Beef numbers down in July WASDE, corn bearish

Jul 12, 2013

The most recent World Agricultural Supply and Demand Estimates (WAS- DE) report came out Thursday, July 11, and was much anticipated on the corn front. Ending stocks of corn—what most were interested in—increased slightly, which had the immediate result of a decent rally in corn futures and a decline in feeders. Most of beef’s relevant numbers were adjusted down while overall meat estimates were mixed in terms of production, trade and availability.

Beef: Estimates for 2013 beef production were adjusted down 100 million pounds (mp) to 24.42 billion pounds (bp). This came as a result of lower than expected secondquarter steer and heifer slaughter. USDA reported the decline in slaughter in the second quarter more than offsets the higher forecast slaughter in the coming half of the year. Production estimates for 2014 remained steady at 24.19 bp.

Import estimates for beef in both 2013 and 2014 were reduced due to the tight supplies from Oceania. While the U.S. had been the recipient of much of the boneless beef from New Zealand’s heavily culled dairy cows earlier this year when the islands had been hit with extreme drought, much of the culling has abated. Beef from Australia is similarly in short supply, though there is also the issue of other countries taking up more of the Australian beef export market.

The most recent WASDE report lowered beef imports to 2.4 bp for 2013 and 2.74 bp for 2014, down from 2.56 bp and 2.8 bp, respectively. Export estimates remained steady with the previous report at 2.31 bp in 2013 and 2.3 bp in 2014.

Due to the downward changes in the production and import estimates, overall beef availability projections declined for both 2013 and 2014. For 2013, the availability estimate decreased from 57.1 pounds per person to 56.5 pounds per person. For 2014, the availability estimate only dropped 0.2 pounds to 54.1 pounds per person.

The estimated prices paid for steers also declined for the two years.

Compared to the June estimates where steers would sell at $125-130 for 2013 and $128-138 for 2014 as an annual average, the July WASDE reduced those ranges to $124-127 and $126-137, respectively.

Other meats: The competing proteins of pork and chicken (broilers) were mixed in the most recent WASDE report. Production estimates for broilers remained unchanged for both years, but pork production projections went in opposite directions. For this year, production estimates were lowered—the devastating effects Porcine Epidemic Diarrhea Virus is having on the piglet crop almost certainly had a hand in this, though it was not mentioned in the report—by 25 mp to 23.42 bp. But pork production is anticipated to be up 110 mp in 2014 compared to the June report at 24.15 bp.

Trade estimates for pork and chicken were mostly unchanged. Import estimates of chicken remained at 114 mp for 2013 and 112 for 2014 and pork export estimates stayed steady at 5.03 bp in 2013 and 5.26 bp in 2014. However, pork import estimates were up for both years—up to 817 mp in 2013 and 820 mp in 2014—and chicken export estimates for this year increased by 100 mp to 7.5 bp.

The availability of the competing proteins was accordingly mixed. Pork availability was steady with previous reports for this year at 47 pounds per person but up for next year at 47.9 pounds per person. Chicken availability projections were reversed, with 2013 availability estimates falling to 81.5 pounds per person, and 2014’s expectations remaining steady at 83.5 pounds per person. Overall, and combined with the beef availability numbers, per capita meat availability estimates declined for 2013 to 203.7 pounds per person and increased to 204.8 pounds per person in 2014.

Corn and crops

Corn production was not altered as much as some had worried. One of the more noteworthy changes was the fact the corn information in the June WAS- DE was based on the March Prospective Plantings report, whereas the corn estimates in the July WASDE were based on the June Acreage report.

Planted estimates rose slightly to 97.4 million acres and harvested estimates were slightly reduced from the prior report at 89.1 million acres. Yield estimates remained unchanged at 156.5 bushels per acre. The slight changes in harvested acre estimates resulted in a slight decrease in the production estimate for the 2013/2014 corn crop, from 14 billion bushels (bb) to 13.95 bb.

The changes in production had trickle-down effects on other areas of the corn estimate. Import expectations rose 5 million bushels (mb) to 30 mb, and export estimates decreased 50 mb to 1.25 bb. Feed and residual use projections declined to 5.15 bb. Ethanol and byproducts use estimates remained unchanged at 4.9 bb.

Total ending stock estimates for the 2012/2013 crop were lowered to 729 mb, but the 2013/2014 crop ending stock estimates rose to 1.96 bb, still well over double what the expectations for this year are.

The changes to corn estimates mostly surround the exceptionally tight supplies which will exist for this old crop corn until the new crop comes in. The lateness of the new crop, and the manic weatherrelated challenges it has faced also mean the tight old-crop supplies will have to cover that much more time.

“The U.S. ending stocks report was viewed as bearish for corn,” said DTN Senior Analyst Darin Newsom. Newsom said ending stocks came in above expectations for old-crop and new-crop corn, despite the reductions in the former.

After more time had passed following the report’s release, what had been 20-cent gains in the near-term July corn future settled back down to about a 5-cent gain compared to its open Thursday. The change didn’t mean much to feeder futures which continued to fall throughout the day after the report’s release.

The bigger change on the grain side of the July WAS- DE actually came from wheat. Planted area estimates increased slightly to 56.5 million acres, but harvested area predictions dropped by a million acres to 45.7 million acres. Yield estimates increased to 46.2 bushels per acre. This had the effect of increasing production estimates to 2.11 bb compared to the June WASDE prediction of 2.08 bb.

Ending stocks for the old crop wheat were reduced to 718 mb compared to the June estimate of 746 mb. The ending stock estimate for the 2013/2014 crop was also reduced down from 659 mb to 576 mb. Most all of these changes came from varying reports which came out between the June and July WASDEs rather than because of new developments.

Globally, USDA reduced its wheat ending stock estimates by 8.87 million metric tons (mmt) to 172.4 mmt. According to DTN Markets Editor Katie Micik, this resulted in a 1.5 percentage point drop in the world stocks-to-use ration, now estimated at 24.6 percent. Micik pointed out that this is the lowest stocks figure since the 2008/9 crop, but well above the 128.8 mmt of the 2007/8 crop. Newsom called the domestic wheat ending stocks projections neutral and bullish on the global scope. — Kerry Halladay, WLJ Editor