- The March USDA report was typically not a big mover. Market expects the USDA would not further lower US soybean ending stocks in the March WASDE, which is already at bare minimum levels.
- The USDA remains conservative at the US demand estimates. The March WASDE left the US soybean crush at 1.6% higher YoY while the cumulative crush for the crop year has reached 5.7% higher YoY.
- The focus of the March report historically has been South America. The changes made to the south American soybean crops on Tuesday were largely in line with market expectations (+1 mmt Brazil, -0.5 mmt Argentina).
- The soybean market remains a battle between Chinese demand and origin supply. With declining Hog Inventories MoM and new ASF cases, Chinese meal inventories feel a bit burdensome. Buying stops as bean prices rally much above 14 USD/bushel, eroding crush margins. The Chinese market has priced in the fact that meal inventories will soon be consumed as brazil beans will arrive late this year.
- The very tight origin ending stocks support CBOT price above 13.50. We expect the logistics bottleneck faced by Brazilian exporters will eventually be removed.
- What could break the market out of the current trading range is US new crop plantings. Market has already priced in big soybean acreage expansion and a record bean+corn pool. Any surprise from the end-month March prospective plantings report will be a new trigger to price actions.
US vs Brazil Soybean Loadings
- The March WASDE left South American production unchanged, contrary to market belief of a slightly lower crop. The persistent dryness in Argentina has likely brought irreversible damage to corn yield, so we expect USDA to lower production in subsequent reports.
- Despite the USDA raising global corn ending stocks by 1.1 mmt from February and above the market average estimate, they remain sharply lower by 15.5 mmt YoY for 20/21.
- Market expects US corn ending stocks to remain tight in the 21/22 crop year, and the stocks/use to remain at 10.3%, warranting a 500-600 cent/bu trading range for CBOT corn.
- Currently, Chinese demand provides support to CBOT prices. While China could resort to buying Brazilian corn and alternative feedstocks, the future development of the US-China trade relations will shed light on Chinese demand of US corn.
- The March WASDE lowered global wheat ending stocks by 3 mmt based on stronger wheat feeding, primarily in China, despite higher global production.
- Global ending stocks were 3.8 mmt below the average market estimates and only 0.9 mmt higher YoY as firmer destination stocks YoY (i.e. China, India) have largely eroded by now.
- The USDA raised Australian production by 3 mmt to a record 33 mmt, with 2 mmt of the bigger supply allocated to exports.
- Destinations with higher imports were primarily Pakistan, with government tendering to replenish stocks, as well as China, which also saw strong government reserve auctioning through January and February.
- The latest USDA WASDE confirmed that EU wheat will have the second largest stocks reduction YoY among all major origins. EU wheat FOB prices jumped last month as supplies depleted. Exports slowed precipitously in recent months, below last year’s pace.
- With export quota and tariffs, Russia wheat ending stocks are projected to grow by 5.3 mmt YoY. With increasingly benign weather for the winter wheat development, the new season could be faced with a larger supply, limiting the upside on FOB prices.
Australia Wheat Loadings By Month and Total China/Pakistan Wheat Offtakes From All Origins