WASDE reduces supply-demand gap

Oct 14, 2011

In last week’s monthly USDA World Agricultural Supply and Demand Estimates (WASDE) report, corn and soybean productions were reduced 1 percent from September, but the supply-demand gap seems to be shrinking, especially in the global market. The report’s U.S. stocks estimates exceeded the trade’s expectation for corn and wheat, but fell short for soybeans.

U.S. feed grain supplies for 2011/12 are projected higher this month as higher beginning stocks offset the forecast for lower production. Corn production is forecast 64 million bushels lower with planted and harvested area lowered 385,000 acres and 452,000 acres, respectively. The national average corn yield forecast is unchanged this month at 148.1 bushels per acre.

Beginning stocks for 2011/12 are raised 208 million bushels from the previous projection based on the Sept. 1 stocks estimate. Corn supplies for 2011/12 are forecast 144 million bushels higher. Total U.S. corn use for 2011/12 is projected 50 million bushels lower with reduced exports.

“The corn crop was estimated at 12.433 million bushels using a 148.1 bushel yield, which was basically in line with pre-report expectations. This gives us an 866 million carryout for 2011-12, up from the September report of 672 million and pre-report estimates of 806 million. The bearish aspects of the corn numbers were a decline in exports and increases in world production,” according to a report by Troy Vetterkind with Vetterkind Cattle Brokerage.

Higher expected Black Sea production and exports increase competition for U.S. corn. U.S. ending stocks are projected 194 million bushels higher at 866 million. The season-average farm price is projected 30 cents per bushel lower on both ends of the range to $6.20 to $7.20 per bushel.

Cattle futures settled higher the day before the WASDE report was released in response to the sharply higher grain trade. The 2011 forecast of total red meat and poultry production is raised in the WASDE, reflecting higher beef, pork and turkey production, but lower broiler production. The increase in beef production is largely due to higher expected cow slaughter as drought conditions and high hay prices continue. For 2012, beef and broiler production is reduced from last month. First quarter beef production is raised slightly but is more than offset by reduced production later in the year as feedlot supplies decline.
According to Andrew Gottschalk and Bob Wilson with Hedgersedge.com, the production estimate at 25.135 billion pounds, down 1.285 billion from 2011, is low. “It is not uncommon for the USDA to miss production by 500-700 million pounds in their early production estimate. Our production estimate at the present time is 25.573 billion pounds leaving per capita supply at 55.2 pounds down from 57.7 this year,” they wrote.
Beef import forecasts are lowered in 2011 and 2012 as strong demand for beef by competing importers limits shipments to the U.S. Beef export forecast is raised as the strong demand in a number of countries is expected to support continued growth in U.S. exports.
Cattle prices are forecast higher for the remainder of 2011 and through 2012. Demand remains stronger than expected and the strength is expected to carry into 2012.
“The beef numbers, if they come to fruition, would be considered friendly for cattle prices for next year, however, currency markets may alter that outlook,” according to Vetterkind.
Other 2011/12 feed grain changes this month include a 10 million-bushel reduction in projected sorghum exports and a 10 million-bushel increase in feed and residual use. Barley feed and residual use is projected 10 million bushels lower based on June-August disappearance as indicated by the Sept. 1 stocks and updates to June-August trade. For 2010/11, corn feed and residual use is lowered 197 million bushels based on the Sept. 1 stocks estimate and other changes to 2010/11 use and supplies. Corn imports are lowered 3 million bushels for 2010/11.
Global coarse grain supplies for 2011/12 are projected 10.4 million tons higher with more than half of the increase reflecting the 5.3 million-ton increase in U.S. corn beginning stocks. Global corn production is raised 5.4 million tons with foreign production increases more than offsetting the U.S. reduction. Production is raised 4 million tons for China to a record 182 million tons.
Ukraine corn production is raised 3 million tons as summer precipitation and temperature patterns support a sharp year-to-year increase in yield prospects and early harvest results indicate record yields.       
Production is also raised 0.5 million tons for Russia but lowered 0.3 million tons for Serbia. Estimates of China’s 2009/10 and 2010/11 corn production are raised 6 million tons and 4.2 million tons, respectively, in line with data from the China National Bureau of Statistics (NBS). Based on analysis of summer weather data from China’s northeast corn growing region during the past decade, NBS provincial yield estimates for 2000 through 2008, and the recently released provincial yield estimates for 2010, NBS yields for 2009 are consistent with the historical relationship between yields and reported summer rainfall and temperatures. Summer weather data and the same statistical relationship support this month’s upward revisions to 2010 production, according to the WASDE summary.
Increases in China corn feed and residual use for 2009/10, 2010/11, and 2011/12 offset this month’s production increases leaving China ending stocks nearly unchanged.
Global coarse grain trade for 2011/12 is raised slightly driven by increased corn imports by South Korea and higher corn exports from Ukraine and Russia. Exports are raised 2 million tons for Ukraine and 0.3 million tons for Russia with larger crops expected in both countries. These changes more than offset the reduction projected for U.S. shipments, according to the WASDE report. Global corn ending stocks are projected 5.8 million tons higher for 2011/12, mostly reflecting the larger U.S. beginning stocks.
According to the report, despite the increase, 2011/12 world corn ending stocks would be the smallest since 2006/07. — Traci Eatherton, WLJ Editor