Corn supplies surprise industry, revised down

Markets
Jan 20, 2014

—Disappointing results still represent record production

All breaths were held awaiting the announcement of the final 2013 corn data. Once released, it seemed to be a surprised sigh of disappointment from most. Corn farmers were perhaps breathing a sigh of relief.

Both the most recent World Agricultural Supply and Demand Estimates (WASDE) report and the annual Crop Production report were released Friday, Jan. 10. The number people were waiting for was the final word on corn production for the 2013 year. However, rather than increasing yield—and thereby production—as many expected, USDA reduced its final yield records 1.8 bushels per acre (bpa) from 160.4 bpa to 158.8 bpa.

This was quite a surprise as most analysts had expected the estimate to increase almost 3 bushels to 163.3 bpa. Disappointed expectations aside, Steve Meyer and Len Steiner of the CME Daily Livestock Report pointed out that the 158.8 bpa yield was still 29 percent higher than 2012’s 123.4 bpa.

Grain yields varied across the country with the top yields being seen in Washington, which claimed a 215 bpa yield on its 190,000 acres of corn planted. California’s 600,000 acres of corn—415,000 acres of which went to silage—fetched a 195 bpa yield. Interestingly, Oregon and New Mexico both brought in 190 bpa yields, though neither state planted many acres at 80,000 and 120,000 acres, respectively.

The lowest grain yields were seen in North Dakota (110 bpa), Montana (115 bpa), Kansas (127 bpa) and Wyoming (127 bpa). Both North Dakota and Kansas planted several million acres of corn, though Montana and Wyoming were relatively minor in their corn acres.

Average corn silage yields for the country stood at 18.8 tons per acre (tpa) but some key western and southwestern states saw much higher yields. Arizona took top silage yield averages at 30 tpa, followed by Oregon and Washington, both at 27 tpa. Again, none of the three states planted many acres of corn, relatively speaking.

Despite the change in yield estimates, total acres planted increased slightly to 95.4 million acres, and acres harvested increased slightly to 87.7 million acres.

“The 87.7 million harvested acres in 2013 is the largest since 1933—before the Dust Bowl-era droughts and, more important and more lasting, the advent of hybrid corn varieties,” Meyer and Steiner pointed out.

This increased acreage still kept overall corn production into record levels. At 13.93 billion bushels (bb), the most recent crop was still record-setting and only 0.45 percent lower than the December estimate of 13.99 bb.

Corn usage numbers changed quite a bit and continued the surprise of the two reports. Imports increased by 5 million bushels (mb) to 35 mb, but exports stayed pat at 1.45 bb. Corn used for ethanol also increased—up 50 mb to 5 bb— based on the pace of recent weekly usage.

Among the more surprising was feed and residual usage, which increased by 100 mb to 5.3 bb due to the September-November disappearance.

“This one really puzzles us,” said Meyer and Steiner, specifically citing the massive losses in the hog herd from porcine epidemic diarrhea virus.

“Some industry observers believe that those losses are now as large as 6 million head and many think those losses will continue. Each of those pigs represents about 9 bushels of corn usage that simply will not happen. Fifty-four million bushels isn’t a lot when compared to 5.2 or 5.3 billion, but in this case it carries a minus sign, not a plus sign in the balance sheet. Yes, all of the 100 million or so other pigs that will reach market weight will get heavier but this estimate has looked big from the beginning. Lower cattle numbers, now steady hog numbers and higher chicken numbers—and 20 percent more feed usage? It must be the residual part.”

Overall, ending stocks of the 2013/2014 corn crop were pegged at 1.63 bb. This is still a very large ending stock level—nearly double what it was for the 2012/2013 crop—though not as high as some earlier projections had expected.

On the world stage, overall corn production estimates increased by 2.64 million metric tons (mmt). Production decreases in the U.S., Argentina, EU, and former Soviet Union were more than offset by increases to the Chinese corn crop, which was projected up 6 mmt to 217 mmt. However, due to domestic use estimates increasing in the U.S., Mexico, and Southeast Asia, the overall world ending stock projections still declined 2.23 mmt to 160.23 mmt.

The supply data shifted the projected average farm price paid for corn slightly for the 2013/2014 crop. Compared to the prior price estimate of $4.05-4.75 from the December WASDE, the most recent report suggested a $4.10-4.70 range was more likely. The futures markets, however, welcomed the news with more radical moves.

“The history of the January crop report instigating large market moves was repeated on Friday,” commented Andrew Gottshalk of Hedgers Edge. He asked rhetorically if we’ve seen the winter low in the corn market, now that the final supply numbers are in.

“Was $4.06 spot month close enough to having a ‘3’ in the first digit to call it done? Time and weather and South American production will provide that answer. For now, the first limited-recovery bounce should be expected.”

By the afternoon of Jan. 10 following the release of both reports, the March corn contract had jumped almost 21 cents, settling the week at $4.32’6/bu. The early week trade that occurred last week saw no more upward movement as the contract began drifting lower again. By close of trade Thursday, the March corn contract had settled at $4.28/bu.

“There is some speculation today that the producers who held off grain sales for the new tax year may begin to take advantage of the price rally (corn market) to increase cash sales activity. “Nice theory—thus far, no data nor action to support it,” reported Gottschalk Tuesday.

He pointed out that cash sales will increase for corn this year.

“Is the current level of rally enough? There is just not enough current info to declare the answer.” — Kerry Halladay, WLJ Editor

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