Weekly Insights: USDA Report – What’s in Store for Grain Stocks
USDA Report — What’s in Store for Grain Stocks
On Wednesday, the USDA will release its quarterly Grain Stocks report providing estimates for grain and oilseed inventories as of March 1. In combination with its Prospective Plantings report, USDA’s stocks estimate, as well as acreage projections, can drive some of the most volatile trading days of the year.
Grain Stocks Average Forecast
Given the expected tightness in the U.S. 2020/21 soybean ending stocks, one of the most closely watched data points will be the USDA’s estimate of soybean stocks. However, quarterly stock numbers, particularly soybeans, are typically hard to predict. USDA estimated December 1 inventories were pegged at 2.93 billion bushels plus imports that totaled 3.2 million bushels during the quarter, resulting in a second-quarter total supply of almost 2.94 billion bushels.
On the demand side, USDA has only reported two out of the three months of crush volumes. Still, NOPA data allows us to estimate February crush at 164.5 million bushels, resulting in quarterly crush use of 554 million bushels. Similarly, Higby Barrett has export data from the Census Bureau for two months but must rely on inspection data to estimate export volumes in February. Weekly inspection data suggest shipments totaled 160 million bushels in February, yielding quarterly export demand of 883 million bushels. There is no seed use in the quarter, so the only remaining variable is residual use.
Residual use typically fluctuates with the changes in export volumes. As export volumes rise, a larger volume of the commodity is in transit to the ports at any given time. When USDA conducts its quarterly stocks survey, its survey does not capture the grain in transit in the stocks estimate. However, it does not show up in the usage data either, decreasing both supply and usage in that quarter. However, when the grain is shipped, it shows up in usage data, but it also increases the supply for that quarter. Simply put, the grain in transit and not counted in one quarter is found in subsequent quarters.
The accompanying chart shows the relationship between the change in the volume of soybeans in transit during the first two weeks of December and the first two weeks of March and implied residual use for the second quarter of the marketing year. During the first quarter, the vast volume of exports resulted in a significant decline in shipments from the first quarter to the second quarter, implying a substantial negative residual use (USDA finding back the soybeans that were in transit during the first quarter).
U.S. Soybean Residual Use versus Export Change
(source: USDA and Higby Barrett)
Based on the significant negative residual use, Higby Barrett estimates U.S. soybean stocks as of March 1 totaled 1.55 billion bushels. Our estimate represents a decline of 706 million bushels from the 2.26 billion reported last year and would be the lowest March 1 stocks since March 2016. However, anecdotal reports have suggested some analysts believe inventories could be below 1.5 billion bushels.
As shown in the accompanying chart, the large decrease in the volume of shipments could imply a negative residual for the quarter that is larger than is expected, increasing stocks from our expectation. Suppose USDA’s estimate is above our estimate and closer to 1.6 billion bushels. In that case, we would expect USDA to raise their demand forecast for the second half of the marketing year to offset the larger inventories. Given the robust demand for soybean oil from the biofuel industry, USDA would likely raise its crush forecast. Based on our March 1 inventory estimate, Higby Barrett increased our forecast for the 2020/21 U.S. crush and dropped our predictions for U.S. exports and residual use. The changes reduced our 2020/21 carryout below 100 million bushels and our 2021/22 ending stocks prediction to just over 100 million bushels.
The expectation for historically low stocks-to-use ratios over the next two years implies soybean values are likely to remain well supported. However, if USDA reports that farmers plan to plant less than 90 million acres of soybeans in its Prospective Plantings report, soybean futures will likely challenge the record levels set in 2012.
For corn, the residual concept is similar. However, since USDA’s balance sheet combines residual and feed use, the analysis is slightly different. USDA reported U.S. corn inventories on December 1 totaled 11.32 billion bushels, in line with the prior year’s stocks of 11.33 billion. Trade data for the first two months of the quarter and our estimate of corn imports during February suggest imports totaled about six million bushels, implying a total supply for the second quarter of 11.33 billion bushels.
Based on Census Bureau data for the first two months of the quarter and inspections data for February, Higby Barrett estimated export shipments totaling 657 million bushels during the second quarter, down 210 million from the first quarter. Since shipments grew in the second quarter, it implies more corn was in transit during the survey period, suggesting a positive residual use.
USDA only reports most of the individual components of food, seed, and industrial (FSI) use by quarter instead of monthly. However, NASS reports a monthly total for the most prominent member of FSI, corn ground for ethanol production. Based on the NASS reports and RIN generation data from the EPA, Higby Barrett estimated the second quarter corn grind at 1.19 billion bushels. Our assumptions for annual use in the other categories combined with the seasonal pattern of use for each category (HFCS, glucose and dextrose, starch, beverage alcohol, and cereal production and seed use) suggest FSI use for the categories other than ethanol production totaled 340 million bushels. Combining the two implies FSI use of 1.53 billion bushels during the second quarter.
Our assumptions leave feed and residual as the only unknown variables. USDA’s assessment of GCAUs drives our estimate for annual feed consumption. USDA’s latest prediction for 2020/21 GCAUs of 102.5 million animal units is slightly above its 2019/20 estimate of 102.3 million. Combined with the positive residual use, GCAUs suggest feed and residual use of 1.51 billion bushels during the second quarter. Our feed and residual use estimate represents an increase of 193 million bushels from the 1.32 billion bushels used last year.
Higby Barrett’s total 2020/21 second quarter use estimate of 3.7 billion bushels implies March 1 stocks of 7.63 billion bushels. Our estimate represents a decrease of 326 million bushels from the 7.95 billion bushels USDA reported last year. However, residual use could be larger or smaller than expected. Anecdotal reports suggest some analysts believe inventories could be under 7.5 billion bushels due to the strength of exports in recent months.
If USDA’s estimate is below 7.5 billion bushels, USDA will likely reduce its prediction of corn used in ethanol production from 4.95 billion bushels to something closer to our expectation of 4.85 billion. Based on the pace of exports through February, Higby Barrett reduced our forecast to 2.6 billion bushels, matching USDA’s March prediction. Still, given the recent sales pace, if USDA’s stocks estimate is substantially below our expectation, we will be more likely to cut our prediction for feed use than make another reduction in our export forecast. The change raised the 2020/21 carryout prediction to 1.49 billion bushels, and our 2021/22 ending stocks forecast to 1.68 billion bushels.
Our 2020/21 export forecast reduction raised our prediction of 2021/22 carryout above our current prediction. However, we offset the increase by raising our projection of 2021/22 U.S. corn exports to 2.65 billion bushels. If USDA estimates U.S. corn area below our expectation of 93 million acres, we will reduce our prediction of 2021/22 FSI use to offset the implied decrease in supply.
USDA will estimate third-quarter wheat stocks due to the difference in marketing years. While the analysis for wheat stocks is like corn due to the combination of feed and residual, the various wheat classes make the explanation a little too complex for this report. As a result, we will provide our estimate for all wheat stocks and some scenarios if stocks or acreage vary from our expectations.
Higby Barrett expects USDA to estimate U.S. March 1 all wheat stocks at 1.27 billion bushels. Our estimate represents a decrease of 145 million bushels from USDA’s estimated 1.42 billion bushels last year.
We reduced our prediction of total wheat acreage by 125,000 acres this week to 45.7 million. The decrease lowered our 2021/22 all wheat production forecast to 1.84 billion bushels, just above USDA’s Agricultural Outlook Forum prediction of 1.83 billion. The reduction in our crop size forecast reduced our 2021/22 U.S. ending stocks prediction to 668 million bushels, 30 million below USDA’s forecast of 698 million.
Suppose USDA reports a number smaller than our expectation, given the winter wheat area estimate published in January. In that case, it will imply a more significant reduction in spring wheat area. Because the primary use for much of spring wheat is food, Higby Barrett believes a more substantial reduction in the planted area for spring wheat will imply a reduction in USDA’s 2021/22 U.S. food use prediction. It would also likely reduce its forecast of 2020/21 U.S. seed use from 63 million bushels.
If USDA’s March 1 stocks estimate is below our prediction, it will likely reduce its forecast of U.S. exports from its March prediction of 985 million in the April WASDE. However, given the sharp decrease in the spread between corn and wheat, USDA may offset any reduction in its export forecast with an increase in its feed use projection. The combined changes would likely reduce USDA’s 2020/21 U.S. carryout prediction closer to our expectation of 827 million bushels.
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