspective is that soybean oil availability will remain tight in 2022 – analyzing the entire vegetable oil complex, the Stock-to-Use ratio for the 2021/22 crop is at 10.8%, against 11.7% for the previous season.

Soybean oil S&D - October/2021 WASDE (million tonnes)

image 20059
Source: USDA. Design StoneX.

Cotton

The October WASDE report corrected the market's most optimistic expectations for cotton, especially on the demand side. In the publication, the global consumption 2021/22 crop was projected at 26.87 million tonnes, a correction from the September projection of 27.03 million. The global production forecast, in turn, increased from 26.04 million to 26.19 million tonnes, a movement that was not expected by the market. As much as the corrections have been timid, they were enough to slow the momentum in New York, where the December/21 contract accumulated a drop of USD 5.93/lb between the day of publication and the following day when it settled at USD 103.86/lb – a historically high level still.

The US numbers for the 2021/22 season, highlighted in the September WASDE with the upward revisions in production, had few changes in the new report and went unnoticed by the market. Yield expectations were down slightly from 895 lb/acre to 871 lb/acre. Still, an extremely positive level for the producer, reflecting favorable crop conditions in the cotton belt. With an 11.3% abandonment rate maintained, production projected for the US stood at 3.92 million tonnes, 110,000 below September's report, but still a robust crop.

The highlights of the October WASDE, which brought a slight increase of 100,000 tonnes to global ending stocks, came from the Asian economies. In China, the retraction of more than 200 thousand tonnes in domestic consumption reflected the country's problems with the interruption of activities in several factories that suffer from the very short availability of coal and high costs with the input. Although the projection of Chinese imports has been increased, the recovery of the world's largest consumer of natural fiber should remain on the agents' radar. Also, the increase in global supply came, in particular, with the good outlook for the crop in Pakistan, where the USDA increased production expectations by 330,000 tonnes. Overall, the October WASDE was more balanced than the last five publications, which consecutively increased global consumption for the 2021/22 crop.  
 

Cotton S&D balance - October/2021 WASDE (million tonnes)

image 20060
Source: USDA. Design StoneX.
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