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Thursday, May 10, 2012

USDA:  One Surpise After Another



 

There are always surprises, and the May USDA Supply-Demand report did not disappoint anyone.  Even when you knew USDA was going to forecast a very large corn crop, the projection for 14.8 billion bushels and a 166 bushel national yield average were well over the top of expectations.  Let’s take a survey and see what the experts thought about the numbers…


At Iowa State University, grain marketing specialist Chad Hart said the upward adjustment to old crop carryover was noteworthy, “Old crop feed demand was lowered 50 million bushels, based on alternative feed availability. That change put 2011/12 ending stocks at 851 million bushels, nearly 100 million bushels above trade expectations.”

In addition to the hike in old crop ending stocks, the new crop ending stocks will be quite large, but along with production and consumption, says Hart, “For the new crop, this report sticks with the planted acreage from the March Prospective Plantings report, but the yield for corn been adjusted by 2 bushels to reflect the rapid planting thus far. Corn production is projected at 14.79 billion bushels, another record crop projection. Feed, residual, and export demand are all expected to increase for the new crop. So we are looking at record demand as well. But the surge in supply is greater than the increase in demand and ending stocks are projected to increase by over 1 billion bushels. With higher stocks come lower prices and the midpoint of USDA’s 2012/13 season-average price range for corn is $4.60 per bushel, 40 cents lower than the unofficial estimates in February and $1.50 lower than the 2011/12 price.”

At the University of Illinois, marketing specialist Darrel Good says there are some problems in the way USDA downshifted livestock feed needs for old crop corn, then floored the accelerator for livestock feed needs from the new crop.  Good says, “The projections for corn consumption during the current and upcoming marketing year continue to appear inconsistent. Feed and residual use appears under-stated for the current year and over-stated for next year. Prospective exports also appear under-stated for next year. On the production side, the USDA has started with very aggressive yield and production forecasts. It is not clear why 2011 was not included in the trend analysis of yields. Still a build-up in stocks appears likely next year and suggests prices will continue to moderate back to the levels of 2007-08 through 2009-10.”

Farm Futures market analyst Arlen Suderman was surprised by the quantum leap made by USDA from its projected 158 bushel yield last year to 166 this year, all in an effort to reach the 14.8 billion bushel production, “So how did USDA come up with the big increase? It used a 20-year trend yield, just as it did last year, adjusted for the early planting pace. However, this time it decided to exclude last year’s low yield of 147.2 bushels per acre when it calculated its trend yield. That provided the convenient increase that it needed. It’s not unusual for a statistician to exclude an outlier low number, but then they will also exclude an outlier high number as well. That is apparently not what USDA did this time.

Suderman also said that while many agencies are lowering the South American crops, USADA actually raised the estimate for the next soybean crop, “USDA surprised the trade by increasing Brazil’s corn crop by 5 mmt, but only increased Brazil’s exports by 1 mmt.”

Another big surprise is the USDA pushing new crop soybean carryout well below the 5% expected floor.  The 145 million bushels on a 3.2 billion bushel crop represents a 4.4% stocks to use ratio.  With higher expected prices, Hart says it would be the third consecutive year of setting a higher record price.

Posted by Stu Ellis on 05/10 at 10:52 PM | Permalink

Comments

What Gorilla? Or the King has No Clothes! The gorilla is the 900 million bushel increase in new crop corn’s feed and residual use. Many know it is there but few are acknowledging its existence. (Dr. Good is a notable exception.) This 900 million bushel increase in use is similar to a drop of 10.1 bushel per acre in US corn yield. It is large when compared argument that USDA over stated US yield by 2 or so bushel per acre. Should this use mysteriously disappear, the ending stocks could balloon to 2,781 million bushels or 21.6% of use. This level of carry out has not been seen since the late 1980’s but that is not what appears to be happening. The increased feed and residual number is more that likely pointing to new crop corn being used in the old crop. In a May 11, 2012 interview with Todd Gleason on “Commodity Week”, Jerry Bange from World Agricultural Outlook Board( http://will.illinois.edu/agriculture/commodityweek/ ) reaffirmed that new crop corn was not being mix with old crop. He did admit the World Agricultural Outlook Board was “surprised” by last years September stocks report. He indicated that it seemed like 200 million bushels of new corn went directly from the field to the end users, missing an accounting in the balance sheet. He also indicated there is a potential to harvest something like 1 billion bushels prior to September 1, 2012. The large residual use number in new crop corn could be indicating the corn starved end users will consume 725 million (our guess) bushels of new crop corn in the old year, missing accounting in the stocks report. (Our model estimates feed demand from USDA’s projected livestock and poultry production, then subtracts other grains, DDGS projected use (from Dr. Wisner) and expected maximum trend line residual use.) That would imply stronger old crop use than the balance sheet is able to show. (A line showing new crop use in old crop year would help solve that problem in the balance sheet.) Using 2010-11 as a guide, the implication is for the US to be basically out of corn August 8th unless early harvest is in full swing nationwide prior to that date. There is a gorilla out there and he is not clothed. Jib aka Gibberish Jib You are voicing what a lot of farmers are thinking and regional commodity analysts are calculating. Maybe Jerry Bange's team will adjust the balance sheet, because there has been a conflict with the 2011 and 2012 calculation process. ~Stu

Posted by: Jib at May 14, 2012 1:01PM

Mr. Ellis: I would add, if June stocks come in under 2.1 billion bushels, the July ending stocks from the supply and demand may increase reflecting the closing of ethanol plants. The big plants use 100,000 bushel per day and the industry averages over 13.5 million bushel per day. A weight average of five days shut down could push old stocks up 68 million bushels to around 915, unless USDA has already included it in their seemingly weak ethanol use number. Going deep into the count (sell corn late in the marketing year) may not pay the expected dividends if one expects to market to an ethanol plant late in the marketing year. This is alot and I do mean alot of speculation. I throw it out for food of thought. Jib aka Gibberish

Posted by: Jib at May 15, 2012 9:09AM

Sorry but one more point, than I need to do something that has redeeming social value. The USDA cannot change the old crop balance sheet in its current form (as noted above a line needs to be added to the balance sheet to reflect new crop corn use in the old crop year) to reflect old crop’s proper/expected usage if production and ending stocks are to reflect their expectations. Production is pretty much set in January and ending stocks need to be correct to reflect new crop beginning balance. So the residual number of the feed and residual number is adjusted down, if the balance sheet is to balance, to reflect the influx of new corn in the old year. The same becomes true in the new crop. The large feed and residual number for 2012-13 indicates something happened to new crop corn; it may have been used in the old year. If this is a “DA” to everyone, please forgive my lack of understanding. Jib aka Gibberish

Posted by: Jib at May 15, 2012 9:09AM

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