Shrinking global crops support grain prices

Markets
Apr 13, 2012

USDA’s account of all South American crops continued to shrink leading up to last week’s Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, with news of smaller and smaller harvests in key areas. Those smaller supplies have supported U.S. prices even as we have seen record-large intended corn acres and the planting season get off to an abnormally early start, according to CME.

But as the South American crop gets smaller, according to the WASDE report, U.S. feed grain balance sheets for 2011/12 remained unchanged this month, despite trader’s expectations.

The projected ranges for the season-average corn and sorghum farm prices are both narrowed 10 cents on each end to $6 to $6.40 per bushel and $5.90 to $6.30 per bushel, respectively. The barley and oats farm price ranges are both narrowed 5 cents on each end to $5.25 to $5.45 per bushel and $3.40 to $3.50 per bushel, respectively.

The report cut Brazil and Argentina’s soybean production, as most analysts expected, and trimmed domestic soybean and wheat ending stocks.

Corn used to produce ethanol in 2011/12 is projected at 5 billion bushels, unchanged again this month. The latest monthly data from the Energy Information Administration (EIA) indicates that average daily ethanol disappearance fell to a 23-month low in January, pushing ethanol stocks to a new record high.

Weekly EIA ethanol production data suggest average daily ethanol production during February and March has continued to fall hitting, its lowest level since early last fall.

Projected 2011/12 corn feed and residual use is unchanged at 4.6 billion bushels. March 1 stocks indicate a September-February feed and residual disappearance 238 million bushels lower than during the first six months of the 2010/11 marketing year.

Prospects for feed and residual disappearance during the remainder of 2011/12 will be limited by an improving outlook for summer wheat feeding and the potential for 2012 new-crop corn use during August. Prospects remain favorable for a large year-toyear increase in winter wheat production with planted area up 1.1 million acres and crop condition ratings substantially improved from last spring at this time, particularly in the hard red winter wheat states. Larger expected supplies and competitive prices for wheat relative to corn suggest an increase in summer wheat feeding compared with last year. The quick start to corn planting this spring and more intended acres across the South raise the potential for a substantial increase in new-crop corn use before the Sept.1 start of the new marketing year.

Global coarse grain supplies for 2011/12 are projected 4.3 million tons lower mostly on a 4 million-ton reduction in corn beginning stocks in China with higher 2010/11 corn feed and residual use.

Global barley supplies for 2011/12 are also lowered 0.6 million tons mostly on lower 2010/11 and 2011/12 production for Iran. Partly offsetting is an increase in global sorghum supplies reflecting higher 2010/11 and 2011/12 production in China that more than offsets a 0.5 million-ton reduction in 2011/12 sorghum production for Mexico.

Global 2011/12 corn production is nearly unchanged with a number of notable, but offsetting changes made, many of which reflect the latest available updates to officially reported statistics.

“Global corn ending stocks were trimmed by 1.8 million metric tons (mmt) due to a 4 mmt increase in 2010-2011 (last year’s) Chinese feed demand,” said DTN Senior Analyst Darin Newsom. “Taking that into account, the 2011-2012 numbers aren’t as bullish.”

Corn production is raised 1.7 million tons for Egypt, 0.6 million tons for Indonesia, 0.4 million tons for Cambodia, and 0.2 million tons each for Colombia and Thailand. Production for Mexico is lowered 1.5 million tons based on lower harvested area as government harvest reports suggest last summer’s crop suffered greater losses than previously thought from late planting, sporadic dryness, and an early frost in eastern areas of the southcentral Corn Belt.

Production for Argentina is reduced 0.5 million tons with lower yields reported for the early planted crop. South Africa production is lowered 0.5 million tons as dryness and late-season heat that persisted through mid- March reduced yield prospects in western areas of the Corn Belt. The resumption in rainfall in late March came too late for much of the crop. Venezuela production is lowered 0.4 million tons with lower reported area and yields and Laos production is lowered 0.3 million tons on lower reported area.

“Soybeans should command the most attention with global ending stocks falling to 55.52 mmt and ending stocks to use pegged at 21.9 percent,” Newsom said.

Global coarse grain imports and exports for 2011/12 are raised slightly with several countries adjusted based largely on the pace of trade to date. A 0.5 million-ton increase for Brazil corn exports is partly offset by a 0.1 million-ton decrease in corn exports for Mexico. Corn imports are lowered for Egypt, Thailand and Colombia, but raised for Mexico, Indonesia and Venezuela. Argentina sorghum exports are lowered 0.2 million tons. Sorghum imports are lowered for Japan. Kazakhstan barley exports are raised 0.2 million tons. Barley imports are raised for Morocco and Iran. Global coarse grain consumption for 2011/12 is lowered 3.4 million tons mostly on a 3 million-ton reduction in corn feed and residual use in China. An increase in China wheat feeding is mostly offsetting.

Mexico corn feeding is reduced 0.4 million tons, also with higher expected wheat feeding. Corn feeding is raised 0.5 million tons for Indonesia and 0.4 million tons for Egypt. A 0.5 millionton reduction in Brazil corn feeding is offset by the same size increase in food, seed and industrial use for the country. Sorghum consumption is raised for China, but lowered for Mexico and Japan. Barley feeding is lowered for Saudi Arabia. Global coarse grain ending stocks for 2011/12 are lowered 0.9 million tons, with a 1.8 million-ton decline for corn partly offset by increases for barley and sorghum.

According to USDA’s report, the 2012 forecast of total red meat and poultry production is up from last month. Beef production is forecast slightly higher as higher midyear production is largely offset by lower than expected slaughter in the first quarter. The pork production forecast is raised as the March Quarterly Hogs and Pigs report pointed to a slightly higher than expected first-quarter pig crop.

The broiler production forecast is raised for the first half of the year based on production data to date and stronger forecast first-half prices. Turkey production is forecast higher as turkey price forecasts are raised. The egg production forecast is raised slightly.

The beef export forecast for 2012 is lowered, reflecting the current pace of trade. Imports are raised on larger expected supplies in Oceania. Pork exports are raised.

The broiler export forecast is reduced slightly from last month on higher prices.

The cattle price for 2012 is lowered from last month based on weaker forecast second-quarter prices. The 2012 hog price is lowered based on revised first-quarter prices and a slightly weaker forecast for prices over the middle quarters.

Broiler and turkey price forecasts are raised as current prices remain strong.

Egg price forecasts are raised on stronger expected midyear prices. — Traci Eatherton, WLJ Editor

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