Wednesday, July 11, 2012

Morning Note from Country Hedging's Joel Fitch - USDA Report Recap

Below is from Country Hedging's Joel Fitch

It has a recap on the USDA report that was out this a.m.

Good morning,

Here is the quick and dirty from the report.  The expectations are located below.

Corn ending stocks were raised for old crop to 903 from 851 on a cut to exports of 50 mb.  That is the only change for old crop.  It increases carrying by 50 mb.  For new crop the USDA cut yield down to 146.0 and harvested acres to the expected 88.9 million acres.  Feed and residual was cut by 650 mb down to 4.8 bb still bigger than last year.  Ethanol was cut 100 mb to 4.900 bb and exports were cut down to 1.6 bb.  So they cut demand by 1,055 mb and ending stocks are 1,183 mb.  These demand numbers seem more realistic to me given the likely pricing of this crop. 
World ending stocks were dropped 21.7 mmt.  US is the only major change to production.  Domestic feed, domestic use, and exports fall. 

Bean ending stocks were lowered by 5 mb because exports were raised 5 mb.  This is quite surprising and seems far too small a gain in exports.  Ending stocks for new crop fell 10 mb to 130 mb.  Yield was lowered to 40.5, but the acres jumped as the June 30th report indicated – even though this number is too big due to the drought.  Demand was reduced.  Crush was cut by 35 mb and exports were lowered by 115 mb.  This is probably possible because of the high prices we are achieving in beans.
World ending stocks fall 3 mmt to 55.66 mmt.  12/13 World production is down 4 mmt from last month with the US being the only major change.  Demand categories fall here as well.

Wheat ending stocks were raised for 11/12 by 15 mb.  Minor changes.  12/13 ending stocks were cut to 664 down 30 mb from last month.  Supply change is negligible, but demand is altered feed is cut 20 mb and exports are raised 50 mb to 1.200 bb.
World wheat ending stocks are projected down 3 mmt to 182.44 as production falls 4 mmt in Russia, 2 mmt in Kazhakstan.  Demand projections fall slightly with feed, domestic use, and exports being cut.

By class wheat shows ending stocks tighter in 12/13 for HRW at 266 mb, SRW at 143 mb, and white wheat at 60 mb.  Ending stocks are projected to loosen for 12/13 in HRS at 155 mb, and Durum at 40 mb.  HRW 20% stocks/use, HRS 33% stocks/use, SRW 28.5% stocks/use, White 21% stocks/use, Durum 37% stocks to use.

Overall, while these cuts seem realistic to the production for corn as well as the demand side I think that the USDA is saying that these prices are doing enough to ration demand at the current levels of estimated production.  Soybeans production is too high by 40 mb to 80 mb because of the drought and double crop acreage.  Demand is hard to know on beans.  Price typically rations demand, but with China being the only major demand and the US being the only major supplier it is hard to guess what happens.  We should be back to looking at weather. 

Joel Fitch
Market Analyst

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