June WASDE Preview: Bullish Corn Tilt and a Mixed Bag Elsewhere

Relatively Bullish Corn...But Watch For SA Revisions:

With no major supply changes for the new US corn crop expected, seasonally-strong demand will be the pivot point for the US balance sheet in the June report. Greater-than-expected ethanol production and steady exports should encourage the USDA to boost US demand and, in turn, trim 2017/18 ending stocks.

Yet, South America and Africa supply may bite back. In recent weeks, some private consultants have pegged Brazil’s 2016/17 corn crop at 100-106 MMT compared to the USDA’s forecast of 95.0 MMT. Nevertheless, we believe Conab’s concern over the quality of early harvested corn in Brazil may temper the magnitude of any upgrades from the USDA. On the other hand, South African corn production is likely to be pushed upward based on recent country reports.

If Mexican buyers were to shift more purchases to South American producers in 2017/18, the current bullish demand story for US corn would also quickly turn south. As such, we expect corn to continue to tread a rocky path until the production potential for US corn solidifies this summer. At this point, Gro’s model is forecasting below trend yield potential for US corn, while the USDA’s good-to-excellent rating implies yields closer to trend. Stay tuned!

Balanced Outlook For Beans:

US soybean futures will likely face a mixed bag from Friday’s report. We expect bearish data signals to be confirmed in this report. Recent private forecasts that place Brazil’s recently harvested soy crop at 113-114 million metric tons (MMT) could encourage the USDA to lift its production forecast of 107 MMT. Delayed corn planting may result in more acres going to beans this spring, yet US supply projections are unlikely to change prior to June’s Acreage report.

What’s more, US crush volumes must average 5% over year ago levels from May through August for the USDA’s demand forecast to hold. That seems unlikely since crush volumes have been trending roughly 4% below year-ago levels since January. On the other hand, recent US weekly exports are still running ahead of year ago levels, due to slower selling this season by Brazilian farmers.

We anticipate a neutral WASDE report for soybean futures, as bearish aspects of the report offset the more upbeat export story. The main story in the bean world continues to be the enormous Brazilian soy crop coming to the world markets sooner or later.

Wheat Stocks Are Still Flush:

Extreme dryness across the Canadian Prairies, US Dakotas and Australia may negatively impact production forecasts for these top global producers in the coming months. Yet, we wouldn’t expect any major changes to the USDA’s global wheat outlook in this report since there is still time for North American spring wheat and Australian wheat to recover. Moreover, global supply of wheat looks ample even with a few cuts here and there across Europe. The bullish case remains a technical one driven by fund positioning at a time when US wheat prices are still trading at the lowest levels seen since the depths of the global financial crisis.