U.S. corn ending stocks higher than expected

Markets
Mar 16, 2012

USDA released its most recent World Agricultural Supply and Demand Estimates (WASDE) report Friday, March 9. The report shows mostly mixed results with several projections holding steady from last month. Corn expectations are the biggest interest.

Though ending stocks were unchanged from February, this opposes earlier projections of a drop in corn stocks.

Wheat ending stocks are projected lower than February and disappointed earlier expectations. Soybeans are anticipated to hold steady but with farmers receiving a higher average price than in February.

Beef projections are expected to be slightly higher from February with prices getting stronger. Export is expected to remain unchanged, but domestic slaughter is expected to be low. Slight overall increase is small, but still well below numbers from past years.

Reviews from analysts are mixed on whether the results in any area are bullish, bearish or neutral. DTN senior analyst Darin Newsom attributes this to different analysts only looking at specific facets of the report. Considerations of futures and WASDE projections versus earlier estimates also contribute, he says.

“The report was forgotten quickly, as the market’s focus turned immediately to rumors of Chinese demand for corn and ideas China’s 2011 corn crop was significantly smaller than official reports,” said Bryce Knorr, senior editor of Farm

Futures magazine. U.S. ending stocks

Ending stocks projections of corn in the U.S. are unchanged from February at 801 million bushels (mb) despite expectations of 785 mb. Average prices received by farmers expected at $5.90 to $6.50 per bushel, compared to February’s range of $5.80 to $6.60 per bushel. March 2011 saw larger end stocks at 1,128 mb with average farmer prices of $5.18 per bushel.

Knorr commented at length on the state of U.S. corn.

“USDA’s decision not to lower its forecast for U.S. corn ending stocks was tossed on the scrapheap pretty quickly, as evidenced by the strong premium March futures gained on the rest of the market. This, and the fact there continue to be no deliveries, or even any registrations against March corn is yet more evidence that old crop stocks are tighter than the government forecasts.”

U.S. ending stock projections for wheat in March is 825 mb, down from February’s 845 mb, down from 2011 numbers at 862 mb, and down from earlier expectations of 836 mb. Average prices paid to farmers are expected to remain steady in March at $7.15 to $7.45 per bushel. This estimate is up from 2011’s price of $5.70 paid per bushel.

“The wheat numbers were mildly supportive,” said Knorr. “But supplies are more than sufficient, so it will take significant losses in production, not only in the U.S. but elsewhere in the world, to help prices much.”

Soybean U.S. ending stocks are also projected to remain steady from February at 275 mb despite earlier projections of 260 mb. Expected prices paid to farmers are projected to grow to $11.40 to $12.60 per bushel from February’s range of $11.10 to $12.30 per bushel. Projected end stocks and prices paid to farmers were both up from March 2011 numbers of 215 mb and $11.30 paid per bushel.

“USDA’s decision to keep soybean ending stocks unchanged is in line with its long history of underestimating demand, especially from China. As with corn, the government likely will be proven wrong down the road,” predicted Knorr.

World ending stocks

Ending stocks for corn, wheat and soybeans were down around the world, both as compared to February numbers and last year’s numbers, in most cases. Following the release of the WASDE report, this estimate cut caused prices for all crops to rise.

Projected March world ending stocks of corn stand at 124.53 million metric tons (mmt), down from February at 125.35 mmt and 2011’s 129.07 mmt.

Wheat ending stocks for the world in March are anticipated at 209.58 mmt, compared to February’s 213.1 mmt. March 2012 projections for world wheat are up from the same time last year, which had ending stocks of 199.49 mmt.

World ending stocks of soybeans are projected at 57.3 mmt for March, down 2.98 mmt from February. This is in contrast to March 2011’s ending stocks of 68.76 mmt.

Projected U.S. corn use for fuel is unchanged this month at 5 billion bushels. Recent lower weekly ethanol production and higher stock levels, according to Energy Information Administration data, are consistent with last month’s projection.

Current ethanol production has returned to levels close to those prior to last December’s increase. The sluggish U.S. economy, high gasoline prices, and increased auto efficiency have reduced gasoline demand, lowering gasoline production.

As ethanol blending nears practical limits at the 10 percent level (E10 blends), demand growth has slowed. Exports continue to play an important role in supporting domestic ethanol production; however, the E10 blend wall issue persists and prospects for long-term exports are uncertain.

Currently tight sugarcane supplies in Brazil have curtailed ethanol production there and resulted in imports of U.S. corn-based ethanol. This situation has also enabled the U.S. to fill Brazil’s role as an ethanol supplier to the European Union and other ethanol importers. As sugar prices decline, these markets may return to competitively priced Brazilian ethanol.

World production

Production of corn and wheat around the world are projected to be up in March compared to February and 2011 numbers. Soybeans are projected to slip from February and last year’s world production.

Major producers of corn around the world are expected to hold steady or grow in March corn production. The U.S. and Argentina are expected to maintain their February numbers of 313.92 mmt and 22 mmt, respectively. Brazil is expected to increase 1 mmt over February’s numbers, putting projected March corn production at 62 mmt.

Brazil’s expected corn production for March 2012 is up from its 2011 numbers at 57.5 mmt. The U.S. and Argentina are both behind in their year-to-year estimates with their 2011 corn production numbers being 316.17 mmt and 23.75 mmt, respectively.

Total world wheat production is estimated up in March at 694.02 mmt, compared to 692.88 mmt in February and 651.51 mmt last year. Canada is expected to hold steady in March at 25.26 mmt—this up from 23.17 mmt in 2011—and Australia is expected to see gains over February and last year numbers. Projections for Argentina are holding with February numbers, but down from 2011.

Australia is projected to produce 29.5 mmt of corn in March, compared to February’s 28.3 mmt. March 2011 saw an Australian production of 27.89. Meanwhile, Argentina is maintaining February’s 14.5 mmt projections for March, both down from March 2011 which saw a 16.10 mmt production.

Anticipated soybean productions are down across the board in March, both in current projections versus February, and year-to-year estimates. Total world production of soybeans for March is projected at 245.07 mmt, down 6.4 mmt from February. This is down almost 20 mmt from the same time last year.

Several sources have attributed this worldwide decline in anticipated soybean production to the droughts and other hot, dry situations in big soybean growing areas.

The U.S. was the only major soybean producer which did not see month-to-month decline in anticipated March soybean production, instead holding at 83.17 mmt. This is down from last year’s numbers at 90.61 mmt.

Expected soybean production for Brazil and Argentina is 68.5 mmt and 46.5 mmt, respectively. Brazil’s projections are down 3.5 mmt from February and Argentina’s are down 1.5 mmt. Since 2011, expectations for Brazil’s and Argenina’s soybean production have slipped 6.5 mmt and 2.5 mmt, respectively.

Beef projections

Prices for fed steers are projected to be $124 to $131 per cwt in March, up from $121 to $129 cwt in February. This is due largely to the low availability of fed cattle. Carcass weights are expected to improve slightly as a result of the mild winter in many areas across the U.S.

Fed steers and heifers are expected to be down from February, but offset slightly by increased imports and increased cow slaughter. Exports are expected to remain steady.

Projected production for March is 25.15 million pounds (lbs.), down 0.8 million lbs. from February’s projections. Increased imports—up 1.45 million lbs. from February—make for projections of a slightly larger supply from last month.

This month’s estimate is still below the 2011 March estimate of 26.31 million lbs.

The estimated per capita beef supply for March is 54.9 lbs., up 0.2 lbs. from February. This is still below the 2011 March estimates of 57.3 lbs. per capita. — Kerry Halladay, WLJ Editor

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