WASDE comes in bearish despite expectations

News
Jan 13, 2012

USDA’s World Agricultural Supply and Demand (WASDE) estimates show a downward trend in cattle supplies from last year, with higher fed-steer price ranges. USDA increased 2011 corn and soybean yields and production, despite most analysts’ predictions leaning towards a decline.

U.S. ending stocks fell for corn and wheat, and rose 40 million bushels for soybeans.

According to Troy Vetterkind with Vetterkind Cattle Brokerage, “The initial reaction to the USDA reports is bearish. Final corn production for 11/12 is estimated at 12.358 billion bushels vs. estimates of 12.265 using a 147.2 yield. This has ending stocks at 846 million bushels vs. estimates of 749 million. The big number was the quarterly grain stocks number, which came in at 9.642 billion bushels vs. estimates of 9.391 billion bushels.”

Course grains

U.S. feed grain supplies for 2011/12 are projected higher as an increase in estimated corn production more than offsets a reduction for sorghum. Corn production is estimated 48 million bushels higher with a 0.5-bushel-per-acre increase in yield and a 45,000-acre increase in harvested area. Sorghum production is lowered 32 million bushels with yields estimated 0.9 bushels per acre lower and harvested area reduced 503,000 acres.

Corn use for 2011/12 is raised with higher exports. Exports are projected 50 million bushels higher reflecting the strong pace of sales to date and reduced prospects for Argentina. Ending stocks are projected 2 million bushels lower at 846 million bushels. The 2011/12 season average farm price for corn is lowered 20 cents per bushel on each end of the range to $5.70 to $6.70 per bushel. Prices received by producers to date have remained well below prevailing cash bids, limiting the upward potential for the seasonaverage farm price.

Other 2011/12 feed grain changes this month include a reduction for sorghum feed and residual use and an increase for barley feed and residual use, as indicated by the Dec. 1 stocks. Sorghum exports are reduced with the smaller crop and sluggish export sales. The sorghum farm price is projected 10 cents per bushel lower on both ends of the range to $5.60 to $6.60 per bushel based on reported prices to date. The barley farm price is projected at $5.15 to $5.65 per bushel compared with $5.20 to $5.80 per bushel last month as reported farm prices for malting barley drag down the season average for all barley. The oats farm price range is narrowed 5 cents per bushel on both ends of the range to $3.25 to $3.55 per bushel.

Global coarse grain supplies for 2011/12 are nearly unchanged this month as higher corn production in the U.S., Ukraine, EU-27 and Russia is mostly offset by lower expected corn production in Argentina and the lower sorghum production estimate for the U.S. Global barley and oats production are also raised, mostly reflecting higher crop estimates from Russia.

Winter wheat

“Wheat numbers were a little bearish as well as the government gave us increases in winter wheat seeding and an increase in world wheat ending stocks,” Vetterkind said.

U.S. wheat ending stocks for 2011/12 are projected slightly lower this month as reductions in expected domestic use mostly offset higher projected exports. Food use is projected 5 million bushels lower based on flour production data recently reported by the North American Millers’ Association for July-September 2011. Feed and residual use is projected 15 million bushels lower as Dec. 1 stocks, reported in the January Grain Stocks, indicate lowerthan-expected disappearance during September-November. Seed use is raised 4 million bushels based on the winter wheat planted area reported in Winter Wheat Seedings. Projected exports are raised 25 million bushels based on the pace of sales and shipments to traditional markets. Increases for Hard Red Winter, White, and Soft Red Winter wheat more than offset a reduction for Hard Red Spring wheat. Ending stocks are projected 8 million bushels lower at 870 million. The 2011/12 season-average farm price is lowered 10 cents per bushel on each end of the range to $6.95 to $7.45 per bushel.

Global wheat supplies for 2011/12 are projected 2.7 million tons higher with production raised for Kazakhstan, Brazil and Russia.

Kazakhstan production is raised 1.5 million tons as nearly perfect growing season weather is reflected in a new record yield. Production is raised 0.8 million tons for Brazil, in line with the latest government estimate. Production for Russia is raised 0.2 million tons reflecting the latest official estimate.

Lower 2011/12 projected exports for Australia are more than offset by increases for the U.S. and Russia.

Global consumption is raised with a 1 million ton increase in expected domestic disappearance in Kazakhstan where record supplies will be difficult to store and maintain. Global ending stocks for 2011/12 are projected 1.5 million tons higher at 210 million.

Livestock

WASDE beef numbers show the government raising both November December beef production slightly, according to Vetterkind. 2011 beef production was raised 11 million to 26.297 billion pounds (lbs.) and 2012 beef production was raised 5 million to 25.075 billion lbs.

November December imports were left unchanged at 2.052 billion and 2.09 billion, respectively. November December exports were left unchanged at 2.779 billion and 2.775 billion lbs., respectively. Pork production for both 2011/2012 was raised slightly but poultry production was lowered slightly.

USDA will release its Cattle report on Jan. 27, providing an indication of producer intentions for heifer retention in 2012 and feeder calf availability.

Cattle prices for 2012 are unchanged from last month. The annual average hog price is lowered reflecting a lower first-quarter price forecast. The first-quarter broiler price is raised but the annual price range is unchanged. Turkey and egg prices are raised from last month. Prices for 2011 are adjusted to reflect December estimates.

The 2012 forecast of total red meat and poultry production is raised from last month, largely reflecting increased pork production. USDA’s Quarterly Hogs and Pigs report estimated that the second-half 2011 pig crop was just over 2 percent higher than 2010 and indicated that producers plan a slight decline in sows farrowing in the first half of 2012. However, with continued gains in pigs per litter, more hogs are expected to be available for slaughter and the 2012 pork production forecast is raised from last month.

Poultry production forecasts are unchanged. Egg production is lowered slightly for 2012. For 2011, small changes are made, with beef and pork production estimates raised, but broiler and turkey estimates lowered.

Trade forecasts for beef, pork, broilers and turkeys are unchanged for 2012. Beef, pork and turkey estimates for 2011 are unchanged.

Overview

“Corn could pull the other grains lower as both global and domestic ending stocks, crop production and quarterly stocks all came in well above expectations,” DTN Analyst John Sanow said. “However, ending stocks to use on the domestic side (6.7 percent) and global (14.8 percent) remain at the second tightest levels since 1995-1996 and 1973-1974 respectively, meaning longterm fundamentals remain bullish.

“Domestic numbers in soybeans were bearish, and ending stocks jumped to 275 mb, putting stocks-to-use at a more comfortable 9.1 percent,” Sanow said. “As for wheat, ending stocks fell slightly; however, a stocksto-use ratio of 41.2 percent remains cumbersome. In addition, winter wheat acreage came in above expectations at 41.947 million acres.”

The global numbers were neutral for beans and bearish for wheat and corn, Sanow said.

“Traders were expecting a large drop in corn; instead, stocks rose by 1 million metric tons from the December number. This was largely due to the unexpected jump in U.S. stocks. Wheat also rose from the December number, keeping global supplies at a burdensome figure. Beans were the only market to see a drop in supplies as a drop in world production offset a small drop in demand,” Sanow said. — Traci Eatherton, WLJ Editor

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