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Friday, September 28, 2012

September Surprise—The Theme to USDA’s September Quarterly Stocks Reports


There was a “September Surprise” this year for the corn market, as USDA’s Quarterly Grain Stocks Report has pushed September 1 stocks below the billion bushel mark, which was considered a bullish benchmark.  And the corn market took off as expected.  However, USDA found more soybeans from the 2011 crop, increasing the overall supply.  And the NASS statisticians also found that more wheat was being fed than previously expected, launching a bullish rally for wheat as a result of the Stocks Report.


Corn Stocks

In the Quarterly Grain Stocks Reports,  USDA reported 988 million bushels of corn on hand at the end of the last marketing year, a 12% drop from last year, which represents 2.16 billion in disappearance, compared to 2.54 billion a year earlier.  Of the total stocks 314 million bushels are on farms and 675 were in commercial storage.  This was a surprise, due to the early harvest that brought new crop supplies into the old crop year, and the 988 million number was well under the trade estimate of 1.126 billion bushels and was at the low end of the expected range.  The 988 million is an eight year low for corn stocks in September. 


Corn prices jumped more than 20-cents when the numbers were released, since the Chicago trading pits were open and trading at the time of the USDA report release.  At mid-morning December through May corn contracts were trading above 30-cents higher than the Thursday close, and all above $7.50 per bushel.  That is $1 under the August 10 high, and some market sources indicated that the recent lows may be history, as the short supply will push prices higher.  USDA will next update its yield and production estimates on Oct. 11.  The last estimate was for 10.727 billion bushels.


The market analysts are still curious about the USDA process for estimating and reconciling the early harvest, which USDA said would have made 1.2 billion bushels available for harvest and use prior to the end of August.  That would have been some 700 million more than last year.  The CME quoted grain market analyst Jack Scoville as saying, “We’ll be looking for clues to see if there is a significant amount of new crop harvest being included in these numbers. That will be one major issue they’ll confront.  And we’ll be looking to all three of these estimates looking for clues to how strong the feed demand has been here domestically.”  The unanswered question remains if USDA co-mingled the new and old corn stocks, and how would that affect market mentality toward corn.  Another consideration is whether the market has done enough rationing, but at this point there is still a lot of demand coming from livestock feeders, which have also been feeding more wheat than expected (see below).



Soybeans Stocks

There was a “September Surprise” for soybeans, however, as the USDA revised its 2011 statistics, adding 37.5 million bushels to the production number that pushes it up to 3.094 billion.  The change came in planted acreage which was increased by 70,000 acres and to harvested acres which was pushed higher to 140,000 acres.  USDA also pushed the yield up by 0.4 bushels per acre to 41.9 bushels, and released updated state data.  Interestingly, the CME quoted market analyst Jerry Gidel, who Thursday said, “We might see a higher number in soybean stocks than what is expected. “In general, the only change that might happen on soybean stocks vs. expectations is that we might have had a slight underestimate of last year’s crop, and that could reflect a number 10 or 20 million above that number if we have a number above the 130 million (bushel) general expectation.”


The result was a higher level of stocks on September 1, which were projected at 169 million bushels, a 21% drop from year earlier levels.  On that date, 38 million were stored on farms and 131 were in commercial facilities.  Disappearance for the June, July, August quarter was estimated at 498 million, a 23% increase over 2011 quarterly disappearance.  The 169 million stocks number was more than the 130 million bushels expected by the market, but the spillover strength from the corn and wheat markets kept soybeans afloat in higher trading after the data was released.  After the numbers were released while the market was trading, soybeans prices were steady.  At mid-morning soybeans in the November through March contracts were all trading a few cents higher and all above the $15 mark.  While some market watchers suggested the higher soybean stocks would mean a retest of recent lows, others said there is still strong demand for beans.   Soybean values have tumbled 13% since reaching a record $17.89 on Sept. 4.  USDA’s last production estimate on September 12 projected at 2.634 billion bushel crop, and will be updated on October 11.



Wheat Stocks

Mark a “September Surprise” here as well, spurred by increased disappearance from wheat feeding, or at lease more than was expected.  USDA’s Quarterly Stocks reports indicated disappearance of  908 million bushels in the June to August quarter, some 27% higher from the same period in 2011.  All wheat stocks totaled 2.10 billion bushels, down 2% from year earlier levels, with 573 million on farms and 1.53 billion in commercial facilities.  The market was expecting 134 million bushels more in storage.    Analysts indicated wheat feeding was implied at 428 million bushels, more than double the 200 million for 2011.  If that is the case, it would be an all-time high for wheat feeding in the first quarter of the marketing year for wheat.  USDA will not report the level of wheat feeding until the October 11 WASDE report, so that confirmation will have to wait.


Wheat production

USDA reported 2012 U.S. wheat production at 2.269 billion bushels, up 13% from the 2011 total of 1.999 billion and close to the pre-report average of analysts’ estimates.  The average yield was 46.3 bushels per acre, compared to 43.7 last year. Planted area was 55.736 million acres, up 1.327 million on the year, and harvested area was 48.991 million acres, up 3.286 million from a year ago. Abandonment dropped to 6.745 million acres, from 2011′s 8.704 million.

The winter wheat crop was 1.645 billion bushels, 10% over 2011, with the average yield at 47.2 bushels per acre, up 1.0l bushel s from 2011.  Hard red winter was 1.004 billion bushels, 224 million more than a year ago, soft red winter was 419.8 million bushels, 38 million bushels less, and white winter was 221.55 million bushels, down 34.5 million bushels on the year.   Spring wheat production was 541.959 million bushels, 19% over 2011, with an average yield of 45 bushels per acre.

Analysts indicated the wheat production numbers should be neutral to the market, but wheat was trading 30-45-cents higher in the December through May contracts, all above $9 per bushel in Chicago, helped by the increased disappearance.

Posted by Stu Ellis on 09/28 at 10:42 AM | Permalink

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