Challenges Ahead for Grain Markets: June WASDE

USDA continues to see a grain market largely driven by high production and stocks and lower demand and use. Our economist Matt Erickson looks at the changes in usage and yields required to change the current supply scenario.

A Mismatch in Market, USDA Expectations

Ahead of the June WASDE, markets focused on several areas, including estimates for the South American crop in the wake of flooding and possible yield reductions for the 2024/25 U.S. corn crop due to slow planting.

USDA responded with:

• Continued reluctance to cut South American corn and soybean production compared with market expectations.

USDA made no change to its May production estimate for Brazil’s 2023/24 corn crop. At 122 million metric tons, USDA’s estimate for the Brazilian corn crop was 1 million metric tons higher than market expectations.

USDA did trim 1 million metric tons from its May estimate for Brazil’s soybean crop due to devastating floods in the south of the country. At 153 million metric tons, USDA’s estimate was well above the market’s pre-report estimate of 151.8 million metric tons.

Also surprising, USDA let its May production estimates stand for Argentinian corn and soybeans. Markets had expected USDA to lower its estimate for corn from 53 to 51.2 million metric tons and soybeans from 50 to 49.8 million metric tons.

• No adjustment to its May estimate for the 2024/25 U.S. corn crop.

As of June 9, U.S. corn growers had 95% of their crop planted, equal to the five-year average. However, the pace of planting through spring has been among the slowest since 1993. Only 1995, 1996 and 2019 plantings were slower at this point in the season. As a result, markets expected USDA to adjust corn yields down slightly to 180.8. However, USDA stuck to its estimate of 181 bushels per acre.

While there are concerns about this year’s delayed plantings, the wet spring could prove beneficial if long-term forecasts for a hot and dry summer unfold. Soil moisture deficits in many corn producing areas have subsided in recent weeks. The corn and soybean crops have a long way to go and, as in the past, USDA could revise its yield estimates up or down in the months ahead.

Table 1 is a snapshot of pre-report expectations for corn, soybeans, and wheat, both old crop (2023/24) and new crop (2024/25). For corn and soybeans, the report leaned on the side of bearish as USDA remained higher than the market expected toward South American production.

Table 1. Pre-Report Expectations vs. 2024 June WASDE Estimates and Projections for 2023/24 and 2024/25 Corn, Soybeans, and Wheat Crops.

Corn: 2024/25 Marketing Year

The U.S. corn outlook was unchanged from May. USDA’s acreage report released on June 28 will provide survey-based indications of planted and harvested area.

Ending stocks for the 2024/25 marketing year are projected at more than 2.1 billion bushels, the highest since 2018/19 and 16.5% above the 10-year average. If realized, the stocks-to-use ratio would reach 14.2%, also the highest since 2018/19. Total projected supply of more than 16.9 billion bushels would be the highest since 2017/18.

The average corn price for the 2024/25 marketing year remains at $4.40 per bushel, down $0.25 from 2023/24.

USDA revisions on the corn side were mainly to the global balance sheet. Relative to the May WASDE, the 2024/25 global outlook for corn is for slightly higher production and trade and smaller ending stocks. Despite reducing yields for Russia, USDA increased foreign corn production, primarily due to marginal gains for Ukraine and Zambia. At 310.8 million metric tons, world ending stocks are down 1.5 million from May and slightly below the average market expectation heading into the June report.

Soybeans: 2024/25 Marketing Year

The U.S. soybean outlook includes higher beginning and ending stocks. The 10-million bushel increase in beginning stocks reflects the 10-million-bushel reduction for crush in 2023/24.

USDA left 2024/25 usage unchanged from May. As a result, 2024/25 soybean ending stocks were increased 10 million bushels to 455 million bushels, roughly 23% above the 10-year average. The 2024/25 balance sheet projects total supplies reaching of 4.815 billion bushels, the highest since 2018/19, putting significant weight on soybean prices for the marketing year.

Slight changes to the soybean balance sheet increased the 2024/25 stocks-to-use ratio from 10.2% to 10.4%.If realized, this would be the highest since 2019/20 and only the seventh time since 2000 that it would exceed 10%.

The average price for U.S. marketing year 2024/25 is projected to be $11.20 per bushel, down $1.35 relative to a year ago.

The primary changes made to soybeans from the June WASDE were on the global balance sheet. USDA’s 2024/25 global soybean outlook included lower beginning and ending stocks. Higher beginning stocks for the U.S. were offset by lower stocks for Brazil and Paraguay. As mentioned in the introductory section, USDA only lowered 2023/24 Brazilian production by 1 million metric tons to 153 million despite flooding in Rio Grande do Sul. Global soybean ending stocks were lowered 0.6 million tons from May to 127.9 million, roughly in line with the market’s expectation.

Wheat: 2024/25 Marketing Year

The 2024/25 outlook for U.S. wheat is for larger supplies, unchanged domestic use, increased exports, and lower stocks.

USDA increased the all-wheat yield from 48.9 to 49.4 bushels per acre, up 0.8 bushels from 2023/24. As a result, USDA increased all-wheat production by 17 million bushels from May’s estimate to 1.875 billion bushels. If realized, all-wheat production would be at its highest since 2019/20. Despite the increase, USDA’s estimate was below the market’s expectation of 1.887 billion bushels.

U.S. wheat exports were adjusted up 25 million bushels to 800 million bushels. This was due to reduced export supplies out of the Black Sea region which have made U.S. wheat prices more competitive. Ending stocks were lowered slightly on higher export expectations. But even down 8 million bushels to 758 million bushels, ending stocks would be significantly higher than the 10-year average of 889 million bushels.

In addition to slightly lower ending stocks, USDA projected total usage to increase 25 million bushels, putting the all-wheat stocks-to-use ratio at 39.4%, down from 40.3% in May. If realized, this would still be the highest level since 2020/21 but below the 10-year average of 42.8%.

Due to tightening global wheat supplies, higher expected futures and cash prices, and stronger total use, USDA raised 2024/25 season average farm price by $0.50 per bushel to $6.50.

Globally, the wheat outlook for 2024/25 is for smaller supplies, consumption, trade, and ending stocks. USDA cut its estimate of Russian production by 5 million metric tons to 83 million due to hot and dry weather. If realized, this would be Russia’s smallest wheat crop since 2021/22.

Hot and dry conditions also continue to impact Ukrainian wheat production. USDA lowered Ukrainian wheat production by 1.5 million to 19.5 million metric tons. If realized, this would be Ukraine’s smallest wheat crop since 2012/13. Weather-related problems, specifically wet conditions in France, led USDA to also cut 1.5 million tons from production in the European Union for a total of 130.5 million tons, the lowest EU level since 2020/21.

USDA lowered world ending stocks by 1.3 million metric tons to 252.3 million, slightly above the market’s expectation ahead of the report. As global supplies tighten and prices increase, wheat for feed use is becoming less competitive in some countries.

Focus on Demand: A Corn and Soybean Sensitivity Analysis

The demand outlook for 2024/25 corn and soybeans remains both weak and uncertain. There are a number of factors that alone or in combination could contribute to fluctuating demand in the upcoming marketing year. These include a strong U.S. dollar and slowing economy, limited feed demand from sluggish growth in meat production, lower Chinese demand and weather in South America.

USDA’s June 28 acreage report could be a major market mover, impacting the 2024/25 marketing year for corn and soybeans. The sensitivity analysis below looks at corn and soybean usage under various planted acreage and yield scenarios. Specifically, the analysis in Table 2 shows how many additional bushels of usage would be needed for the stocks-to-use ratios to reach 10% for corn and the five-year average of 7.9% for soybeans. As indicated above, the June WASDE reported stocks-to-use ratios of 14.2% for corn and 10.4% for soybeans.

There’s a historical tendency for corn prices to stay elevated when the stocks-to-use ratio falls under 10%. This relationship is less useful for soybeans as the stocks-to-use ratio and the marketing year average price can vary widely. Even so, when the stocks-to-use ratio for soybeans is below historical averages, it can often justify higher prices in the market.

In Table 2, the current supply and demand balance sheet from the June WASDE is highlighted in green. Total use would need to increase by nearly 570 million bushels for corn and 105 million bushels for soybeans to reach stocks-to-use ratios of 10% and 7.9% levels, respectively. That’s significant given today’s economic headwinds.

However, we could see high variability in the U.S. corn and soybean balance sheets in the months ahead, be it from the June acreage report, weather and/or changes in supply and demand to the old and new crops. Table 2 provides multiple sensitivity scenarios that adjust planted acreage and yields for corn and soybeans and analyzes the added bushels needed to reach these stocks-to-use ratios identified above. 

Table 2: Corn and Soybean Sensitivity Analysis: Added Bushels Needed for Usage to Equal 10% Stocks-to-Use for Corn and the Five-Year Average Stocks-to-Use Ratio for Soybeans

National corn yields would need to drop from the June estimate of 181 to around 173 bushels per acre for the corn stocks-to-use ratio to equal 10%, holding all else constant. This kind of reduction would require a major supply event. Soybean yields would need to drop two-bushels per acre, from 52 in the June WASDE to 50, for the stocks-to-use ratio to equal its five-year average of 7.9%.

Changes for upside potential in corn are less likely than that of soybeans. If the USDA’s June acreage report increased corn plantings by 1 million acres and 181-bushel corn yields are realized, usage would need to increase an additional 715 million bushels to hit a stocks-to-use ratio of 10%. However, if total usage stayed at levels projected in the June WASDE, corn yields would need to decrease by approximately 10 bushels per acre to an average yield of 171 per acre. Conversely, if USDA lowered corn plantings by 1 million acres to 89 million, total usage would need to increase by approximately 415 million bushels. Or corn yields would need to decline to about 175 bushels per acre for the 10% stocks-to-use level to be realized.

The potential for upside is more realistic for soybeans. The resiliency of the crop means less volatility in yields. However, lower yields for soybeans means small changes – up or down -- can induce market volatility.

A hot and dry end to June and July could provide some seasonal upside. Furthermore, the Brazilian tax on exports could lead China to be more active in our 2024/25 market. With that said, the balance sheets for corn and soybeans suggests the U.S. could be in for large crops, and it will likely take a supply or demand shock for corn and soybean prices to see significant upside potential.