The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates report on Wednesday. February’s report is typically quiet, but strong corn demand has driven corn supplies to dangerously low levels.
The cut in corn stocks was substantially higher than analysts’ estimates, which should pressure corn prices higher in today’s session.
Corn
U.S. corn supplies continue to tighten as demand was increased by 70 million bushels. Ethanol usage was increased by 50 million bushels and food, seed, and industrial was increased by 20 million bushels. Production and yield estimates were unchanged.
Ethanol production is now at an all time high of 4.95 million bushels, up from 4.568 billion bushels in 2009/10.
Ending corn stocks for 2010/11 are now at 675 million bushels and leaves the ending stocks to use ratio at 5.0%, matching the pervious lowest ratio in 1995/96. The USDA season-average farm price for corn is estimated at $5.05 to $5.75 per bushel, a midpoint increase of 10 cents and the highest season-average ever.
World corn ending stocks were moderately lowered to 122.51 million tons due to production in Argentina being reduced by 4.5 million tons, lower beginning stocks, and higher usage.
Soybeans & Wheat
Estimates for soybeans and wheat were unchanged in the February report, although analysts were expecting a cut in ending stocks for both crops. Soybeans and wheat should trade higher on the strong demand for corn.
Overview
Grain stocks continue to become dangerously low each month. There is currently less than a three week supply of corn available. Corn prices above $6.00 will pressure food prices and supply rationing.
All eyes will now be turned to U.S. planting estimates for this spring. We expect that farmers will shift more acres to corn from soybeans to capitalize on the high prices. Analysts expect around 90 million acres of corn to be planted in 2011, with some estimates reaching as high as 93 million acres, compared to 2010’s planting of 88.222 million acres.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
