USDA Supply and Demand Report Comments - Grain Market Comments

To start with today was a USDA report day and here is a recap of the report versus last month and versus trade estimates.  You can see that we got neutral to bearish report for corn, neutral to wheat, and neutral to friendly beans.  Price action indicated we had a bearish report for wheat; but the numbers really didn’t indicate that.  But wheat really has been a follower for some time as corn seems to remain king; especially on crop report days.

June 2012 USDA Supply & Demand Worksheet / Trade Guesses

2011/12 Ending Stocks Estimate (billions of bushels)
	USDA June	Avg. Trade Guess	Avg. Trade Range	USDA May
Corn	0.851	0.821	0.688 - 0.901	0.851
Soybeans	0.175	0.189	0.130 - 0.218	0.210
Wheat	0.728	0.753	0.727 - 0.775	0.768

2012/13 Ending Stocks Estimate (billions of bushels)
	USDA June	Avg. Trade Guess	Avg. Trade Range	USDA May
Corn	1.881	1.750	1.223 - 1.950	1.881
Soybeans	0.140	0.143	0.052 - 0.220	0.145
Wheat	0.694	0.714	0.647 - 0.772	0.735

2011/2012 Global Ending Stock Numbers
	USDA June	Avg. Trade Guess	Avg. Trade Range	USDA May
Corn	129.19	127.630	126.000 - 128.800	127.560
Soybeans	53.36	52.090	51.000 - 53.000	53.240
Wheat	195.56	197.124	196.000 - 198.835	197.030

2012-2013 Global Ending Stock Numbers
	USDA June	Avg. Trade Guess	Avg. Trade Range	USDA May
Corn	155.74	149.745	145.000 - 154.000	152.340
Soybeans	58.54	58.140	55.700 - 62.000	58.070
Wheat	185.76	184.791	180.800 - 190.674	188.830

As you can see we continued the trend of disappointment for the corn bulls with this latest USDA report as we once again left the numbers unchanged from last month.  The only change was a decrease in exports that was offset by an increase in ethanol usage.  No changes where done for new crop corn balance sheet at all.  It feels like the trade doesn’t believe the 166 bushel yield for new crop corn that was left unchanged; but eventually the trade will have to start believing or the number will have to come down.  I would say that we are very high priced if next January’s report shows the type of yield that is presently being used; so keep that into consideration as we move forward.  From what I hear most in the industry are using a corn yield someplace between 155-163.  Bottom line if we end up close to the 1.8 billion bushel carryout that is presently projected look for prices to drift lower.

World corn stocks actually rose from last month for both the current marketing year and next year’s projection.  Another bearish headline that is being partially offset by the ideas that yields and crop production potential isn’t near where the USDA pegged it at.  But bottom line is the same here plenty of risk if the USDA doesn’t change and ideas have always been that big crops get bigger……..hasn’t it?

Bean numbers where good with the decrease in ending stocks for the US both this year and next; but the world numbers where increased. 

Wheat numbers still say that there is plenty of wheat in the US and in the world; but the trend is going the correct direction.  Less then last month in both the US and in the World for both last crop year and the present crop year which started June 1^st. 

Below is a little history of the crop supply and demand numbers; it comes from Mike Sperry……..the big think on it is looking year over year and month over month.  You will see that we now have a US and World wheat carryout numbers as low as they have been since 2008.  While we have corn numbers potentially as high as they have been since 2000 in the world with the US numbers pegged at their highest spot since 2005.  Bottom line is if those number or these trends don’t change things for corn price outlook are not very good.  I am in the camp that doesn’t believe the carryout or yield that the USDA posted today; but the below trend really shows one that there is plenty of risk so I am also in the camp of practicing good risk management.  Making some sales on the bounces and maybe buying some puts for protection or selling some covered calls.

World	/	US	Ending	Stocks	6/12/2012
Data	Provided	by	Central	Plains	Services,	L.L.C.
1	Metric Ton of corn = 39.36825 bu				Metric Ton of Wheat/Soybean = 36.7437 Bu
All	Ending	Stocks	expressed	in	Billions	of	Bushels
Year	Corn			Soybeans			Wheat
	World	US	Yld.	World	US	Yld.	World	US	Yld.
’00	6	1.899	1			-	7.5	0.876
’01	5.8	1.574	1.2			-	7.4	0.687
’02	4.8	1.087	1.5	0.178			6.1	0.491
’03	3.6	0.958	142.2	1.2	0.112	33.9	4.8	0.547	44.2
’04	5.1	2.113	160.4	1.8	0.256	42.2	5.6	0.54	43.2
’05	4.9	1.967	148	1.9	0.449	43	5.4	0.571	42
’06	4.3	1.304	149.1	2.3	0.574	42.9	4.7	0.456	38.6
’07	5.1	1.624	150.7	1.9	0.205	41.7	4.4	0.306	40.2
’08	5.7	1.673	153.9	1.5	0.138	39.7	6.1	0.657	44.9
’09	5.7	1.708	164.7	2.2	0.151	44	7.4	0.976	44.5
’10	4.9	1.128	152.8	2.6	0.215	43.5	7.3	0.862	46.3
’11	5.1	0.851	147.2	2	0.175	41.5	7.2	0.728	43.7
’12-’13 May Est	5.997	1.881	166	2.134	0.145	43.9	6.913	0.735	45.7
’12-’13 June Est	6.131	1.881	166	2.151	0.14	43.9	6.826	0.694	45.4

Question; anyone know what our low price has been since 2000 for corn?  Under 2.00 on the board; even in 2005 we where under 2.00 at one point in Dec of 2005.  Is our present pegged world corn estimate higher today then it ended up being when we where under 2.00 a bushel on the board for corn futures?  Yes it is.  Therein lies our risk

I don’t want to come off trying to tell one to panic sell as I have mentioned numerous times I am not that bearish; but I do want to come off as telling producers that we have perhaps more price risk then one might realize.  So if you need help marketing or want to look at some protection strategies please give us a call.

At 1:20 we have our markets show old crop corn down 9 cents, new crop corn is off by 13 cents, old crop beans are up 11, new crop beans are up about 6 cents, KC wheat is off a dime, MPLS wheat is off 12-15 cents, and CBOT wheat off 12 cents.  This are not the closes and the grain futures will be trading for about 30 minutes or so; but the above should be close to the settlements.

Outside markets are also still open but as of 1:30 equities are firmer with the DOW up about 100 points,  crude up about 70 cents a barrel, the US dollar near unchanged, and gold up 9.00 an ounce.

A little disappointing for the grains is the fact that we couldn’t brush off the bearish USDA numbers and trade positive for corn.  Perhaps if we consider the fact that we where not down the limit given the difference between new crop corn projected carryout versus the estimate you could consider today a small victory for bulls; but overall disappointing; nice to see the outside markets stabilize at least for a day.

As we go forward weather will be extremely important but it might be on the bulls to prove the USDA wrong, also important will be the outside markets and the June 29^th stocks and acre update. 

One thing that some have talked about is that they look for the USDA to cut yield in July but keep overall production for corn near unchanged behind ideas that the good spring allowed more corn to get planted.  We also have to remember last year’s stocks number for corn; one that caused July corn to be down over 70 cents a bushel.  Cash markets today and really all year have felt tighter then they did a year ago; but there will be the risk that our high prices or strong basis has curved some demand.  There might also be some risk out there that ethanol plants are much more efficient then they used to be; perhaps the 2.7 ethanol to bushel coversion get’s changed sometime?  Locally I know we have shipped milo to ethanol plants that never used it before and that means that they are not using as much corn.

The big thing that the markets will watch for fundamentally is if we do cut corn supply how much will we cut corn demand?  If you use some of the corn yields that some in the industry have thrown out there with the present demand forecast it is easy to get bullish in a hurry.  But ECON 101 should remind us that less supply also equals less demand; and that brings us back to what happened last July high prices curved demand and stocks came in higher then expected as we went from below 700 million bushel for a projected carryout to over 1.1 when all said in done on the September stocks report.

Don’t forget that we will have our weekly MWC Grain Marketing Round Table tomorrow at 3:00 in Onida; as we will discuss today’s report as well as go over charts and possible strategies to consider when pricing your crops.

Please give us a call if there is anything we can do for you.