High corn estimates surprise industry

Markets
Sep 14, 2012
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The September World Agricultural Supply and Demand Estimates (WASDE) report came out Wednesday, Sept. 12. This report held some surprises in corn, though the surprises were mostly in that the estimates varied so much from, and were so much stronger than, pre-report industry expectations. In beef and other meats, beef trade in volume continues to move the U.S. towards being a net importer.

Beef and meat

Overall red meat and poultry estimates were reduced for 2012 and 2013 compared to the August report and down compared to 2011’s numbers. Combined meat production for 2012 was adjusted down 20 million pounds (mp) to 92.17 billion pounds (bp) and reduced 99 mp to 90.15 bp for 2013.

Trade is expected to be down, both for imports and for exports, though import expectations—3.49 bp for 2012 and 3.75 bp for 2013— are above 2011’s 3.15 bp imported. Expectations of per capita availability of red meat and poultry were also adjusted down. At 202.6 pounds per person for 2012 and 197.8 pounds per person for 2013, both estimates are trailing behind 2011’s per capita meat availability of 204.6 pounds per person.

Beef production estimates for 2012 and 2013 were both raised relative to the August WASDE report, but even raised above prior estimates are still below the 2011 level of 26.29 bp. The projections for 2012 beef production rose 200 mp to 25.88 bp compared to August’s predictions. Projections for 2013’s beef production similarly grew from earlier estimates, up 95 mp to 24.77 bp.

Quarterly production estimates for beef for the remainder of this year—at 6.77 bp for the third quarter and 6.26 bp for the fourth quarter—have risen relative to August’s predictions. Estimates

for average prices paid for steers in the 5-Area direct sales for those quarters have also gone up compared to August predictions, to $117-120 and to $117- 123, respectively.

Beef trade estimates are steady to down compared to earlier expectations. Import projections for 2012 were reduced by 50 mp to 2.41 bp. Estimates for 2013 beef imports remained steady at 2.62 bp. Conversely, beef export estimates for 2012 remained steady with August’s report at 2.48 while export predictions for 2013 were reduced 100 mp to 2.45 bp.

The projected imports, even at decreased levels than recent reports, are higher than 2011’s 2.06 bp of beef imported. On the other side, projected exports are lower than the 2.79 bp exported in 2011.

This change in 2013 export estimates places the U.S. at a widening net importer status of beef by volume in 2013 at 170 mp more foreign beef taken in than exported out to international markets. Based on the last WASDE, that net import margin was only 70 mp.

No changes were made to estimates of 2012/13 beginning and ending stocks of beef in the most recent WASDE. 2012’s ending stock and 2013’s beginning stock estimates remained at 575 mp, and 2013’s ending stocks stayed steady at 550 mp.

Overall use and per capita availability are both expected to rise compared to August’s projections.

The total use estimate for 2012 was adjusted up 150 mp to 25.83 bp, and for 2013 it was adjusted up 195 mp to 24.96 bp. Per capita availability of beef was estimated at 57.5 pounds per person in 2012 (up 0.3 pounds) and at 55.2 pounds per person in 2013 (up 0.5 pounds). This latter per capita availability estimate, though raised from August’s, is below 2011’s level of 57.3 pounds per person.

Other meat—particularly pork and broilers—saw mostly reduced projections compared to last month’s estimates. Despite these reductions in estimates month-to-month, for pork, the 2012/13 predictions are generally higher than 2011’s corresponding numbers. The opposite is generally the case for broilers.

Pork production estimates for both 2012 and 2013 were reduced from their August levels. 2012 was adjusted down 25 mp to 23.22 bp and 2013’s estimate was reduced 40 mp to 22.92 bp. Both of these were above 2011’s 22.78 bp production level. Broiler production estimates fell 197 mp for 2012 and 143 mp for 2013, bringing the yearly production predictions to 36.37 bp and 35.97 bp, respectively. Both of these are below 2011’s broiler production level of 36.80 bp.

Trade estimates for pork and chicken didn’t move much in this WASDE versus the August report. Import projections for both meats—808 mp in 2012 and 840 mp in 2013 for pork, and 101 mp in 2012 and 104 mp in 2013 for chicken—remained unchanged. Pork export estimates fell 50 mp for both years, however,down to 5.35 bp in both 2012 and 2013. Pork export projections for this and the coming year are still above 2011’s 5.19 bp despite the estimate reductions. Chicken export estimates remained steady at 7.08 bp in 2012 and 6.95 bp in 2013.

Estimates of pork and chicken per capita availability in this and the next year are mixed but trending downward. Available pork per capita in 2012 was estimated at 45.8 pounds per person, up slightly from August’s report. For 2013, that number dropped to 45.2 pounds per person which was in keeping with earlier expectations. 2011 saw 45.7 pounds of pork available per person.

Chicken’s per capita availability has been adjusted down in all areas.

Compared to August’s estimates, 2012 per capita chicken availability went down 0.5 pounds to 80.4 pounds per person and 2013 dropped 0.3 pounds to 78.9 pounds of chicken per person. Both of these estimates are well below 2011’s per capita availability of chicken at 82.9 pounds per person.

Corn and crops

The big surprises in this WASDE report were in corn. What was most surprising was how little estimates shifted downward, if at all. In some cases, estimates rose in opposition to industry expectations. Though caution is required in putting too much weight in this month’s report—more relevant information regarding corn will come in next month’s report once more of the crop has been harvested—analysts are still convinced USDA estimates are too high.

This WASDE report’s estimates on harvested acres of corn remained steady with August’s at 87.4 million acres. This was one area where analysts have long expected some reduction. CME pointed out the average pre-report estimates on harvested acres for corn would be 86.17 million acres, representing 89.4 percent of planted acres. Past severe drought periods saw 84.5 to 88 percent of planted acres actually harvested, making even the industry average estimates high for this year’s conditions.

Andrew Gottschalk of Hedgers Edge commented in no uncertain terms the nonsensical nature of the current USDA harvested acre estimates.

“Their estimate is completely out of context with previous years of serious crop problems. Initially, futures sold off sharply and as of this moment have started to recover. This report may prove to be a ‘sell the rumor; buy the fact’ situation.”

Per acre yield estimates for the 2012/13 season were reduced slightly in the most recent report compared to August’s report, down 0.8 bushels per acre (bpa) to 122.8 bpa. Here again, analysts expected a much greater reduction. Many of the pre-report yield estimates pegged production in the 110s bpa. Again, more information will develop as more of the crop is harvested.

Overall production estimates went down, but again, by less than expected. In August, production estimates for 2012/13 were pegged at 10.78 billion bushels (bb). This month’s WAS- DE report only reduced that estimate down 52 million bushels (mb) to 10.73 bb. This is still quite high relative to pre-report industry expectations, which ranged from 10.6 bb to 9.8 bb with an average estimate of around 10.3 bb.

Ending stocks of corn for the 2011/12 year and beginning stocks for the 2012/13 year were surprisingly estimated up from last month, from 1.02 bb to 1.18 bb. Ending corn stocks for 2012/13 was also raised, from 650 mb to 733 mb.

Corn use estimates also contained surprises in the wake of analysts calling for the need to reduce and shift usage trends to maintain pipeline supplies. Projections for corn as feed and residuals actually went up for 2012/13, from 4.08 bb to 4.15 bb. Despite calls for reduction of corn for ethanol mandates, ethanol and byproducts use estimates remained steady with August’s at 4.50 bb.

Very little changed in the area of trade estimates. Import expectations for corn remained at 75 mb. Export projections were reduced from August’s report, but only slightly, down 50 mb to 1.25 bb.

In keeping with the increased expectations in the stocks as well as the relatively slight reduction in the yield and overall production estimates, projected prices paid for corn at the farm went down relative to August’s report. At $7.20-8.60, the whole price range shifted downwards 30 cents.

Soybeans saw some expected production cuts in the most recent report, but they were not nearly as severe as some had worried.

Projected acres harvested remained steady with August’s 74.6 million acres. Per acre yield dropped only slightly, from 36.1 bpa to 35.3 bpa. Overall production of soybeans is estimated down at 2.63 bb in 2012/13. The estimates were called neutral.— Kerry Halladay, WLJ Editor

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