Corn futures jumped to a seven-month high after US officials forecast a surprise in fall in inventories, citing the boost to export prospects from the dent from drought to Argentina’s crop.
The US Department of Agriculture, in its much-anticipated monthly Wasde briefing on world crop supply and demand, cut its forecast for Argentina’s corn production in 2017-18 by 3.0m tonnes to 36.0m tonnes – a marginally bigger downgrade than investors had expected.
“Continued heat and dryness during February and into early March reduces yield prospects for late-planted corn,” the USDA said.
For soybeans, the Argentine harvest forecast was slashed for the same reason, by 7.0m tonnes to 47.0m tonnes, a markedly bigger downgrade than the 5.6m-tonne cut that investors had expected.
The USDA flagged “lower projected yields resulting from dry conditions through much of the growing region in January and February”.
However, the downgrade failed to support May soybean futures which, having stood unchanged on the day in the run up to the Wasde, stood down 0.3% at $10.61 ¾ a bushel some 30 minutes after the briefing was released.
Indeed, the US cut its forecast for domestic soybean exports, citing increased competition from Brazil.
Corn futures for May, by contrast, stood up 1.1% at $3.91 ½ a bushel, building on marginal gains in the run-up to the Wasde. In the immediate aftermath of the report they touched $3.93 ¼ a bushel, the highest since August for a nearest-but-one contract.
Chicago wheat futures, down 0.6% at $4.94 ½ a bushel for May delivery, stood little changed from their value ahead of the briefing.
The USDA cut its forecast for domestic corn stocks at the close of 2017-18 by 225m bushels to 2.13bn bushels, (59.0m tonnes) – a far bigger downgrade than the 40m-bushel reduction that investors had expected.
The revision also put a 166m-bushel erosion in US corn stocks on the cards, the first in five years.
The change reflected in part an increased estimate for use of corn in ethanol production, after a strong pace of consumption revealed in separate official data.
However, a bigger impact came from a 175m-bushel upgrade to 2.225bn bushels in the forecast for US corn exports this season, “reflecting US price competitiveness, record-high outstanding sales, and reduced exports for Argentina”.
The Argentine corn export estimate, at 25.0m tonnes, was downgraded by 2.5m tonnes.
Soybean, soymeal dynamics
The forecast for Argentine soybean exports this season was also reduced, however by a smaller 1.7m tonnes to 6.8m tonnes despite the hefty harvest downgrade.
The USDA stressed that Argentine corn stocks, as measured at April 1, would “reach a record 18.4m tonnes, which will limit the impact of the lower crop forecast”.
The forecast for the country’s soybean crush was cut by a modest 680,000 tonnes, to 43.0m tonnes, in turn limiting the squeeze on supplies of soymeal, the high-protein feed ingredient produced from the oilseed, and of which Argentina is the top exporter.
Indeed, the forecast for Argentine soymeal shipments in 2017-18 was lowered by a modest 400,000 tonnes to 30.8m tones, down 520,000 tonnes year on year.
US soymeal exports were pegged at 11.25m tonnes, a 180,000-tonne upgrade.
For wheat, the US cut its forecast for domestic exports in 2017-18 by 25m bushels to 925m bushels “on reduced price competitiveness in some international markets”
Indeed, the USDA flagged a “sluggish pace of sales and uncompetitive pricing, particularly [of] hard red winter wheat and hard red spring wheat”.
“Most US wheat prices rose during February on concerns of drought conditions hard red winter wheat areas.
“These stronger prices make US wheat less competitive globally in light of fierce export competition from Argentina and Russia.”
The forecast for Russian exports was upgraded by 1.5m tonnes to 37.5m tonnes, thanks to an “unrelenting pace of shipments”.