The government issued its third-biggest May forecast of the last 20 years for new-crop US corn stocks, 2.295 billion bushels, in its supply and demand report released on Wednesday. The domestic soya stocks outlook of 480 million bushels came in as the sixth-biggest ever predicted in May.
On the global front, the 2017/18 soyabean stocks projection of 88.81 million tonnes comes as massive harvests in Brazil and Argentina have boosted supplies available for China and other top importers. The world soya outlook was the USDA's second-biggest May stocks forecast of the last 20 years.
USDA also said the global corn stockpile would fall to 195.27 million tonnes from 223.90 million tonnes. But it was still its second-biggest May outlook for global corn supplies.
In the previous 20 years, there have been only six May new-crop domestic stock readings of more than 400 million bushels for soyabeans and three readings of 2 billion bushels or more for corn. Those forecasts have hung over the market throughout the growing season and into harvest during those years.
The government's stocks forecast this year will likely cap any rallies sparked by weather concerns throughout the summer months, traders said.
"This big crop is going to be a big focus for the market," said Chris Lehner, commodities broker at Archer Financial Services.
In the past, a May outlook for surplus grains has cast a bearish tone and dampened price swings, reducing opportunities for traders who make profit from increased volatility in the markets while also depressing cash prices for farmers.
In the six previous times since 1997 when the USDA has made an initial soyabean stocks forecast of more than 400 million bushels, Chicago Board of Trade soyabean futures have fallen five times between the agency's May report and the end of the year, averaging a decline of 8.2 percent.
The three times the May new-crop corn stocks outlook has topped 2 billion bushels, corn futures have fallen twice, averaging a decline of 22.6 percent.
The expectations for huge supplies also limit rallies. Corn futures rose in the months after the May 2005 stocks report, which projected new-crop corn ending stocks of 2.540 billion bushels. But the market managed just a 1.6 percent gain. In other years where corn rallied between the May report and December 31, the average gain was 21.0 percent.
Large US grain handlers have already suffered earnings declines as huge supplies have reduced volatility in the market. Earlier this month, Bunge Ltd reported an 82 percent drop in first-quarter earnings and lowered the profit outlook for its unit that trades grains and oilseeds, while Archer Daniels Midland Co warned investors it was downgrading its expected return on invested capital. Shares of both companies dropped sharply following their earnings reports and the USDA's forecast that grain stocks will remain huge likely adds further pain to the industry.
The swing between the high soyabean price and the low soyabean price recorded between May and December has averaged 28.5 percent in the years since 1997 with an initial new-crop stocks report of more than 400 million. That compares with an average swing of 55.3 percent in the 14 other years. For corn, the difference between the high and low price averaged 50.9 percent when the May stocks view topped 2 billion bushels, compared with 54.5 percent in other years.
Copyright Reuters, 2017