Welcome to The Weekly Harvest, where we recap this week’s hot topics in the crop market. Here is the recap for this week:
1. The May WASDE Takes First Crack at 2021/22 Production Outlook
The U.S. Department of Agriculture (USDA) released its May 2021 World Agricultural Supply and Demand Estimate (WASDE) report this week, which includes the first 2021/22 supply and demand balance sheet estimates. Overall, the report is supportive of soybeans, neutral to corn – more-or-less in line with the trade’s expectations.
• The USDA projects corn production at 14.99 billion bushels based on a 179.5 bu/acre yield estimate, up from 14.182 billion bushels (172 bu/acre) last year.
• The USDA projects 2021/22 U.S. corn ending stocks at 1.51 billion, which is just above pipeline levels.
• Any decrease in yield or increase in demand would push that ending stock situation into the price-supportive realm.
• The USDA held feed and residual at 5.7 billion bushels and increased industrial usage (including ethanol) to 6.62 billion bushels from 6.40 billion bushels.
• Exports were cut by 325 million bushels to 2.45 billion bushels, despite forecasting Chinese demand to remain steady year-over-year at 26 MMT.
• The market will quickly conclude that if China imports a similar amount, U.S. corn exports have an upside.
FarmLink sees a high probability that this will be the largest USDA printed estimate for U.S. corn ending stocks in 2021/22. The market is likely to see the corn supply and demand scenario tighten in subsequent reports, barring no last-minute increases to corn-seeded acreage.
• The USDA pegged production at 4.405 billion bushels based on a 50.8 bu/acre yield, which is up from 4.135 billion bushels produced last year on a 50.2 bu/acre yield.
• Ending stocks for 2021/22 were projected at 140 million bushels, up from 120 million bushels in 2020/21, but still considerably tight.
• To keep ending stocks from sliding below the critical level of 100 million bushels, the USDA reduced exports by 205 million bushels year-on-year. Meanwhile, at the same time, China’s soybean imports are forecast to go up by 3 MMT to 103 MMT in 2021/22.
• Growth in the biofuel sector should also increase overall oilseed demand in 2021/22.
• FarmLink believes this could also be the largest ending stock projection of the year for similar reasons: drought in key growing areas and strong demand may tighten the supply and demand scenario in subsequent reports.
2. Morocco Raises Duties On Durum
Canada’s third-largest durum buyer, Morocco, raised import custom duties on durum, starting June 1, 2021. Morocco upped its tariffs by 170% on durum imports and increased tariffs on soft wheat by 135%. The move comes after the country saw a huge improvement in domestic cereal production due to good moisture during the growing season. Morocco’s 2021 cereal crop is expected to jump 206% from last year to 9.8 MMT, containing 4.82 MMT of soft wheat, 2.34 MMT of durum, and 2.6 MMT of barley.
The government’s tariff hikes aim to reduce imports and improve prices for domestic producers. Morocco is an important market for Canadian durum, with five-year average exports totaling 760 KMT. So far in the 2020/21 marketing year, the country has taken 802 KMT. The 2021/22 marketing year may see reduced Canadian durum exports to the region due to the heightened tariff rates.
3. Crop Update from China
The Chinese government, through the China National Grain and Oils Information Center (GNOIC), released an updated forecast on China’s 2021/22 crop production. Corn is projected at 272 MMT, up 4.3% from last year. Corn acreage is up 3.3% year-on-year to 105.3 million acres.
In recent years, China has cut corn acreage to reduce large government stockpiles and increase output for other crops, particularly soybeans. However, this year, higher corn acreage makes sense given the tight stocks in China and the boost corn prices saw throughout the 2020/21 marketing year.
Soybean production is forecast to fall by 6.1% to 18.4 MMT, based on a 6.9% decline in planted acreage. Wheat production is forecast to improve by 1.6% year-on-year to 136.4 MMT. Rapeseed is forecast at 14.5 MMT, up 2.8%. The numbers may indeed be accurate, but there is also a strong waft of convenience within the estimates.
Interestingly, despite these projected increases in domestic production, China’s corn buying has accelerated. Last week, China reportedly bought 5 MMT to 6 MMT of U.S. new crop corn. China also bought 1.5 MMT of Ukrainian new crop corn and even bought 500 KMT of old crop Canadian corn.
Rainfall in China has been excessive in some regions, limiting fieldwork and raising flood concerns. In other northeastern areas, the weather is forecast to improve crop prospects over the next several weeks. China’s 2021/22 production potential remains relatively unknown. However, like the U.S. balance sheet, all market indications suggest that every bushel counts.
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