A Roller Coaster Ride of…Wheat??


by Darin Newsom, DTN Senior Analyst

OMAHA (DTN) — As I said in this space last year, it seems logical that grain traders will pay more attention to USDA's Quarterly Grain Stocks report, as those numbers set the table for acreage reports down the road. But as we all know, logic doesn't always hold court in the markets.

USDA will release its Quarterly Grain Stocks and Prospective Plantings reports at 11 a.m. CDT on Monday.


To me, the critical number of the few set for release Monday is soybeans quarterly stocks. From the end of November 2013 through the end of February 2014, the quarter covered by this report showing stocks as of March 1, the inverse in the May-to-July futures spread strengthened by 19 cents, indicating the commercial side of the market was growing more and more bullish. The question has been why? USDA has held to its ending stocks figure near 150 million bushels, trying to convince traders domestic stocks-to-use were not at record-low levels and that all was well. With the next quarterly stocks report now upon us, the realization is that stocks are far from adequate to keep up with demand.

If we plug in the pre-report average estimate of 989 million bushels, approximately 71.5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of USDA's estimated total stocks of 3.464 billion bushels have been used through the first half of the 2013-2014 marketing year. If realized, this would be the largest percent used over the first half on record, despite all the talk of large production in South America.

But the situation really gets interesting if we carry numbers forward to the end of the marketing year this next August. Second-half average for the last 15 years totals 34.8{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of total supplies. A quick look at what would already have been used and you see the problem: 71.5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} plus 34.8{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} totals 106.3{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of total supplies. Putting numbers on that results in soybean ending stocks of (-166) mb. Even if we use the smallest second-half demand of 30.1{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} from the 2003-2004 marketing year — the benchmark for smallest ending stocks (112 mb) and ending stocks-to-use (4.5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}) — ending stocks would be projected at (-10) mb.

That's where Prospective Plantings come in. Yes, the average pre-report estimate came in at 81.4 million acres, a 6{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} increase from last year's estimated 76.5 ma; and yes, the hue and cry if this number is realized will be how bearish this is; but the reality is soybeans will likely need all those acres to rebuild domestic ending stocks to near 2.0 bb. Plug numbers into a preliminary supply and demand table for 2014-2015 (something USDA will do for us in May), and the margin for error remains razor thin for new-crop soybeans depending on how the dust settles for old-crop ending stocks.


Corn stocks are on the other end of the spectrum from soybeans. USDA has been trumpeting the return of record demand in recent monthly supply and demand reports. The question is now if quarterly stocks support that claim through the first half of the 2013-2014 marketing year. Pre-report estimates averaged 7.110 bb, which if realized would imply usage of 51.9{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of total supplies (14.781 bb). This would be 1.2{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} more than the 15-year average, though Q2 demand would actually be marginally less than average.

As with soybeans, the real interest occurs when we carry the numbers forward to the end of the marketing year. On average, second-half corn demand amounts to 37.4{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of total supplies. That would put total demand at 89.3{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} of total supplies, or about 11.8 bb as compared to USDA's March estimate of 13.225 bb, and ending stocks at 2.126 bb. However, if we use second-half demand of 40.5{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30} from 2009-2010 (the last time corn supplies were record high at 14.774 bb), ending stocks come in at 1.713 bb with ending stocks-to-use at 14.0{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}. By comparison, USDA last pegged these at 1.456 bb and 10.9{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}, respectively.

One last thing: We can't forget about the 300 mb to 400 mb of corn stocks that float in and out of USDA's Quarterly Stocks report like Forrest Gump's feather. In January (stocks as of Dec. 1, 2013), USDA's 10.426 bb was 344 mb less than the average pre-report estimate. Given that these bushels alternate with each report, it could be assumed that Monday's number could come in above the pre-report estimate, putting Q2 stocks at roughly 7.5 bb. Suddenly, ending stocks jump back above the 2.0 bb bushel mark.

All of this, not to mention weather, is what pushes corn Prospective Plantings out of the limelight. In reality, a projected dip to 92.9 ma (average pre-report estimate) may not be as bullish as made out to be, but simply necessary to control a rapid rebuilding of domestic ending stocks. Again looking at a preliminary S&D table shows 2014-2015 ending stocks stabilizing near the 1.7 bb level.


The average pre-report estimate for wheat came in at 1.034 bb, which if realized would imply Q3 demand of total supplies (3.018 bb) of 14.2{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}. This would be near the five-year average of 14.3{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}, but well behind the 15-year average of 15.2{75f28365482020b1dc6796c337e8ca3e58b9dd590dc88a265b514ff5f3f56c30}. A USDA number near the average pre-report estimate also increases the likelihood that ending stocks could be increased from the March estimate of 558 mb, albeit slightly, to about 575 mb.

As for acreage, all wheat is expected to show about 56 million acres as compared to last year's 56.2 ma. This despite spring wheat gaining some of corn's lost ground in the dry areas of the Northern Plains, with the average pre-report estimate coming in at 12.2 ma. Spring wheat acres for 2013 have been pegged at 11.6 million. If realized, this won't help the spring wheat market that is expected to get bogged down when Canadian supplies start to move.


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Posted with DTN Permission by Haylie Shipp


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