Thursday, January 14, 2010
You Know The Crop Numbers; But What Do You Do With Them?
You now probably know the USDA’s Final Crop Report for 2009 predicted larger yields for corn and beans than what the market anticipated, which was the reason for market weakness on Tuesday and Wednesday. Stocks were large, carryover was increased, and there were surprises in about every one of the four major reports released earlier this week. But what are some of the implications of those numbers? Let’s eavesdrop on the party line conversation and learn what the experts have to say.The first surprise of the day was in corn production, noted by University of Missouri marketing specialist Melvin Brees in his newsletter, "The acreage and yield adjustments resulted in record total US corn production of 13.151 billion bushels. This is well above the average pre-report trade estimate of 12.819 billion bushels and above the top end of the range of trade expectations from 12.500 to 12.966 billion bushels.”
The corn crop, although not totally all in the bin yet, turned out to break the 2007 production record by 113 million bushels because of both increased yield estimates and acreage estimates. Marketing Specialist Darrel Good at the University of Illinois reports in his newsletter that the corn that was in the bin by December 1 became part of the 10.9 billion bushels of stocks, some 862 million more than December 1 of 2008. With exports slightly more than year earlier shipments, Good says that implies domestic use for the first quarter of the marketing year was 3.4 billion, about 230 million more than year earlier consumption. He says that is, in part, a function of increased livestock feeding by some 155 million bushels. Corn exports were held at 2.05 billion bushels, which Good says is reasonable, even with the increased pace of sales in recent weeks. The ethanol industry is expected to back off its pace of corn consumption compared to a year ago, and that caused USDA to raise ending stocks by 90 million bushels. Iowa State University's Chad Hart adds, “Ethanol demand held at 4.2 billion bushels, but food and seed demand was lowered 10 million bushels as shipments of high fructose corn syrup were off.”
Compared to year ago levels, Brees says world stocks are not as large, “ The increased US production and carryover along with a 1.00 mmt increase in Argentine corn production led to an increase in expected World corn ending stocks from 132.34 to 136.19 mmt. However, this is still lower than last year’s 145.97 mmt World corn carryover. World coarse grain ending stocks were also increased, but remain below the previous year’s stocks.”
Also speaking of the corn stocks, Chad Hart says in his newsletter, “But the record size of this year’s crop more than offset the strong disappearance numbers and stocks increased. A similar story holds for soybeans. Soybean stocks are up 3 percent from last year even though disappearance from September to November was 30 percent higher than last year.”
Soybeans also set a production record in 2009, due to a higher yield, and even with a reduction in estimated acreage. The 44 bushel average yield will push production to 3.361 billion bushels, but Good says the impact of the larger crop was offset by revisions in consumption estimates. The soybean crush in the first quarter of the marketing year was higher than expected, so the total crush estimate is being raised to 1.71 billion bushels, some 48 million more than last year. Export estimates were raised by 35 million bushels, and the projected 1.375 billion bushels to be exported are 92 million larger than last year, helped by a ravenous appetite from the Chinese pork and poultry industry. But Good says this is happening even with a very large South American harvest anticipated, which may be 1.2 billion bushels more than last year and 430 million larger than the record high production. But Hart says other nations are also buying beans, “Other soybean markets, such as Taiwan, Egypt, and Canada, have grown year over year as well.” US soybean stocks are estimated at 2.337 billion bushels with crush and export estimates leaving a very large residual use during the first quarter of the marketing year.
Brees notes there will be plenty of soybeans to go around from the Western Hemisphere crops, “2009-10 soybean ending stocks were reduced 10 million bushels and are now forecast at 245 million bushels. This is higher than the average trade expectation of 237 million bushels. Expected Brazilian soybean production was increased 2.00 mmt to 65.00 mmt, but no changes were made to Argentina’s 53.00 mmt production. World carryover is expected to rise from last year’s 42.87 mmt to 59.80 mmt.”
Good says when all of the reports are considered, there are adequate supplies of corn, beans, and wheat in the US. While fewer wheat acres might support the wheat market, however it points to more acres in corn and beans in 2010. He says the corn might be used, but with a large South American crop anticipated, beans will be in surplus. But Brees thinks all grain storage is a risk, “Expect market volatility to continue and today’s report surprises suggest discouraging price news for grains, adding to the downside risk of old crop storage.”
Summary:
If you are updating a marketing plan for the 2009 crop, the USDA crop reports earlier this week may have forced a change in your strategy. Record crops for both corn and soybeans were reported for the US, but the on-coming South American crop also seems to be large and there may not be crop shortages for either corn or soybeans to force prices higher.
Posted by Stu Ellis on 01/14 at 01:21 AM | Permalink