The USDA updated the U.S. and World balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report today. WASDE reports in the summer are a barometer of overall world demand, forecasted production, and inventory adjustments. In August, U.S. ending stocks for 2011/12 were revised lower for corn and soybeans, but increased for wheat.
The majority of news for the U.S. corn market can be seen as bullish, as the 2011/12 U.S. projections for harvested acres, yield, and ending stocks were all decreased from their July estimates.
After the surprising June 30th Acreage report, the USDA resurveyed producers in Minnesota, Montana, North Dakota, and South Dakota and confirmed previous estimates for planted acres but decreased estimates for harvested acres. The USDA reduced harvested acres to 84.4 million, a reduction of 0.5 million acres. Reductions were based on flooding damage caused in the Mississippi and Missouri River basins.
The national average yield was revised to 153.0 bushels per acre, down 5.7 bushels from July’s projection as unusually high temperatures and below average precipitation during July across much of the Corn Belt sharply reduced yield prospects. Harvested acreage and yield reductions resulted in the USDA lowering production estimates for 2011/12 to 12,914 million bushels, a reduction of 556 million bushels, or 4%.
The USDA raised 2011/12 beginning stocks 60 million bushels to 940 million bushels, reflecting lower estimated demand for the remainder of the 2010/11 year. The USDA lowered domestic consumption during 2011/12 by 240 million bushels. Projections for ethanol usage and food consumption were lowered by 50 and 190 million bushels, respectively. Exports were also reduced by 150 million bushels or 7.9%.
Compared to the July, ending stocks for 2011/12 corn crop are now projected to be 156 million bushels lower at 714 million bushels, a 24% decline from last year’s estimated ending stocks (940 million bushels). Consensus estimates for ending stocks were 735 million bushels.
The forecasted stocks-to-use ratio is projected at 5.4%, compared with last month’s projection of 6.4% and a five-year average of 11.6%. Season-average farm price estimates were increased on each end of the range by $0.70 per bushel, to $6.20-$7.20 per bushel.
Estimates for world corn ending stocks were lowered to 114.53 million metric tons, or 1.13 million metric tons lower than the July estimate. This is a result of beginning stocks being increased by 2.05 million metric tons, production and imports being decreased by 12.92 million metric tons, and usage being lowered by 17.86 million metric tons. Supply constraints can be mainly charged to the United States. However, slight revisions were made in the following countries; South Africa, Mexico, Argentina, and Southeast Asia, Egypt, the EU-27, Brazil, Canada, and the Ukraine. Usage adjusts can also be attributed to changes in the U.S. market, while minor revisions were made in the EU-27, South Korea, Canada, and Egypt.
Following corn, the soybean market also received bullish news from the USDA. Planted and harvested acres, yield estimates, and ending stocks were reduced in today’s WASDE report. Unlike corn, estimates for planted acres of soybeans were reduced from findings in the USDA’s previously mentioned resurvey of selected states.
USDA alterations for 2010/11 included a reduction in soybean crush and exports and an increase in ending stocks. Crush was reduced by 5 million bushels to 1,645 million reflecting reduced soybean meal exports. Soybean exports were reduced 25 million bushels to 1,495 million reflecting lower-than-expected shipments in recent weeks. Ending stocks for 2010/11 are now projected at 230 million bushels, up 30 million from last month.
Soybean production for 2011/12 is estimated at 3.056 billion bushels, a reduction of 169 million bushels or 5.2% from July estimates. Planted and harvested acres were reduced by 0.2 and 0.5 million acres, to 75.0 and 73.8 million acres, respectively. This is mainly reflecting reductions in South Dakota. Yield estimates were also reduced to 41.4 bushels per acre, or 2.0 bushels less than July’s estimate and 2.1 bushels less than the previous year.
The USDA lowered export estimates by 95 million bushels to 1,400 million bushels, due to increases in projected supplies in South America this fall. Soybean crush was also reduced 20 million bushels to 1,635 million bushels because of lower domestic soybean meal usage. U.S. soybean ending stocks for 2011/12 are now projected at 155 million bushels, 20 million bushels lower than the July report, and 19 million bushels below consensus estimates of 174 million.
The U.S. season-average soybean price for 2011/12 is projected at $12.50 to $14.50 per bushel, up $0.50 on both ends of the range.
Global soybean beginning stocks were increased, while production reductions outpaced usage decline compared to the July report, while estimates for ending stocks were decreased by 1.02 million metric tons. Offsetting lower U.S. and Chinese production estimates were increases in production estimates from Brazil and the EU-27. Along with lower than expected usage in the U.S., reductions were also applied to the EU-27. The USDA also reduced export estimates for the U.S. and China while increasing estimates for Argentina and Brazil.
The USDA decreased production estimates for 2011/12 by 29 million bushels to 2,077 million bushels. This is reflective of the USDA lowering estimates for planted and harvested acres by 1.2 and 1.3 million acres, to 55.2 and 45.9 million acres, respectively. Unlike corn and soybeans, yield estimates were increased for wheat to 45.2 bushels per acre from 44.6 bushels in their July report.
There was no change to 2011/12 beginning stocks, but revisions were made in 2011/12 feed usage and exports. Feed usage was increased by 20 million bushels to 240 million bushels, while exports were reduced by 50 million bushels to 1,100 million bushels. Compared to the July report, projected ending stocks are estimated to be 1 million bushels higher at 671 million bushels, and above consensus estimates of 668 million bushels.
The 2011/12 season-average farm price for all wheat is projected at $7.00 to $8.20 per bushel, up from last month’s range of $6.60 to $8.00 per bushel supported by higher projected prices for corn.
Estimated global wheat supply for the 2011/12 year was increased by 14.47 million metric tons to 993.21 million metric tons. Increases in supply are attributed to increased production in; the EU-27, China, India, the FSU-12, Russia, Kazakhstan, and the Ukraine. Compared to July, global wheat usage was raised by 10.99 million metric tons to 934.19 million metric tons. These adjustments resulted in increasing ending stocks by 6.68 million metric tons to 188.87 million metric tons.
Even though the USDA lowered its 2011/12 ending stock levels for corn and soybeans, we are closely monitoring demand levels for both commodities. Recent escalations in commodity prices have caused some demand softening and end-users will look towards alternatives if margins cannot be sustained. If end-users begin to transition to alternatives or go out of business due to higher commodity costs, the entire demand picture may shift drastically and force stocks to increase resulting in lower prices.
We also need to be cognizant of the ever changing political picture in the United States and Europe. Fiscal uncertainty and a strengthening dollar may have a negative impact on foreign commodity buyers causing prices to also decline. Furthermore, with 35-40% of the domestic corn crop used for ethanol, attention has to be paid to the blenders’ credit and ethanol mandates. If this legislation is reversed and oil prices decline, prices for ethanol and gas may converge, reducing the demand for corn as an energy source.
However, given our country's current political/economic makeup and end-users profit margins, we are still bullish grain prices and farmland values. Pay attention to weather patterns across the major soybean production areas for the next 3-4 weeks, as any period of long, hot, dry weather may cause supply constraints.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.