WASDE Report: Let The Corn Rationing Begin

by: T. Marc Schober

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. Summer heat and excessively dry weather across the U.S. Corn Belt throughout August hurt crop conditions, which led to a reduction in the estimated average corn yield per acre in the U.S. to the lowest since the 2005/06 season.
View the entire WASDE.

Neutral to slightly bullish news from the USDA; as estimated, average corn yields were decreased by 4.9 bushels per acre to 148.1 compared to August's estimate. Although current estimated yields are the lowest since 2005/06, this year's crop is on pace to be the third largest on record. 2011/12 supplies were decreased by 442 million bushels alongside a 20 million bushel decrease in beginning stocks and a 5 million bushel decrease in imports.

U.S. corn usage was decreased by 400 million bushels as supplies became tighter and rationing of the U.S. corn crop began. Feed and residual use was estimated 200 million bushels lower on decreased expected residual use on the smaller U.S. crop. Ethanol usage was also estimated 100 million bushels lower due to the increased price of corn and the Energy Information Administration's decreased forecast of gasoline consumption. U.S. exports were lowered by 100 million bushels on increased supplies and export expectations from Argentina, Brazil, and the Ukraine.

Ending stocks were decreased by 42 million bushels to 672 million bushels, which puts the all-important stocks-to-use ratio at 5.3%; this is down from 5.4% in August and well off the 5-year historical average of 11.6%. The USDA forecasted the season-average farm price per bushel up $0.30 on each end of the range at $6.50 to $7.50.

World corn supplies were decreased by 4.5 million tons because of the increased beginning stocks that were only able to be partially offset by the decrease in U.S. supplies. Global production was 5.9 million tons lower due to the 10.6 million ton reduction in U.S. production and a 4.8 million ton increase in the rest of the world. Brazil and Argentina had estimated production increases of 4.0 and 1.5 million tons respectively on increased area. Ukraine also had an increase in production by 1.5 million tons due to larger than expected yields.


The USDA increased soybean production in the U.S. by 29 million bushels on increased yields. The average soybean yield per acre was increased by 1% to 41.8 bushels per acre. Total production is pegged at 3.085 billion bushels. Ending stocks increased by 10 million bushels to 165 million bushels as supplies were only partly offset by increased exports and lower food usage due to increased canola and palm oil use. The U.S. season-average soybean price for 2011/12 is projected at $12.65 to $14.65 per bushel, up $0.15 on both ends of the range.

World soybean production was increased by 1.51 million tons to 258.99 million tons due to increased production in the U.S. and a record crop in India. India's 10.5 million tons of soybean production was due to higher harvested area.


U.S. wheat ending stocks were increased by 90 million bushels on increased imports and decreased food use and exports. Domestic imports rose by 10 million bushels due to the increased supplies in Canada, and food usage was lowered by 5 million bushels. U.S. exports were estimated at 75 million bushels lower on increased exports from Canada and EU-27. The 2011/12 season-average farm price for all wheat is projected at $7.35 to $8.35 per bushel, up from last month’s range of $7.00 to $8.20 per bushel.

Global wheat supplies were increased by 7.6 million tons due to larger beginning stocks and production in Canada, EU-27, and the Ukraine. Canada production was increased by 11.6% to 24.0 million tons, while Eu-27's increase was 1.7%, and Ukraine's increase was 4.8%.


The reduction in U.S. production for the 2011/12 season has triggered an alarming demand rationing of the corn crop. Feed and residual use of corn decreased, and we feel that end users are looking for alternatives to corn, which could be wheat in many feed circumstances. An average yield of 148.1 bushels per acre would be lowest since the 2005 crop; well off of the 2009/10 record yield of 164.7 bu/ac.

We feel that the decreased condition of the U.S. corn crop should help keep grain prices elevated through the harvest. Remember, all USDA yield estimates are considering that conditions remain optimal. In order for the U.S. average yield to be 148.1 bu/ac, pristine weather conditions need to be present throughout the harvest.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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