Hedging Corn and Soybeans

WASDE REPORT FOR 12/11/18

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COARSE GRAINS: This month’s 2018/19 U.S. corn outlook is for lower corn used for ethanol, reduced imports, and larger ending stocks. Imports are lowered based on observed trade to date. Corn used to produce ethanol is reduced 50 million bushels to 5.6 billion, based on the most recent data from the Grain Crushings and Co-Products Production report and weekly ethanol production data as reported by the Energy Information Administration for the month of November. These data imply corn used for ethanol during the September to November quarter declined relative to the prior year for the first time since 2012. With no other use changes, ending stocks are up 45 million bushels from last month. The season-average corn price received by producers is unchanged at a midpoint of $3.60 per bushel but the range is narrowed 5 cents on each end to $3.25 to $3.95 per bushel.

Global coarse grain production for 2018/19 is forecast 0.3 million tons higher to 1,373.6 million. The 2018/19 foreign coarse grain outlook is for larger production, and virtually unchanged consumption and ending stocks relative to last month. Foreign corn production is forecast higher with increases for Ukraine, the EU, and Thailand more than offsetting reductions for South Africa and Canada.  EU corn production is higher reflecting a larger forecast for Romania. Ukraine corn production is raised based on harvest results to date, and if realized, this month’s yield forecast would surpass the previous record set during 2016/17 by nearly 20 percent. South Africa corn production is lowered as dry planting conditions are expected to reduce area. Canada corn output is down on declines in both area and yield.  Corn exports are raised for Ukraine, but lowered for Mexico. Imports are raised for Vietnam, Canada, Japan, Iran, and Colombia, with partially offsetting reductions for Libya and Venezuela. Foreign corn ending stocks are higher than last month, mostly reflecting increases for the EU, Mexico, Vietnam, Ukraine, and Japan, that more than offset declines for Brazil, Canada, and South Africa.

WHEAT: The outlook for 2018/19 U.S. wheat this month is for unchanged supplies, lower exports, and higher ending stocks. Wheat exports are lowered 25 million bushels to 1.0 billion with all of the reduction in Hard Red Winter (HRW) on historically low exports for this class in the first half of the 2018/19 marketing year (MY). The reduction in HRW is partially offset by higher exports of Hard Red Spring and Soft Red Winter. Projected 2018/19 ending stocks are raised 25 million bushels to 974 million, which are still down 11 percent from last year. Based on NASS monthly prices reported to date and price expectations for the remainder of the MY, the projected season-average farm price is up $0.05 per bushel at the midpoint with the range narrowed to $5.05 to $5.25.

World 2018/19 wheat supplies are increased 0.8 million tons as additional Russian carry- in stocks and a larger Canadian crop more than offset a reduction in Australian  production.   Based on the updated ABARES estimate, Australia’s production is lowered by 500,000 tons to 17.0 million. This would be the lowest Australian wheat output since 2007/08. Canada’s wheat production is raised 300,000 tons to 31.8 million, based on the latest estimate by Statistics Canada.

Projected global 2018/19 trade is lower, as reduced Australian, EU, and U.S. exports are partly offset by higher Russian exports, which are increased 1.5 million tons to 36.5 million. Russia and other Black Sea suppliers continue to displace EU and U.S. exports in several markets in the first half of 2018/19 but are expected to be less competitive in the second half based on reduced exportable supplies. Australia’s wheat exports are lowered 1.0 million tons to 10.5 million as its export prices are expected to remain uncompetitive and more supplies are consumed domestically for feed. Global ending stocks are raised 1.4 million tons to 268.1 million, primarily on increases for the EU and the United States but are 4 percent lower than last year’s record 279.9 million.

RICE: The outlook for 2018/19 U.S. rice this month is for slightly higher supplies, higher exports, and reduced ending stocks. Total 2018/19 rice supplies are raised 0.5 million cwt to 276.2 million on higher medium- and short-grain imports. Exports are raised 3.0 million cwt (all medium- and short-grain milled rice) in response to the sharp reduction in Australia’s crop. No changes are made this month to the long grain supply and demand estimates. Long-grain ending stocks remain at 32.4 million cwt, up nearly 60 percent from the previous year. Medium- and short-grain ending stocks are lowered 2.5 million cwt to 10.3 million. The all rice marketing year average price is raised $0.10 per cwt at the midpoint to a range of $11.60 – 12.60. The long-grain price is unchanged but medium- and short-grain prices are raised $0.50 per cwt for California to a midpoint of $18.30 and $0.10 per cwt for other states to a midpoint of $12.20.

Global rice production for 2018/19 is raised 0.4 million tons to 491.1 million led by a 1.0- million-ton increase for Nigeria, which is based on updated government statistics for multiple years. The Nepal crop is raised 0.2 million tons. Partly offsetting is a 0.5-million- ton reduction for Thailand on limited water availability for the dry season crop and a 0.3- million-ton decrease for Australia on the severe drought in the Eastern part of the country. Global exports are lowered 0.8 million tons with Thailand down 0.7 million tons and Australia down 0.2 million, both on the smaller crops. Imports for 2018/19 are lowered 0.6 million tons for Nigeria and 0.4 million tons for Indonesia. Total use is raised 1.2 million tons, led by increases for Nigeria and Thailand, and global ending stocks are raised fractionally to 163.3 million tons.

OILSEEDS: Total U.S. oilseed production for 2018/19 is forecast at 135.5 million tons, up slightly due to an increase for cottonseed. Soybean supply and use projections for 2018/19 are unchanged from last month. With soybean exports and crush unchanged, soybean ending stocks are projected at a record 955 million bushels. The U.S. season- average soybean price for 2018/19 is forecast at $7.85 to $9.35 per bushel, unchanged at the midpoint. Soybean meal and oil price forecasts are also unchanged at $290 to $330 per short ton and 28.0 to 32.0 cents per pound, respectively.  

Global 2018/19 oilseed production is forecast up 0.9 million tons to 600.5 million, with greater soybean production for Brazil and Nigeria. Brazil’s soybean production is projected up 1.5 million tons to 122.0 million, reflecting higher yields in the Center-West region where crops have benefitted from favorable weather conditions. Higher global soybean production is partly offset by a 0.7-million-ton reduction to rapeseed, mainly due to lower area projections for Australia and India based on recent government data.

Global 2018/19 soybean exports are increased 0.7 million tons to 156.1 million. Soybean exports are increase 4 million tons for Brazil but are lowered for Argentina, Canada, and Paraguay.   Larger competitive supplies in Brazil are expected to slow the export pace and increase the stocks held by other exporters, particularly Argentina.

SUGAR: U.S. beet sugar production for 2018/19 is reduced 73,942 short tons, raw value (STRV) to 4.900 million based on lower projected sucrose recovery from sliced sugarbeets. Recovery for the period covering August-October 2018 is estimated below the level originally expected. Beginning stocks are decreased 44,694 STRV based on a cane processor revision for ending 2017/18 stocks as recorded in revised 2017/18 Sweetener Market Data. Imports from Mexico for 2018/19 are projected to increase 278,177 STRV to 1.120 million. U.S. sugar exports are projected down 50,000 STRV to 35,000 based on reduced import demand in Mexico. Deliveries for human consumption are reduced by 50,000 STRV to 12.125 million on industry-reported softening sales. Ending stocks are projected at 1.664 million STRV for a stocks-to-use ratio of 13.52 percent.

Mexico sugar imports for 2018/19 are projected to decrease 45,000 metric tons (MT) reflecting expected lower domestic prices relative to those of prospective import suppliers. Mexico exports for 2018/19 are increased by 238,074 MT to 1.266 million. This change reflects larger exports to the United States based on a forecast increase in U.S. Needs as defined in the amended Suspension Agreements plus 1,842 MT reported by CONADESUCA corresponding to export licenses for 2017/18 extended for a period between October 1 and 15. Ending stocks for 2018/19 are projected residually at 1.330 million MT, implying a stocks-to-human consumption ratio of 30.1 percent.

LIVESTOCK, POULTRY, AND DAIRY: The 2018 forecast for total red meat and poultry production is raised from last month as higher beef and poultry production forecasts more than offset lower pork production.  The increase in beef production reflects a faster pace of steer and heifer slaughter. However, this is slightly offset by lower carcass weights.

The pork production forecast is reduced as smaller expected fourth-quarter hog slaughter more than offsets heavier carcass weights. Broiler and turkey production forecasts are raised from the previous month on the current pace of slaughter and hatchery data. The egg production forecast is lowered on recent hatchery data.

For 2019, the total red meat and poultry forecast is lowered from last month on lower expected beef and broiler production. Beef production is forecast lower, reflecting slightly lighter carcass weights in early 2019.  The pork production forecast is unchanged from last month.  USDA will release its Quarterly Hogs and Pigs report on December 20th, which will provide an indication of producers’ farrowing intentions for the first half of 2019.  Broiler production is reduced as hatchery data points towards slowing production growth. Turkey production is unchanged from the previous month. Egg production is forecast lower for 2019.

Beef import forecasts for 2018 and 2019 are reduced from the previous month on lower expected exportable supplies of processing grade beef from Australia.  No change is made to beef export forecasts for 2018 and 2019. The 2018 pork export forecast is unchanged from the previous month, but the export forecast for 2019 is raised on continued strong global demand for U.S. pork. The broiler export forecast is raised for 2018 on recent trade data. For 2019, the broiler export forecast is raised as competitively priced U.S. broiler meat is expected to support global demand. Turkey export forecasts are raised for 2018 and 2019 on recent trade data.

The cattle price forecast for 2018 is raised on recent price strength, but the 2019 cattle price forecast is unchanged from the previous month. The hog price forecast for 2018 is raised on recent demand strength and as this strength is expected to carry into next year, price forecasts are raised for 2019. The broiler price forecast is raised for 2018, but no change is made to the 2019 forecast. Turkey and egg price forecasts are lowered for 2018 on current price movements, but no change is made to the 2019 price forecasts.

The 2018 and 2019 milk production forecasts are lowered from the previous month on slower growth in milk per cow and lower cow numbers. Relatively weak returns are expected to result in a smaller 2019 cow herd. Fat basis import forecasts are raised for 2018 and 2019, primarily as strong domestic demand supports higher imports of butter. Fat basis export forecasts are raised for both 2018 and 2019 on higher sales of butteroil and anhydrous milk fat (AMF). On a skim-solids basis, the 2018 export forecast is raised on higher expected sales of skim milk/nonfat dry milk powder (SMP/NDM), but the 2019 export forecast is unchanged as higher SMP/NDM sales are largely offset by weaker exports of lactose.

The price forecast for cheese is lowered for 2018 on current price weakness and continued high stock levels, but the forecasts for butter, NDM, and whey are unchanged. For 2019, cheese and butter price forecasts are reduced while the NDM price forecast is unchanged. The 2019 whey price forecast is raised from last month as stocks remain relatively low. The 2018 and 2019 Class III price forecasts are lowered from last month on lower cheese prices. The 2018 and 2019 Class IV prices are unchanged at the midpoint of the range. The all milk price is forecast lower at $16.15 to $16.25 per cwt for 2018 and $16.40 to $17.20 per cwt for 2019.

COTTON: This month’s 2018/19 U.S. cotton forecasts include slightly higher production and ending stocks. Production is raised 180,000 bales due mainly to a 300,000-bale increase in Texas.  Domestic mill use and exports are unchanged.  Ending stocks, forecast at 4.4 million bales in 2018/19, are 100,000 bales above both last month and the 2017/18 estimate. The forecast range for the marketing year average price received by producers is unchanged from November, 71 to 77 cents per pound, with a midpoint of 74 cents.  
The global 2018/19 forecasts compared with last month include lower production, lower consumption, higher trade, and slightly higher ending stocks.  Global production is 645,000 bales lower with smaller crops in Pakistan, China, India, Turkmenistan, and Turkey. These changes more than offset a 1.0-million-bale increase in Brazil and smaller increases in the United States and Cote d’Ivoire. Global consumption is 1.3 million bales lower largely due to a 1.0-million-bale decline for China, but consumption is also lower in Pakistan, Turkey, and Uzbekistan.  Global trade is 600,000 bales higher, with imports up in Pakistan, India, and Malaysia, while exports are higher from Brazil, Argentina, Cote d’Ivoire, India, and Uzbekistan. Projected 2018/19 global ending stocks are nearly 600,000 bales higher this month, but at 73.2 million bales are down 7.3 million bales from the year before.

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