Column: USDA questioned on Black Sea, China grain estimates in virtual meeting
NAPERVILLE, Ill., Nov 15 (Reuters) - Ukraine, Russia and China have headlined grain markets this year, so when the U.S. Department of Agriculture hosted its biannual data users’ meeting on Tuesday, I took the chance to probe agency officials on their estimates for these regions.
I submitted several questions around supply and demand during the virtual meeting, and while I was not expecting the most detailed answers due to USDA’s diplomatic nature, there were some important highlights.
USDA’s Foreign Agricultural Service (FAS) last week published its first attache report (GAIN) on Ukraine grain and feed since the Russian invasion in February. It showed 2022-23 Ukraine corn production at 25.8 million tonnes versus USDA’s official estimate of 31.5 million.
This offers potential evidence that USDA is overstating Ukraine’s corn crop, but there is no guarantee the number will come down next month since USDA’s World Board does not always reconcile with GAIN forecasts in its monthly supply and demand estimates (WASDE).
The most interesting item from last week’s GAIN report was the statement that attache estimates for Ukraine exports assume the grain export deal will expire without renewal on Nov. 19. That is probably because the deal has yet to be extended, though many market participants believe it will be.
I asked in Tuesday’s meeting whether the latest Ukraine WASDE numbers reflect this same thinking, but no confirmation came. I was not given confirmation. However, official USDA estimates also use this general “policy in place” framework, so it is a decent bet that the approach was similar.
That means USDA’s official stance on Ukraine grain export potential may be understated. That is, of course, given USDA’s official crop estimates are not too large.
As of Tuesday, Russia had yet to announce its intent to move forward with the Ukraine export deal, though Moscow said it wants no disruptions to global food security. U.N. officials are maintaining an optimistic tone, the same attitude they carried just before Russia’s brief, unexpected suspension of the deal late last month.
USDA’s next WASDE lands on Dec. 9, after the grain deal’s fate is decided, so the Ukraine export estimates may be due for a change next month either way.
One other important factor regarding USDA’s Black Sea estimates is that border considerations are consistent with the official U.S. stance. That means its Ukraine estimates still include Crimea and all Russian-occupied areas, and no land area has been added to Russia.
Some Russian-affiliated grain analysts have included parts of Ukraine in their Russian crop estimates, inflating those numbers versus USDA forecasts.
The market was tipped off in mid-2020 that something may be amiss with Chinese corn stocks as domestic prices began rallying well before U.S. ones. China at that time began importing large volumes of corn, and it postponed efforts to increase corn-based ethanol blending in gasoline presumably due to low corn stocks.
Most industry participants suspect China’s corn stocks may no longer be plentiful, though no one knows for sure. However, USDA’s recent estimates do not reflect large shifts in Chinese corn ending stocks in the latest marketing years, and I asked Tuesday why that is the case.
Agency representatives explained that Chinese stocks are largely constrained by supply assumptions. Official Chinese data shows continued expansion in the domestic crop, so the stocks are simply what is left over after USDA projects the demand.
In other words, it appears USDA does not have hard, indisputable evidence of a strong decline in Chinese corn stocks.
I also asked for insight on USDA’s assumptions on China’s probable share of U.S. corn exports but was told information on bilateral trade is not published, an expected answer.
But for reference, China accounted for 31% and 23% of U.S. corn exports in 2020-21 and 2021-22, respectively, so it is probable that USDA is looking for another significant share in 2022-23. China’s U.S. corn purchases have stalled in recent months, raising the risk that USDA is overstating U.S. corn exports.
One interesting item raised by another meeting participant challenged whether USDA’s frequent adoption of various government statistics, especially in places like Russia or China, was appropriate and would continue given the current political environment.
Agency officials said they are not aware of any planned procedural changes, but the possibility that geopolitics have excessive, indirect influence on USDA’s forecasts is definitely something to think about.
Karen Braun is a market analyst for Reuters. Views expressed above are her own.
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