WASDE predicts record corn crop in 2014

Markets
May 17, 2013

Friday, May 10 saw the release of the most recent World Agricultural Supply and Demand Estimate (WASDE) report. Though the report contained very few surprises compared to pre-report industry expectations, this was the first WASDE report of the year to include domestic projections for the 2013/2014 marketing year and 2013 world production estimates.

Beef production estimates for 2013 were raised to 25.19 billion pounds (bp) in the May WASDE compared to the previous report which anticipated 24.98 bp. This is mostly due to the higher than anticipated placements of cattle earlier this year and continued high levels of cow slaughter. The expected beef production for 2014 was set at 24.19 bp. This reduction comes from the front-loading of placements now and the lost production opportunities high cow and heifer slaughter represent.

“Tighter cattle supplies and potential heifer retention during late 2013 and into 2014 are expected to limit cattle available for placement, thereby reducing fed cattle slaughter in 2014,” read the report. “Lower cow numbers and herd rebuilding will also limit non-fed beef production.”

Speaking of the 2014 estimates on beef production, Steve Meyer and Len Steiner of CME’s Daily Livestock Report had this to say:

“The decline in beef production should help support beef prices into next year. High beef prices in the US market will likely encourage more beef imports while reducing the volume of beef going to export.”

Beef trade projections— both imports and exports— were adjusted down for 2013. Beef import expectations were reduced by 10 million pounds (mp) to 2.56 bp, and export estimates fell by 13 mp to 2.41 bp. For 2014, the trade estimates stand at 2.8 bp and 2.3 bp, respectively. This again places the U.S. as a major net beef importer by volume.

“The increase in imports will help offset only a portion of the big decline in domestic output,” said Meyer and Steiner.

Projected per capita beef availability for 2013 was adjusted up slightly from 55.7 to 56.1 pounds per person. While higher than the earlier estimate, this number is still lower than the 2012 confirmed number of 57.4 pounds per person. For 2014, the per capita availability is estimated at 54.3 pounds per person, reflecting the lowered estimate of total available beef.

Pork and chicken

While beef has had slow estimate increases for this year, and declines in estimates for next year, the opposite is true of pork. Production estimates for 2013 dropped from 23.52 bp in April to 23.5 bp in May’s report. On the other hand, the projection for 2014’s pork production stands at 24.04 bp.

The increase in pork projections stems mostly from a decrease in anticipated feed costs going forward which will incentivize increased farrowings, increased carcass weights, and the likely success of the “Feeding for 30” program going on in the pork industry.

Chicken, too, has seen a similar trend. Expected chicken (broiler) production for 2013 fell 165 mp to 37.34 bp in the May report. But 2014’s estimated production stands at 38.43 bp. Meyer and Steiner attribute these estimate moves in pork and chicken to forecasts of a big rebound in U.S. corn supplies and lower feed input costs.

Trade in pork and chicken fluctuated a bit. Imports of pork for 2013 decreased slightly, but expectations of the year’s total for exports decreased significantly down to 5.03 bp. This mostly comes from the continued closure of Russian and Chinese markets to U.S. pork over the ractopamine issue. Projections for pork export in 2014 stand at 5.26 bp, which is only slightly above earlier projections of 2013.

Chicken import projections were fairly steady in May’s report compared to the prior report, and the expectations for 2014’s chicken import stood steady at 112 mp. But chicken export projections just increased in leaps and bounds.

From the April to May report, expected 2013 export of chicken jumped 59 mp to 7.26 bp. And the projected chicken export for 2014 was up even more at 7.55 bp.

Corn and crops

One of the more exciting elements of this report were the 2014 projections for corn since so much hinges on that crop. This first look at 2014’s corn crop suggests a lot of record-setting highs.

Compared to the 2012/2013 marketing year, where 97.2 million acres were planted in corn and almost 10 million acres were lost to drought, with even more damage showing itself through reduced yield, WASDE predictions for the 2013/2014 corn crop are lofty. The report projects a planting of 97.3 million acres, a harvest of 89.5 million of those acres, and a yield of 158 bushels per acre (bpa).

While the WASDE-quoted yield of 158 bpa is high compared to 2013’s yield of 123.4 bpa, it was lowered compared to the USDA Agricultural Projections to 2022 Report released in February. The February report predicted a 163.5 bpa yield. The reduction likely came from the delays in plantings. As of the most recent Crop Progress report (Monday, May 13), corn plantings were only 28 percent of the estimated total. This is compared to last year’s 85 percent by the same week, and the five-year average of 65 percent.

The anticipated 2014 corn production of 14.14 billion bushels (bb) is something to watch. Lisa Elliott, Extension commodity marketing specialist at South Dakota State University, pointed out that such a crop would be the largest ever produced in the U.S. and well above the record-setting 2009 crop. The WASDE-set ending stocks for 2014 would similarly be record setting.

The anticipated ending stocks gains—2 bb for 2014 compared to the estimated 759 million bushels (mb) for 2013—are reportedly within trade estimates. If accurate, the U.S.’ 2014 ending stocks will contribute significantly to the large year-to-year gains in global ending stocks of corn expected.

But there is some uncertainty about the more immediate stocks of corn.

“Tight old crop supplies will continue to influence the corn and bean basis until new crop supplies arrive,” said Andrew Gottschalk of Hedgers Edge. “Producers are expected to remain tight fisted with old crop supplies until new crop conditions can be better assessed this summer.”

The expectation of abundant corn supplies next year has shifted a number of important reported areas around. Estimates of feed and residual use for 2014 stood at 5.33 bb compared to the 4.4 bb estimated for 2013. Ethanol use projections rose, but only slightly, relatively speaking, from 4.6 bb in 2013 to 4.85 bb for 2014.

“Lower corn prices and high prices for Renewable Identification Numbers support profitability for ethanol producers,” read the report regarding ethanol.

The production projections also left their mark on trade expectations. For 2014, the import of corn is expected to fall to 25 mb compared to 125 mb this year. Additionally, corn export for 2014 is projected to almost double at 1.3 bb compared to 750 mb this year.

The report warns, however, that we are not alone in potential record corn crops and large global production, especially as South America and the former Soviet countries will “provide substantial competition” for U.S. corn.

One of the nicer details for livestock producers is the expected cost of corn (average farm price) for 2014.

Compared to the estimate of $6.90/bu average price for corn this year, the May WASDE projects corn prices next year to average $4.70/ bu.

While these projections of greatly improved supplies of corn in the coming year are a good thing in many ways, those who are involved in corn futures have something to think about.

“Keep it simple,” Gottschalk advised. “The net is that if domestic and world supplies increase as expected rallies will be short lived.

It will require adverse conditions during our growing season for an advance to be sustained. The current summer weather forecast is suggesting much improved conditions from last year’s debacle.”

Wheat planting projections for the coming year were mostly inline with this year’s plantings at 56.4 million acres compared to 55.7 million acres. The estimated harvested acres for 2014 are down, however, at 46.7 million acres, along with yield at 44.1 bushels per acre. These are both likely due to the damage suffered by the winter wheat crop and the delayed planting of spring wheat due to weather.

“The survey-based forecast for winter wheat production is down 10 percent with the lowest harvested-to-planted ratio since 2006/07 and lower yields as persistent drought and April freezes reduce crop prospects in the southern and central Plains,” read the report. It noted that the higher forecast for Soft Red Winter wheat is partially offsetting losses expected for overall winter wheat.

According to the most recent Crop Progress report, winter wheat headings were at 29 percent compared with 73 percent the same time last year and the five-year average of 51 percent. Condition on winter wheat stood at 39 percent poor or very poor, 29 percent fair, and 32 percent good or excellent.

Spring wheat plantings were lagging behind at 43 percent, compared with last year’s 92 percent for the same week and the five-year average of 63 percent. Only 10 percent of the spring wheat has emerged. Last year, that number was 63 percent for the same week and the five-year average was 32 percent.

Soybean numbers for 2014 look very similar to those of 2013. The planted area estimate stood at 77.1 million acres and the harvested acre expectation is 76.2 million acres. The point where the 2014 numbers and 2013 numbers diverge is on the yield; compared to 2013’s 39.6 bpa, 2014’s yield is expected to reach 44.5 bpa. This change is likely due to some producers switching some corn acres to soybeans, according to Elliott.

Soybean plantings as of May 13 stood at 6 percent of the expected total. This is well behind last year’s 43 percent by the same week and the five-year average of 24 percent. Soybean emergence information is expected in the coming weeks. — Kerry Halladay, WLJ Editor

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