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January 13, 2009
Monday's Basketful Of USDA Production And Stocks Reports Caused It To Overflow.
Without the typical fanfare reserved for the August 1 Crop Report, USDA put the wraps on the 2008 crop with some numbers that surprised most of those who weigh in with their own predictions. A handful of reports were released Monday, including the Quarterly Grain Stocks Report, and the Final Production Estimates for the old crop. So how did the numbers change?
USDA’s final report on the 2008 crop placed corn production at 12.101 billion bushels, up 1% from the November crop report by raising the average yield to 153.9 bushels per acre. The estimate was 119 million bushels higher than what the market expected. Soybean production was estimated at 2.959 billion bushels, up 1% from November also because of a higher yield estimate of 39.6 bushels per acre.
The World Agricultural Supply and Demand Estimate (WASDE) for January raised US corn carryout for the 2008-09 marketing year by 316 million bushels because of higher production estimates and lower estimated consumption. Total production went up 81 million bushels. Feed used was dropped 50 million bushels reflecting fewer livestock numbers and ethanol use was dropped 100 million bushels due to lack of profitability at ethanol refiners. Industrial use was chopped an additional 35 million bushels because of reduced demand for corn sweeteners. Exports were also cut by 50 million bushels. USDA reduced the estimated price range by 10 cents to $3.55 to $4.25 per bushel. By raising production 81 million bushels and lowering demand by 235 million bushels, the 1.790 billion bushel carryout forced the market down limit on Monday, since the market was anticipating the carryout to hold about steady.
Global coarse grain production was raised 5.5 million tons because of better yields, however consumption was lowered because of less livestock feeding, and so ending stocks were raised 12.2 million tons.
The WASDE report raised US soybean production estimates by 39 million bushels to 2.959 billion bushels, but also raised exports by 50 million bushels due to strong export demand. But domestic crush estimates were reduced 30 million because of a lower demand for soybean meal for livestock feed. Ending stocks were raised 20 million to 225 million bushels. The season average price was reset to $8.50 to $9.50, compared to the December estimate of $8.25 to $9.75. The larger surplus of soybeans, when the market was anticipating a decline in stocks, contributed to the weakness in the market, which also saw soybeans close limit down Monday.
Global soybean production was estimated at 416 million tons, down 2 million from December, primarily from dryness that reduced planted areas.
The WASDE report forecast lower domestic wheat consumption by 30 million bushels and less seed used for planting, which raised ending stocks by 32 million bushels. USDA clipped a dime from each end of the estimated price range, and reset it to $6.50 to $6.90 per bushel. The market was anticipating a decline in surplus stocks, not an increase, and the surprise caused weakness in the wheat market which closed limit lower.
Global wheat production estimates declined 1.1 million tons from December, and with global consumption declining, world stocks estimates were raised by 1 million tons.
The Quarterly Grain Stocks report was also released, reflecting grain stocks on December 1. Corn stocks were dropped by USDA to 10.084 billion bushels, down 2% compared to year ago levels. The September to November disappearance was 3.64 billion bushels, compared to 4.06 billion in 2007. The market expected more consumption and for stocks to recede, instead of the 239 million additional bushels.
Dec 1 soybean stocks totaled 2.275 billion bushels, down 4% compared to year ago levels. Disappearance was measured at 889 million bushels, down slightly from 2007 disappearance. The market also anticipated more soybean use and was surprised at the 95 million bushels of additional stocks.
Dec 1 wheat stocks totaled 1.422 billion bushels, up 26% from the same period in 2007. The quarterly disappearance was estimated at 436 million bushels, 25% less than the same period in 2007. Traders expected wheat stocks at 1.365 billion bushels, and were surprised with the 57 million additional bushels.
Winter wheat seedings were estimated by USDA at 9% less acreage than the 2008 crop. Total acreage was forecast at 42.098 million acres, compared to 46.281 million a year ago. USDA says wet weather delayed the start of planting and the pace remained behind prior years. Hard red winter acreage is estimated at 4% less than 2008, soft red winter acreage is estimated at 26% less than 2008. White wheat acreage is up 1% and durum wheat acreage is down 16%.
Summary:
While the grain market was surprised at many of the statistics released Monday by USDA, the report reflected increased production, reduced consumption, and more surplus stocks. With those statistics in hand, farmers and the grain market must determine the amount of corn and soybean acreage that should be planted this spring. The limit down closes in the corn, soybean, and wheat markets make those decisions difficult today, but supply and demand issues will soon become less emotional.
Posted by Stu Ellis at January 13, 2009 12:31 AM | Permalink
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Acres and Demand – More than a Math Problem
Acres and demand are the topics coming down the pike that will continue to effect prices. Combined corn and soybean planted acres have been as follows:
Year----------------------20006-------------------2007---------------2008
Soybean PA--------------75.5----------------------64.7----------------75.7
Corn PA------------------78.3----------------------93.5------------------86.
C & Sb PA-------------153.8---------------------1582------------------161.7
Change-------------------------------4.4---------------------------3.5
Combined corn and soybean planted acre could increase faster than past growth with the decline in soft red winter wheat (SRW) plantings. This fall 8.3 million acres were planted to SRW as compared to 11.2 million acres planted in the fall of 2007 (2008-09 marketing year). This is a 2.9 million acre decrease. Soft red winter wheat tends to be planted in along and east of the Mississippi River (little to none in Iowa and more spring wheat in Minnesota and Wisconsin). These acres could be planted to corn or soybeans. The southern growing area of SRW can also be planted to cotton or rice. The cotton industry has a supply-demand and profitability problem. Cotton will more than likely see a reduction in planted acre this spring. Rice fundamentals look better but may be limited in the acres available to plant this crop. (It should be noted these conclusions were drawn of a very limited knowledge of cotton and rice.) The cotton and rice combined acres will more than likely see a reduction in plantings this spring. This reduction would further increase the potential for more soybean acres and to a lesser extent corn planted in the Southern States in 2009. The combined corn and soybean planted acres this spring could be in a range from 162 to 170 million acres with 166 million acres as the mid-point.
The mini balance sheet illustrates the minimum acres needed for planting in each crop to have at least a 50%-50% chance at the minimum ending balance.
------------------------------------Soybeans--------------------------------Corn
B Bal--------------------------------225-----------------------------------1,790
Min Ending-------------------------200-------------------------------------850
Yield----------------------------------43-------------------------------------155.1
HA % PA----------------------------99.1%----------------------------------91.1%
Use (Million Bu.)--------2,950----3,000----3,150---------------12,250----12,500----13,000
Min PA (Million Acres) -68.6-----69.8-------73------------------80.0--------81.8--------85.4
2008-09 Plant Acres----------------75.7--------------------------------------86.0
A 50%-50% chance gives the market a lot to worry about. Planted acres needed for an 80% chance of making minimum ending balances are below:
------------------------------------Soybeans--------------------------------Corn
B Bal-----------------------------------225----------------------------------1,790
Min Ending---------------------------200------------------------------------850
20% Yield-----------------------------39.6-----------------------------------144.4
H. Acres % of P. Acres-------------99.1%----------------------------------91.1%
Use-------------------------2950-----3,000-----3,150----------12,250----12,500----13,000
PA--------------------------74.5-----75.8-------79.6--------------86.0------87.9------91.7
2008-09 Plant Acres----------------75.7--------------------------------------86.0
If the combined acres from above occur the following acres would be available for the other crop:
------------------------------------Soybeans--------------------------------Corn
Use-----------------------------2,950----3,000----3,150------12,250----12,500----13,000
Combined Planted Acre-----------Available for Corn--------------Available for Soybeans
--------162-----------------------87.5-----86.2------82.4----------76.0------74.1-----70.3
--------166-----------------------91.5-----90.2------86.4----------80.0------78.1-----74.3
---------170----------------------95.5-----94.2------90.4----------84.0------82.1-----78.3
At the 80% chance level and higher use levels, the acres available for the other crop is fairly tight. This may provide price support till acres exceed projections (March Acreage Report) or high yields are suspected. The lower and mid-point use levels of consumption appear to have more than enough acres available for both crops (if properly allocated, again the March Acreage Report). Use will be as important as acres. This year’s poor economic environment will provide more uncertainty of consumption and thus commodity price volatility. The stock market may continue to lead commodities. (The stock market is considered a leading economic indicator, the higher market the more economic activity and the more commodities are used. We have not been able to find a correlation between the S&P 500 and Gross National Product but that does not mean much.)
Employment is viewed as a lagging economic indicator. The unemployment levels are expected to improve in the last quarter of 2009 or first quarter of 2010. So grain use could climb above the upper end of our projections for the 2009-10 marketing year as the economy turns around. However, commodity demand tends to take some time to rev up. Even exports takes some time to increase demand after an economic slow down. Foreign economies tend to follow the US economy out of recessions, delaying imports (US exports) till after the US turns around. The livestock industry likes to see profits prior to expansion. That expansion takes time to see increase in feed demand. The poultry industry has the shortest time frame from expansion to increased feed use. USDA’s egg set numbers may provide an indicator a potential increase in feed-crush demand. The mandatory consumption of conventional ethanol has the potential of increasing corn demand by 550 million bushels in the 2009-10 marketing year. This is over USDA’s corn ethanol consumption projected for 2008-09. (It is interesting to note, current 2008-09 corn to ethanol use levels are at or are near the current mandatory levels.) That could place minimum corn demand for 2009-10 at 12,500 million bushels. (The 2008-09 use of 11,950 plus 550 equals 12,500.) This use number could be reduced by a number of factors including imported ethanol.
The implication for the grain marketing plan:
-Corn may have more price upside than soybeans because of the potentially larger shift of acres to soybeans than corn. Price movement may not be enough for more profit in corn than beans. Each operator will need to work their numbers specific to their operation.
-Have price protection prior to March Acreage Report especially soybeans with a larger potential Southern Acre switch.
-Wet Spring (slow planting progress) may provide pricing opportunity for corn. The Northern corn belt has a lot field work needed prior to planting. The thought of corn switching to soybeans might be very real with a wet spring. (This is another reason for Soybean price protection, crop insurance and/or other products including ACRE.) Very Good planting progress is an indication of dry weather and has a larger chance of droughty weather later in the Summer (Summer Price Rally).
-Watch for signs of increased use: Egg Sets, Stock Market, Employment Rate, Crude Oil Prices, Relative Value of the Dollar and others. Outside of Egg Sets it is hard for us to project change in demand (use) with a change in value. It is just to provide a general feel of the potential price action.
-Multiple University followed farm accounting programs indicate; ‘The farmers that consistently are the most profitable become that way not from better marketing or production. It is from cost containment.’
That statement would / may be should lead one to place very little weight on these comments.
The math of the problem has a solution quicker and easier than the problem.
Posted by: Freeport, IL at January 15, 2009 2:58 PM
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