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Tuesday, July 10, 2012

Crop Report Day, But Will We Really Learn Anything?


USDA’s next report on the corn and soybean crop will be Wednesday morning.  At 7:30 Central time this morning, the July Supply and demand report will be released, but may say more about demand than the supply.  USDA will not measure the crops in the field until the first of August and release that estimate on August 10.  While everyone will be expecting USDA to reduce its 166 bushel per acre estimate for the 2012 corn crop, the July report traditionally does not contain any significant adjustments.
While there is little doubt the 166 bushel figure is no longer considered valid, the USDA might reduce it several bushels, but certainly not down to the 145 to 150 bushel range currently being traded by the grain market.  A two or three bushel drop by USDA would be considered rather bearish, even though it may not be considered news for more than a couple minutes.  
The market is expecting USDA to place the average yield at 154 bushels per acre.  The average trade guess for old crop corn carryout is 840 million bushels at the end of August.  The new crop corn carryout has a wide range of guesses, but the average is 1.23 billion bushels, down from June's 1.88 billion.  The market is expecting USDA to estimate the new soybean crop at 42.3 bushels per acre.  For the 2011 soybean carryout the average guess is 170 million bushels.   The new crop soybean carryout average is at 134 million bushels for new crop. 
What the market is watching for this morning are any adjustments in use.  With lower supplies being a given, the USDA may cut back on its export projections and even its forecast for ethanol use in the July report later this morning.
We are a long way below the 14—point—six billion bushel production that would result from 166 bushels per acre on the 88 million acres expected to be harvested.   145 bushels, which may be closer to the average, would provide a 12—point—seven billion crop.  That is below the 13 –point—seven billion needed.  
By virtue of the Renewable Fuels Standard, enough corn has to be provided to meet the required ethanol use mandate—which means almost five billion bushels will come off the top for ethanol.  Will the shortage of corn push the government later in the year to provide a waiver of the requirement, and release part of the corn to other uses? Undoubtedly there are conversations about that underway in Washington.
The USDA’s political staff has discovered the drought, and for the first time, Secretary of Agriculture Tom Vilsack will address himself to that issue later today.  He’s not mentioned the drought in prior remarks to reporters this year.  One of the reasons may be the obvious question by reporters of how much food prices will rise because of the drought.  That is not a question a politician wants to answer in an election year.
However the drought has caught the top of the national news, and USDA will begin its official reporting today of how hard the crop is hurting.  And the Secretary will need to address that issue sooner, rather than later.
When the numbers are in from the July WASDE report, they will be recapped here.

Posted by Stu Ellis on 07/10 at 10:58 PM | Permalink

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