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BRIAN HOOPS

By Staff | Jan 21, 2011

In what has historically been one of the largest and most volatile monthly crop reports, the January USDA supply/demand report did not hold out any major surprises, but is deemed bullish for prices as U.S. corn, soybean and wheat stocks all were lowered compared to the previous month.

Winter wheat acreage was also below expectations for the 20th consecutive year.

CORN

The USDA lowered the 2010 U.S. corn crop to 12.447 billion bushels from 12.540 billion previously, with the yield dropping to 152.8 bushel/acre from 154.3 in November. This was 44 million bushels below the average trade estimate – a modestly supportive number, but not outright bullish.

With the crop 44 million bushels below expectations, the fact Dec. 1 stocks came in below expectations is not surprising. USDA reported Dec 1 U.S. corn stocks at 10.040 billion bushels, 57 million bushels below expectations and solidly below year-ago stocks of 10.902 billion.

In terms of the balance sheet, USDA is playing mathematician already to keep 2010/11 ending stocks near perceived minimum levels. With the crop being lowered 93 million bushels from last month, and overall demand not indicating the need for outright reductions at time, ending stocks also slipped by nearly 90 million bushels this month to a very tight 745 million bushels.

USDA raised corn for ethanol usage by 100 million bushels to 4.9 billion. With leaving exports unchanged at 1.95 billion, USDA was forced to lower 2010/11 feed/residual usage by 100 million bushels to 5.2 billion just to keep ending stocks from slipping any lower than the 745 million bushels forecasted.

The stocks to usage ratio of 5.5 percent is the tightest on record since 1973./74.

SOYBEANS

The USDA lowered the 2010 U.S. soybean crop to 3.329 billion bushels from 3.375 billion bushels. The final yield was put at 43.5 bu/acre versus 43.9 bu/acre estimated previously and down from last year’s 44.0.

As with corn, with the final crop size coming in below expectations, so did Dec. 1 stocks. USDA reported Dec 1 soybean stocks at 2.277 billion bushels, solidly below the average trade estimate of 2.333 and implied the first quarter residual was slightly greater than the market anticipated.

With Dec 1 stocks at 56 million bushels below expectations, the first quarter residual was roughly 10 million bushels above expectations, coming in at 149 million bushels.

While this was down from last year’s historically large 181 million bushel first quarter residual, it was still the 2nd highest on record.

Total supplies for 2010/11 were lowered 46 million bushels as a result of the crop reduction, while USDA tweaked crush to 10 million bushels lower to 1.655 billion. Exports were left unchanged at 1.59 billion, but this figure should eventually move higher. Despite slightly higher imports and a lowered residual, the USDA still dropped 2010/11 U.S. soybean ending stocks by a solid 25 million bushels from last month to 140 million, while the market was looking for a decline to 158 million.

The stocks/usage ratio is now estimated at just 4.2 percent, below the 4.5 percent in 2003/04. and the lowest since 1973/74.

WHEAT

The USDA reported Dec. 1 U.S. wheat stocks at 1.928 billion bushels, slightly below expectations of 1.937 billion, but still sharply above last year’s 1.782 billion. USDA made a solid increase in U.S. wheat exports of 50 million bushels to 1.3 billion, which would actually be the largest exports since 1.354 billion bushels in 1992/93.

The bottom line was a 40-million-bushel reduction in 2010/11 U.S. wheat ending stocks to 818 million bushels, which was well below market expectations of 842 million.

USDA estimated total winter wheat acreage at 41.0 million acres, slightly below expectations of 41.2 million and up 3.655 million from last year. In historical terms, the last time the USDA estimated acreage above the average trade guess was 1990.

The USDA estimated hard red winter wheat area at 29.6 million acres, up 1.0 million acres from last year, while the market was looking for a more substantial increase to 30.2 million. With the increasing concerns of milling wheat availability in the world, the fact HRW acreage was lower than expected may be deemed fairly supportive by the market.

On the other hand, USDA estimated soft red winter wheat planted area at 7.76 million acres, up 2.5 million acres, or an impressive 47 percent from last year, and was well above expectations of 7.28 million.

HOOPS’ ANALYSIS

This report underscores the importance the United States somehow finding more acres this spring to ensure the U.S. maintains a healthy amount of carryover stocks.

The U.S. will need additional corn and soybean acres this spring to replenish pipeline supplies in 2011, until the additional acres can be assured, downside price risk is limited to profit-taking and routine technical weakness.

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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