The Hueber Report

A tale of two commodities? While I would not go so far as say it was the best of times for corn, but the worst of time for beans would appear to hit the target.  The USDA number for corn reconfirmed that globally, in spite of consecutive years of record crops in the major producing countries, world supplies are shrinking and indeed, we are operating on what could best be described as a just in time inventory situation (of course the inventory sits here).  At first glance at least for the bean situation, it would appear the world is swimming in product.

I believe the most notable changes on the domestic front were first and foremost, a boost in both corn and bean acreage.  Planted corn acres were bumped higher by 1.1 million and beans 600,000.  Yields were left unchanged, which was a pleasant, positive surprise and corn harvested was left unchanged, but the percentage of beans harvested was increased, and the net result was an increase in production for corn of 190 million bushels (1.3%) and 30 million beans (.7%). We can argue about these figures, particularly the harvested percent ratio, but it would do little good at this point.

This is pretty much where any similarities in the reports for each crop end as the USDA boosted corn disappearance 215 million bushels (75 m for 2017/18 and 140 m 2018/19) resulting in a slight reduction for the upcoming crop year to 1.552 billion.  For bean though, true to their word, they factored in the potential export losses related to the trade war which resulted in a combined reduction in 2018/19 exports to the tune of 245 million bushels. Do note that current crop year usage was bumped up 40 million be that only softened the blow as the net result is a projected 580-million-bushel carryout for next year. If realized, this would eclipse the previous record carryout of 574 million bushels set in the 2006/07 crop year, and it would be the highest stock to usage ratio recorded since that same year.  

If we glance over at the world estimates, it would appear that we have the same dichotomy between corn and bean stocks, but when you look a bit closer at the numbers, that is not really quite the case.  In spite of higher production versus last year, in fact, the 2^ndlargest on record, global corn ending stocks were trimmed 2.73 MMT.  While that may not seem like a huge reduction, it is now projected to be down almost 21% from last year and 33% from two years ago.  In essence, despite producing near record crops, we are seeing inventories grow tighter and tighter.  This is best exemplified via the stocks to usage ration which is set to decrease now for the third year and a row and will be down to the lowest level in 23 years. 

The bean figures are not quite so “in your face,” but even here we find a reason for optimism, albeit slight.  The raw inventory numbers would appear to be anything but positive as with the potential record crop in both Brazil and the United States; total global production is forecast to reach 359.49 MMT, a 6.7% increase over last year and 3.2% higher than the prior record.  Actually, ending stocks are also projected to reach a record 98.27 MMT, eclipsing the prior record number by 1.6%.  As dour as all that sounds, we cannot forget that usage has continued to grow unabated, up 56% in the last decade, and the global stock to usage ration is actually set to decline for the second year in a row. Tempering this is the fact that the numbers are by no means “tight,” but the positive side of this is as a percentage of usage, we are seeing the balances tighten in spite of record production years.  A hiccup in either North or South America in the years ahead and the picture changes quickly.

While this is all fine and dandy, where does it leave us today?  You would not recognize it via the price action per se, but I have to believe that for the corn market especially but realistically for bean as well there is little to no downside potential from these levels.  Be that as it may, unfortunately, there is little reason other than technical to see much recovery for the time being either.  I suspect that unless the weather takes a dramatic turn for the worse during August impacting the beans, we will be staring at little more than sideways grind now as we move towards harvest.