Grains –
Today we’ll focus mainly on the Quarterly Grain stocks portion of Thursday’s USDA reports. I always hesitate to cover expectations for stocks figures as they are notoriously unpredictable and it always provides a good opportunity to look foolish. For the sake of argument in corn and soybeans, I’m going to assume the average guesses on production prove to be correct.
Corn –
First it is worth pointing out that the average guess is calling for a slight reduction in production compared to Nov, though not really big enough to change sentiment on stocks. From there, I have to admit I’m a bit surprised to see the average guess on ending stocks where it is. Given all the talk that WASDE is too high on their MY projection on F&R, I would have thought the average guess would be higher. Note the attached graphic showing F&R for Q1 in actual terms and as a percent of final. The implication of the average guess would call for a record Q1 F&R and would put that quarterly use relatively inline with historical averages. In other words, IF the average guess on stocks proves to be correct, everyone really needs to stop complaining that WASDE is too high on their MY F&R figure.
Personally I have been assuming a higher stocks figure closer to 12,420 mil bu. Even if that figure turns out to be correct, I’m still not sure it will warrant a major change in the WASDE MY F&R estimate. Q1 demand figures are not strong indicators of what will happen for the remainder of the year and WASDE is unlikely to deviate sharply from their feed model for now. If WASDE were to make a move, it would probably come with an offsetting increase to FSI (ethanol) use.
Soybeans –
We have a Q1 Census export total of roughly 933 mil bu and the Q1 crush at roughly 485 mil bu. That leaves only residual as the item to guess on soybeans, but that is a very difficult guess to make. I typically follow two data sets when looking at Q1 residual. I look at Q1 residual vs. Q1 exports and I also look at Q1 residual vs. the change in the export pace between Q1 and Q2 (specifically the change in the export program from Sep to Dec). This second comparison is an attempt to get an idea for how much export “pipelining” has taken place.
The scatter charts of the two figures are shown below. In the first instance, the comparison of Q1 exports vs. Q1 residual would imply the average guess is implying too low of a residual or the potential for a lower than expected stocks figure. The second comparison showing the difference in Q1-Q2 export “pipelining” and Q1 residual shows the average guess for stocks is implying too high of a residual or the potential for a higher than expected stocks figure. Obviously these opposing views are not especially helpful.
I think my bias right now is that I feel this year’s comparison of Sep/Dec exports vs. residual will prove less helpful than usual as the export program was already rolling at a pretty solid clip as we entered the new marketing year thanks to a surge in summer exports. With that in mind, I’m somewhat inclined to look for a slightly larger residual number. The fact that Q1 export inspections were 17 mil bu larger than Census’s total (compared to being 11 mil bu smaller than Census last year) also supports the idea of a slightly higher residual.
So the bottom line here is that I find myself believing the average guess on soybean stocks is probably pretty close to correct but that there is some downside risk due to potential for larger residual. I am assuming a stocks figure of 2,937 mil bu. Considering some of the contradicting data, I must admit this is not a high confidence call. Even if that figure were realized, it really wouldn’t necessarily mean anything to the soybean balance sheet and Q1 stocks would still easily be record large.
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