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Thursday, April 05, 2012

Are You Prepared For A Minimal Corn And Soybean Carryout At The End Of The Marketing Year?



 

There were both bullish and bearish headlines in the March 30 Grain Stocks reports, but the market climbed substantially prior to the weekend as the concept of tight supplies of corn for the balance of the marketing year consumed traders.  But there is a chance for both corn and soybeans to end the marketing year with minimal carryout, and slim stocks demanding high prices.

While about everyone anticipated the general outcome of the Prospective Plantings report, the surprisingly low corn stocks in the Quarterly Grain Stocks report caught many off guard.  Kansas State University marketing specialist Dan O’Brien says if the US uses corn for the balance of the marketing year as it did in the last half of the last marketing year, then carryout at the end of August would be just 599 million bushels.  His observations on the Grain Stocks report points to short stocks and higher prices by the end of the marketing year.  O’Brien says the past two Quarterly Grain Stocks report show a marked downtrend from the high in 2009/10.

Part of O’Brien’s forecast of unusually low corn stocks at the end of August is the record amount of corn used in the quarter including December, January and February.  That was attributed to strong ethanol refining, a moderate pace of exports, and feed use over the winter.  He says, “With March-May 2012 corn use of 2.864 bb (as in March-May 2011) and June-August 2012 use of 2.546 bb (as in June-August 2011), MY 2011/12 ending stocks would equal 599 million bushels.  Although this degree of possible tightening of old-crop corn stocks through the summer of 2012, grain market worries and responsiveness to any threats to 2012 U.S. corn production through the coming spring and summer months will continue.  Any planting delays or sub-optimal weather conditions during the April-September 2012 period could lead to record high corn prices and extreme rationing of U.S. corn usage.” 

USDA’s estimate of soybean stocks at the first of March was more abundant than corn.  Stocks of 1.372 billion bushels were estimated, which was about 10% more than the prior year.  That is the largest since the 2007/08 marketing year, and there had been a five year trend of declines in March 1 soybean stocks.  Quarterly disappearance was 998 million bushels and that is 3.5% less than prior quarter use.  Applying the same use principle to beans as he did to corn, O’Brien says the soybean ending stocks would actually increase to 302 million bushels, compared to the current USDA projection of 275 million bushels.

However, O’Brien says the South American crop shortage will become a factor in the US soybean market, “With sizable declines in prospects for the 2012 South American soybean crop and exports for the remainder of “old crop” MY 2011/12 (i.e., through August 31, 2012), it is likely that U.S. soybean export demand and to some degree soybean meal and soybean oil export demand will all increase.  So, exports of U.S. soybeans, soybean meal and soybean oil are likely to receive at least a minimal if not substantial boost in terms of both “old crop” MY 2011/12 and “new crop” MY 2012/13 as a result of this year’s South American soybean production problems.  Ending stocks of U.S. soybeans for MY 2011/12 have a strong possibility of declining from current USDA projections of 275 million bushels down to as low as 125-200 million bushels.” 

The Kansas State economist says the potential for US soybean ending stocks to fall to such low levels will “heighten grain market fears and responsiveness to any threats to new crop production through the spring and summer.  Any planting delays or sub-optimal weather conditions during the May-September 2012 period would lead to record high soybean prices and extreme rationing of U.S. soybean usage.”

Summary:
Increased corn use over the past three months, and the potential for increased soybean exports over the summer have the possibility of raising market concerns about diminished supplies of US corn and soybeans.  That means the potential for higher prices for both.  Based on current corn use, the carryout could drop below 600 million bushels and there is a potential for soybean carryout to drop below 200 million bushels.

Posted by Stu Ellis on 04/05 at 12:50 AM | Permalink

Comments

Challenges with USDA’s Corn Balance Sheet April 10, 2012 ending stocks for the 2011-12 US corn balance sheet did not change from the prior month. This came despite lower March stocks than the prior year. The feeding of wheat and an early more intensive corn planting season in the Southern States is given as the reasons. Southern states that are not part of the major 18 corn states, as indicated by USDA’s crop progress reports, account for 5.2% of the increase in US corn planted acres from last year. The WAG (Wild Ass Guess) becomes the percentage of new crop (2012-13) production that is needed to be used in the old crop year (2011-12). The seven prior marketing years used between 41.2% and 45.9% of the annual corn consumption in the last half of the year. To target an ending stock of 801 million bushel (USDA’s projection) with USDA’s projected used of 12.7 billion bushels between 28 and 618 million bushels of new crop corn is needed in the old marketing year. The mid-point is 332 and the average is 294. This equates to a low, average, mid-point and high of 0.2%, 2.0%, 2.3% and 4.3% of a 14.454 billion bushel production. When comparing this year’s planting rate with last years, the non-18 Southern States appear to have planted one half of one percent (0.5%) more of the US acres than last year. The 18 states included in US planting progress are 4% ahead of last year. The increased planting pace of 4.5% (4.0% + 0.5%) over last year may not be enough to meet expected old crop demand. The quickest time, when subtracting planting pace from harvest rate (from crop progress reports), is 133 days. That would allow crops planted prior to April 9, 2012, the date of crop progress report, to be harvested by September 1, 2012; the end of the marketing year. The average time is 155 days. That means corn would need to be planted by March 30, 2012 to be harvested by September 1. The April 1, 2012 corn planting progress from USDA’s crop progress report showed only a one percent (1.0%) increase in planting progress from last year. This is most likely not enough to hit our projections. If southern states are “pushing” to fill the old crop short fall with new crop production, it seems earlier maturing corn than normal is needed. Early corn in the Southern states may “drag” USA corn yields slightly lower. New crop corn could “fit” into the old crop year. A good warm growing year with a little shorter maturing southern corn would help the situation. It makes the May balance sheet (USDA’s first official look at 2012-13 balance sheet via WASDE) a subject of interest with so many corn bushels potentially switching years. USDA is able to kicks the can down the road - again. Jib aka Gibberish

Posted by: Jib at April 10, 2012 10:10PM

I made a mistake. The values should be percent planted not the difference in percent planted from last year. The southern states, not listed as part of the 18 major states, planted 2.9% of expected US planted corn acres last week, 2.2% the prior week and 2.4% last year. The 18 major corn producing states planted 7% last week, 3% the prior week and 3% the prior year. Our estimated percent of planted acres available for old crop consumption is: 10% with a fast maturing crop and 5% with an average maturing crop. So there does seem to be room for new crop production in the old year. Sorry for the error Jib aka Gibberish Ps USDA last year contented no new crop corn was mixed with old crop inventories. This year they are planning on it. It will be interesting to see how they account for the blending of years. Either new crop production will need to be lowered, new crop use increased, old crop use decreased, old crop production increased or a combination of some or all. Their balance sheet was designed to keep production years separate. To plan on mixing years may cause a mess.

Posted by: Jib at April 12, 2012 9:09AM

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