Intriguing WASDE sugar forecasts this month: A look at the bottom line shows an increase of 118,000 short tons raw value (STRV) in 2019/20 ending stocks, perhaps prompting a sense of relief as supply and markets seem to be improving. But that does not seem to fully be the case. Production for beet and cane were both unchanged, although the fiscal-basis beet crop was adjusted, moving 50,000 STRV from 2018/19 to 2019/20 as early harvest was delayed due to late plantings and wet conditions, particularly in the Red River Valley.
Cut for 2018/19, 2019/20 sugar deliveries: One of the more interesting developments from the report was USDA cutting deliveries for food use in both 2018/19 and 2019/20 by 50,000 STRV. The deliveries for August as reported in the SMD report were dismal, with cane off 10.3 percent vs. last year and beet off 8.3 percent. Deliveries from October through August reached 11.168 million STRV, basically unchanged YOY. As a result of the smaller beet crop, beet deliveries are off 4.8 percent while cane deliveries are up 2.2 percent. USDA is only forecasting a 25,000 STRV increase in deliveries for food use in 2019/20 and only a 5,000 STRV increase in total deliveries.
Lower 2019/20 corn domestic carryout: Today’s much awaited WASDE included changes to supply and demand but countered analyst expectations of a further reduction to production by projecting a nearly offsetting decrease in harvested acreage with a minor increase to yield. Forecast 2019/20 corn output now stands at 13.779 billion bushels, down 641 million bushels or 4 percent from 2018/19. The bigger adjustment was the lowering of 2019/20 ending stocks to 1.929 billion bushels, mostly due to the expected reduction to carry-in, now projected at 2.114 billion bushels.
Mixed bag for corn demand: There’s a question of whether strength in one category will offset significant expected declines in others. On one hand, swine populations continue to grow, with the latest number suggesting inventories are up 3 to 4 percent YOY. With additional global demand anticipated for pork, U.S. producers should see a continuation of strength in this sector. It is also possible that pork exports will be a component of any trade deal between the U.S. and China, supportive of feed demand for corn—and of USDA’s upward revision.
Conversely, the ethanol and export categories of use are currently seeing weakness that could persist and worsen in months ahead. Now pegged at 5.4 billion bushels for 2019/20, corn use for ethanol is likely to decline given numerous reports of ethanol facilities idling capacity. Profitability remains weak, especially for the dry milling sector. Yesterday’s EIA report pegged ethanol stocks below 21.2 million barrels—nearly a two-year low after the largest one-week drop YTD. This usage category could fall further in later reports closer to 5.3 billion bushels of corn for 2019/20.
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