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Making sense of the USDA corn report

10 Aug

The USDA released a much anticipated crop report this morning, the first official survey detailing just how bad the drought has hit the nation’s farm belt. Corn took a big hit, with production estimates now down 17% from a year ago, somewhat worse than predictions beforehand that the hit would be around 15%. It would be the lowest corn production since 2006.

Soybean production estimates were also cut, although not as sharply as for corn.

Corn futures hit a record yesterday, and spiked in the immediate aftermath of the report this morning, although they are now actually lower.

From the Dow Jones story by Bill Tomson:

USDA’s new estimate for average corn yield in the U.S. is just 123.4 bushels per acre and that would put it at the lowest level in 17 years. Last month the USDA was predicting the average corn yield at 146 bushels per acre.

Demand for this year’s crop is also expected to decline along with production, but the USDA still pushed its forecast for 2012-13 ending stocks lower.

“Ending stocks for 2012-13 are projected at 650 million bushels…and the smallest carryout since 1995-96,” the USDA said in the supply and demand report.

This is going to put pressure on the demand side of the equation, since corn is not just a staple of backyard barbecues. One ag research outfit said production at these levels would equal a “demand nightmare.”

Corn: bullish

USDA pegged new crop corn yield at 123.4 bpa vs. consensus of 127.3.

Harvested acres of 87.4m were above the forecasted 86.4m, leading to production of 10.779b bu compared to the forecast of 11.026b. Old crop ending stocks of 1.02b were above consensus of 924m bu as Ethanol and Exports were each reduced 50m bu. New crop ending stocks came in at 650m vs. the forecast of 660m. Imports increased 45m to 75m. Feed & Residual was slashed 725m bu to 4.075b bu. This requires substantial livestock liquidiation, which requires higher prices for longer. However, it is a long‐term negative as it will take time to rebuild herds once corn prices normalize.

Ethanol was cut 400m bu to 4.5b, equating to 12.375b gal, below the crop year mandate of 13.6b gal. Hence, USDA is assuming 1.2b of the 2.6b RINS will be used. Non‐ethanol Food, Seed & Industrial use was cut 70m bu. Exports were dropped 300m bu. New crop stocks‐to‐use fell from the July estimate of 9.3% to a tight 5.8%, below old crop of 8.2% and the 10‐yr average of 13.5%.

Soybeans: bullish, despite higher ending stocks USDA estimated new crop soybean yield at 36.1 bpa vs. consensus of 37.8. Harvested acres of 74.6m were slightly below the estimated 74.8m. Production of 2.692b bu trailed the forecast of 2.817b. Old crop ending stocks of 145m were below consensus of 158m, while new crop ending stocks of 115m came in above the forecasted 112m. Imports were raised 5m to 20m.

Crush was cut 95m bu and Exports slashed 260m bu, leaving new crop sales at 50% of the USDA’s annual estimate. New crop stocks‐to‐use was unchanged at 4.2%, compared to old crop of 4.6% and the 10‐year avg of 8%.

Wheat: bearish

All wheat production of 2.268b bu was above consensus of 2.205b. US ending stocks of 698m were above the forecast of 673m.

Global changes

New crop corn ending stocks of 123.3 were above the forecast of 122.7 MMT. Corn production was raised in Argentina, Brazil, Mexico, China, and S. Africa, but reduced in Canada and the Ukraine. Chinese corn imports were cut 3 MMT to 2. Soybean ending stocks fell to 53.38 vs. consensus of 54.2 MMT. Chinese soybean imports were cut 1.5 MMT. Wheat ending stocks of 177.17 came in below the avg estimate of 178.9 MMT. USDA cut FSU production 5.6 MMT with Russia down 6 MMT to 43. Argentine wheat fell 0.5 MMT, but Canada was increased 0.4 MMT and India revised up 2.9 MMT. No change to Australia.

Download the PDF USDA report

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