Corn
Mixed news for the U.S. corn market continues after the surprise USDA June 30th Acreage and Grain Stocks report, as the 2011/12 U.S. projections for beginning stocks, production, usage, and ending stocks were all increased from their June estimates.
The USDA raised beginning stocks 150 million bushels reflecting changes made to the 2010/11 usage projections. After the surprising June 30th Acreage report, an additional 1.7 million harvested acres were added in the July estimates. Yield estimates remained flat from June, causing the 2011/12 production estimate to be increased by 270 million bushels to 13,470 million bushels.
Domestic usage for the 2011/12 corn crop was revised to 11,600 million bushels, an increase of 145 million bushels. Feed and residual use for 2011/12 was increased 50 million bushels, caused by larger than expected supplies and lower expected prices. Corn use for ethanol was increased to 5,150 million bushels or 100 million bushels due to larger supplies and an improved outlook for ethanol producer margins. Other domestic uses for corn were decreased by 5 million bushels. Exports were raised in July to 1,900 million bushels or 100 million bushels, reflecting increased demand from China.
Compared to the June WASDE, ending stocks for 2011/12 corn crop are now projected to be 175 million bushels higher at 870 million bushels, but below consensus estimates of 1,000 million bushels. The 2011/12 season-average farm price for corn is projected at a record $5.50 to $6.50 per bushel; however, compared to the June report this represents a 50 cent reduction on both ends of the range.
World corn beginning stocks, production, and imports were all revised slightly higher by 3, 6, and 1 million metric tons respectively. Increases in U.S. beginning stocks and production coupled with increases in Chinese imports accounted for 100% of the increases. Global corn ending stocks were increased by 3% to 116 million metric tons; this is represented by increases in global usage being unable to maintain pace with increases in production.
Soybeans
The USDA raised beginning stock levels by 20 million bushels reflecting changes made to their 2010/11 usage projections. Exports were revised lower reflecting lower than expected imports from China for the remainder of 2010/11. Planted and harvested soybean acres were lowered by 1.4 and 1.6 million acres respectively to 75.2 and 74.3 million acres respectively, while yield estimates remained flat from June. These adjustments resulted in lowering production estimates for 2011/12 by 60 million bushels to 3,225 million bushels.
The USDA also lowered its estimate for exports during the 2011/12 year by 25 million bushels to 1,495 million bushels. Export reductions were the result of lower than anticipated U.S. production, increased production from South America, and an overall reduction in global imports. U.S. soybean ending stocks are projected at 175 million bushels, 15 million bushels lower than the June report, but above consensus estimates of 162 million bushels.
The U.S. season-average soybean price for 2011/12 is projected at $12.00 to $14.00 per bushel, down $1.00 on both ends of the range.
Global soybean supplies and usage were each lowered marginally from the June report, while ending stocks increased by less than 0.4 million metric tons. Offsetting lower U.S. production and export estimates were lower than expected usage and import estimates from China.
Wheat
U.S. 2010/11 wheat ending stocks were raised to 861 million bushels from 809 million bushels. This estimate is based on a higher than expected carryout for 2010/11 as reported in the June 30th Grain Stocks report. The USDA again raised forecasts of 2011/12 wheat yields to 44.6 bushels per acre, from 43.1 bushels per acre, but lowered its planted and harvest acres by 1.3 and 0.6 million acres respectively. Estimates for wheat usage and exports for 2011/12 were increased by 7 and 100 million bushels respectively. These estimates project ending stocks to be 17 million bushels lower at 670 million bushels, below consensus estimates of 702 million bushels.
Estimated global wheat supply for the 2011/12 year was increased by 2.96 million metric tons to 978.74 million metric tons. Decreases in global production were offset by higher than previously expected beginning stock levels and import estimates. Compared to June, global wheat usage was raised by 6.75 million metric tons to 923.2 million metric tons. These adjustments resulted in lowering ending stocks by 2.07 million metric tons to 182.19 million metric tons.
The 2011/12 season-average farm price for all wheat is projected at $6.60 to $8.00 per bushel, down 40 cents on both ends of the range, reflecting the decline in projected corn prices this month.
Overview
Even though the USDA raised 2011/12 beginning stock levels for its three major commodities, we are closely monitoring demand and basis levels for all commodities but especially old crop corn. Recent declines in commodity prices could spark buying interest from producers who have not hedged their late summer/early fall production. A large wave of domestic or international purchases could diminish stocks further than the USDA forecasts; this could result in rising commodity prices over the next quarter.
We are also looking forward to the August 11th USDA Production report, which is going to recertify the June 30th Acreage report. Following the initial report the USDA announced they were going to resurvey certain grain producing states because at the time of survey, a large percentage of acres remained unplanted. This could also spark a strong reaction from the market if planted acres change dramatically.
Pay attention to crop conditions during pollination and grain fill, end-user demand, and weather patterns as the summer progresses. As grain prices could regain a tailwind and continue their historical climb higher.
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