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The May World Agricultural Supply and Demand Estimates did not deliver bullish numbers as many had hoped. The overall outlook for crop prices in 2022 and 2023 was bearish, which was largely expected.

USDA’s first monthly forecasts for the 2023 marketing year worldwide do not rule out the potential for rallies during the summer and fall, unless significant disruptions occur due to weather, war, or other events. However, unless such disruptions take place, the bulls will face significant challenges.

Corn traders received two pieces of bearish news. USDA increased its forecast for expected old crop inventories remaining at the end of the marketing year on August 31 by 75 million bushels, totaling 1.417 billion. The only change on the balance sheet was a 75-million bushel reduction in exports.

Although exports are slowing due to China canceling previous purchases, the pace could still be better than the new forecast. Additionally, ethanol demand is improving thanks to improved profit margins at Midwest plants since April, which is expected to continue during the peak summer driving season. This could offset weaker feed usage, keeping the ratio of ending stocks to total usage around 10%.

However, with nearly three-quarters of the marketing year passed, there is no compelling story to lift old crop prices on their own. The task of raising prices is likely to fall on the new crop. Being bullish on the 2023-2024 markets based on these numbers alone is challenging.

USDA projected new crop carryout at 2.222 billion bushels, setting the average cash price forecast at $4.80. These figures represent significant, but expected turnarounds from USDA’s previous outlook conference in February, where carryout was estimated at 1.887 billion bushels and the average cash price at $5.60.

The increase in stocks primarily came from larger expected supplies. The May report used acreage data from the March 31 Prospective Plantings, which was approximately 1 million more than the February outlook. USDA continues to assume a yield of 181.5 bushels per acre, considering normal growing season weather and planting conditions.

USDA’s yield estimate is about 4 bushels per acre higher than the statistical trend over the past 20 years. USDA officials claim they use the higher weather-adjusted trend to have the flexibility to reduce the yield in their first survey of growers in August if adverse weather conditions occur, such as slow planting progress or hot/dry conditions during the early summer.

However, some people believe this important detail gets overlooked in the headlines, resulting in a record crop forecast of 15.265 billion bushels. Furthermore, USDA’s demand forecast remained virtually unchanged from February, despite the increase in supply. While demand is expected to improve compared to the current marketing year after the production recovery, it is not sufficient to absorb all the additional bushels.