New Perspective: Mid-Day Commentary

By: Arlan Suderman, Chief Commodities Economist

Mon, 30 Aug 2021, 16:44

August 30 - The Nasdaq & S&P 500 stock indices are again pushing to new record highs today, as the VIX slips lower to trade near 16. The dollar index traded near 92.7 at midday, while yields on 10-year Treasuries are trading near 1.29%. Crude oil prices are modestly higher, while the Ags came under significant selling pressure today. Soybeans led the way lower, due to a combination of factors. The September/November spread surged last week ahead of Ida, but then collapsed today in the wake of the storm. Yet, the move was also amplified by the end-of-the-month trade, with some firms also looking at the end of their fiscal year. Algo traders smelled blood in the water, so to speak, and amplified the move as the September contract moves into delivery with low open interest, driving it sharply lower, as the weakness spread across the sector. All eyes are now on this afternoon's crop ratings.

USDA inspected 22.1 million bushels of corn for export inspection in the week ending August 26, along with 2.9 million bushels of grain sorghum, 13.9 million bushels of soybeans and 11.6 million bushels of wheat. The soybean shipment total was a 21-week high, while the corn shipment total was a one-year low as exporters prepared for the arrival of Ida at New Orleans ports. The portion of the above inspections that were specifically destined for China included 5.5 million bushels of corn, 2.8 million bushels of grain sorghum and 2.6 million bushels of soybeans. No wheat was inspected for shipment to China during the week.

Today's data as of August 26 leaves 5 days left in the marketing years of corn, soybeans and grain sorghum. It will take some weeks yet before we get official Census data on export shipments, but today's data allows us to make estimates about where exports will end up falling relative to USDA's August WASDE export targets. I now believe that final soybean shipments will be close to USDA's target of 2.260 billion bushels, while the corn shipments could end up at 30 million bushels short of USDA's 2.775 billion-bushel target - plus/minus 5 million bushels.

That leads us to a discussion of '21-22 marketing year corn and soybean export estimates. USDA pegs new-crop corn exports at 2.400 billion bushels. It assumes that China will import 26 million metric tons. I see that total closer to 22 mmt in the year ahead, before strengthening again in the following year. But, I believe that we will take more market share from Brazil following this year's short crop, with some of its customers garnering more supply from the United States. My current export target is at 2.380 billion bushels, just below USDA's estimate. For soybeans, USDA is solving its balance sheet for a 3.5% stocks-to-use ratio. It seems to believe that is a minimum pipeline supply. It assumed that prices will ration crush and export demand when it cut its new-crop production estimate on August 12th. As such, any more production cuts would be expected to result in more matching reductions in demand to keep ending stocks at a 3.5% ratio. I solved for a 2.7% stocks-to-use ratio, putting exports at a larger 2.095 billion bushels. The graphic below shows final new-crop soybean exports minus USDA's initial August estimate. Note that exports exceeded USDA's August estimate in 17 of the past 26 years, although that may be difficult in the coming year unless the crop comes in larger than currently believed to be the case. The data is split for corn, with final exports coming in above USDA's initial August estimate roughly half the time, and below it half the time.

SOURCE: USDA

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