Corn changes counter expectations

Markets
Aug 16, 2013

Corn took the cake in last week’s release of the World Agriculture Supply and Demand Estimates (WASDE) report. Counter to prereport estimates which predicted corn yields to be increased, USDA revised the numbers down. This had a short-term positive effect on corn futures and, unsurprisingly, a negative effect on feeder cattle. Beef, meanwhile, saw some positive projections with production and export estimates increasing.

Corn and other crops

The corn portion of this report was closely anticipated as the August report was the first of this year to have objective data on which to base its estimates. On its face, corn seemed unchanged. Same area planted (97.4 million acres) and same estimated area harvested (89.1 million acres). This latter detail was something of a surprise because pre-report projections had expected harvested acres to decline in the August WASDE.

But a downward change in the yield estimate had everything else trending lower than in previous WASDE projections. This, too, was a surprise as the pre-report industry expectation was for an increase in the yield numbers, to 157.7. Compared to the July WASDE estimate of a 156.5 bushel per acre (bpa) yield however, August’s estimate was 154.4 bpa. This projection decline stemmed from the Aug. 1 crop condition. Even at the reduced level, if realized, the 154.4 bpa level will be the highest yield seen since 2009.

According to the most recent Crop Progress report (Aug. 12), 94 percent of the corn crop has begun silk. This compares to 100 percent during the same week last year, and the four-year average of 95 percent. The other reported condition of the dough stage—when the kernels begin to get starchy—for this year’s crop is lagging behind both last year and the four-year average. Compared to the same time last year, when 76 percent of the crop had reached the dough stage, only 32 percent of this year’s crop has. The four-year average is 48 percent by the second week in August.

The reduced yield estimate had a trickle down effect on just about every other element of the WASDE corn projections. Production estimates went from 13.95 billion bushels (bb) in July to 13.76 bb in August, feed and residual use estimates declined 50 million bushels (mb) to 5.1 bb, and ending stock estimates fell from 1.96 bb to 1.84 bb. Again, even with the decrease in estimated ending stocks, if the 13.76 bb level is achieved, it will be the new record for a U.S. corn crop.

Corn import estimates remained steady at 30 mb, but export estimates fell 25 mb to 1.23 bb to compensate for the decreased domestic supply as well as the pressure globally from reportedly good crops in competing countries.

Globally, the estimated corn production out of the Former Soviet Union block, and specifically the Ukraine, was increased in the recent report. The Ukraine’s production prediction increased 3 million metric tons (mmt) to a total of 29 mmt, accounting for the overall increase in the Soviet block countries. The U.S., by comparison, fell 4.75 mmt to 349.6 mmt.

The immediate reaction of the corn markets was to jump more in one day than has been seen for a while. CME corn futures for September and December contracts shot up to their daily highs of $4.80/bu and $4.69’6/bu, respectively, immediately following the release of the report. Things settled back down later in the day and by the close of trade, the contracts had gained a few cents over their openings with September at $4.72/bu and December at $4.64/bu.

Just about everything, save price, was estimated down for soybeans in the August WASDE. Acres planted was revised down from 77.7 to 77.2 million acres, and estimated area harvested was revised down from 76.9 to 76.4 million acres. Added to this, the estimated yield decreased from 44.5 bpa to 42.6 bpa. Put together, these decreases had some profound effects on the projections down the supply line. Price estimates for soybeans, however, jumped 60 cents on both ends of the range to $10.35- 12.35/bu.

Production estimates fell from 3.42 bb in July to 3.26 in August. Though this was down from previous projections, if realized, it would represent the third largest harvest on record.

Production of soybean meal fell from 40.24 million short tons to 39.76 short tons and feed usage declined from 10.2 million short tons to 9.7 short tons on the reduced domestic supply. Price estimates for soybean meal jumped $15 on both ends of the range to $305-345 per short ton.

Beef and other meat

Just about everything beef was estimated up from the previous report. Production estimates for both 2013 and 2014 were up—to 25.63 billion pounds (bp) and 24.21 bp, respectively, as were exports, total use, and per capita availability estimates. Production numbers were raised on greater fed cattle and cow slaughter numbers combined with heavier average carcass weights. Moderate feed prices and recent placement of heavy animals are expected to support higher average carcass weights in the second half of the year as well.

Beef export projections for 2013 rose 51 million pounds (mp) to 2.36 bp for 2013 and stayed steady at 2.3 bp for 2014. Import expectations declined for 2013 to 2.38 bp and stayed steady at 2.74 bp. This leaves the U.S. still steadily a net importer of beef by volume, but it is a nice change to see export expectations rise and import expectations fall for once.

Overall use estimates of beef in 2013 and 2014 rose and this in turn moved per capita availability higher for both years as well. For 2013, the estimated pounds of beef available per person stood at 56.8 pounds in the August WASDE and at 54.2 pounds per person for 2014. Again, though the movements were small—a 0.3 pound and a 0.1 pound increase, respectively—it was a nice change from the trend of past reports.

Pork and chicken estimates didn’t fare as well as beef in this month’s WAS- DE. Both pork and broiler (chicken) production estimates for 2013 declined, down 16 mp to 23.4 bp for pork, and down 34 mp to 37.33 bp for chicken. These changes both came as a result of lower than expected second-quarter slaughter numbers in both hogs and chickens. Both proteins held steady on 2014 projections at 24.15 bp and 38.43 bp, respectively.

Per capita availability of the competing proteins looks to be in beef’s favor. Pork’s per capita availability estimate for 2013 remained the same at 47 pounds per person, and increased only 0.1 pound per person (to 48 pounds) for 2014. Chicken, on the other hand, saw per capita availability estimates for 2013 decline slightly to 81.3 pounds per person and estimates for 2014 stayed at 83.5 pounds per person. — Kerry Halladay, WLJ Editor

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