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BRIAN HOOPS

By Staff | Mar 23, 2009

On March 11, the USDA released its monthly supply/demand report. There were no production estimates in this report, leaving only demand numbers to be traded upon.

Historically, this report is not a major market mover as the lack of production changes in this report and the much-more important acreage report at the end of the month will dominate trade attention.

In this report, the USDA surprisingly increased ethanol usage for corn by 100 million bushels, while decreasing exports by 50 mb, resulting in a carryout level of 1.74 billion bushels. This is a huge number, but obviously could have been much worse if the USDA had left the ethanol usage unchanged.

The bearish ending stocks number came in the form of world-ending stocks. World stocks were estimated at 144.60 metric tons, up 5 percent from last month’s 136.66 mts figure.

The increase resulted in decreased demand for world feed needs. From a long-term standpoint, this is a bearish development.

With greater stock piles of corn worldwide, this means there will be less demand for U.S. corn to either use as a food grade or feed grade variety. The rest of the world will be selling its product at a price cheaper than what the U.S. can sell for, given the higher U.S. dollar.

The USDA estimated U.S. soybean ending stocks at a very tight 185 mb, the smallest in the last five years.

The only other year that is comparable is 2003-04 when stocks were estimated at a small 112 mb. It just shows you how out of whack last year’s prices were compared to the fundamentals as stocks were larger at this time last year, but prices are $3-$4 cheaper this year.

World soybean stocks were essentially unchanged at 49.95 mts compared to 49.87 mts last month. Compared to a year ago, stocks are smaller as last year’s stocks was 53.19 mts.

U.S. wheat stocks are huge and growing. The only thing keeping wheat prices at the level they are is the relationship between corn and soybeans and dry conditions in the Plains.

The USDA estimated wheat stocks at 712 mb, up from 656 mb last month as the USDA lowered exports by 20 mb and food usage by 25 mb.

One year ago, the U.S. had a tight stocks of 306 mb, but due to an increase in larger U.S. and worldwide production estimates, U.S. and world stocks are sharply higher. World stocks are estimated at 155.85 mts compared to 120.14 mts a year ago.

Corn analysis

Corn closed the week $.27 higher. The weekly export sales report showed net sales of 1.1 million metric tons were up 38 percent from the previous week and 6 percent from the prior four-week average.

Increases reported for Japan (616,600 mts, including 89,700 mts switched from unknown destinations), Taiwan (216,400 mts, including

58,500 mts switched from unknown destinations), Egypt (98,600 mts), Colombia (67,500 mts, including 30,000 mts switched from unknown destinations), Venezuela (65,000 mts), and Mexico (54,600 mts), were partially offset by decreases for unknown destinations (94,300 mts), South Korea (32,400 mts), and Peru (4,600 mts). For the marketing year, corn sales are 58 percent behind last year’s demand pace.

The USDA has now exported 1.184 bb of corn compared to 2.025 bb last year. To reach the USDA forecast, the U.S. needs to export 20.6 mb each week. In Brazil, Conab predicted corn farmers will harvest 50.4 million tons, compared with a previous estimate of 50.3 million tons. Production will fall from last year’s 58.7 million tons.

Informa estimated U.S. corn plantings for 2009 at 81.419 million acres, this compares with 86 million corn acres planted in the spring of 2008 and 75.7 million soybean acres, based on USDA data. In January, Informa projected 2009 U.S. acres for corn at 82.7 million.

Soybean analysis

Soybeans closed the week $.09 1/2 higher. The weekly export sales report showed net sales of 837,000 mts were up noticeably from the previous week and 26 percent from the prior 4-week average.

Increases were primarily for China (406,900 mts, including 55,000 mts switched from unknown destinations), Mexico (187,200

mts), Indonesia (77,400 mts), Taiwan (59,800 mts), and Canada (30,600 mts). Net sales of 1,000 mts for delivery in 2009-10 were for Japan.

This year’s export pace remains well above last year’s pace as the U.S. now has export commitments for 1.02 bb, compared to 959 mb a year ago, or 7 percent better than a year ago.

The U.S. only needs to average 6.4 mb to reach the USDA forecast.

In Brazil, growers will harvest 57.6 million metric tons of soybeans this year, compared with a Feb. 5 forecast of 57.2 million tons, the ministry’s crop-forecasting agency said in an e-mailed report. Overall production will fall from 60 million tons last year, said Conab.

Informa estimated soybean acres at 81.502 million. This compares with acres planted in the spring of 2008 at 75.7 million soybean acres according to USDA data.

In January, Informa projected 2009 U.S. acres for soybeans at 80.8 million.

Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien.

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