On Feb/ 9, the USDA updated its monthly supply/demand report. Typically, the report does not show a lot of fireworks as the USDA only updates U.S. demand and world production figures.
Prior to the report, R.J. O’Brien’s Rich Feltes said, “US soybean stocks declined from January to February crop reports in each of last three years by 15 to 35 million bushels. U.S. corn stocks from January to February changed only once in the last four years-down 45 mb on 2/10 crop report.”
The USDA continued its trend of giving traders a surprise by dropping corn stocks by 70 mb in this report, well more than the trade had anticipated and setting the stage for corn to resume a leadership role at the CME.
USDA raised 2010/11 corn for ethanol usage by 50 million bushels this month to 4.950 billion bushels. There remains an industry concern that even 4.950 billion bushels in corn for ethanol usage could be at least 50 million bushels too low and possibly as much as 125 million bushels too low when all is said and done.
USDA also raised other food/seed/industrial usage by 20 million bushels this month, pushing total usage higher by 70 mb from last month. We would note that there remains a significant amount of uncertainty in the feed/residual for the 2010/11 balance sheet, while the jury is still out on the level of exports that will be seen over the course of the year.
Both of those factors could bring bushels back to the balance sheet if prices rally strong enough to begin to force notable demand rationing – which is needed at this time. The bottom line saw USDA lower 2010/11 U.S. corn ending stocks by 70 million bushels this month to only 675 million bushels, a much larger reduction than the market was anticipating of close to 736 million.
The USDA’s estimate of 2010/11 ending stocks of 675 million bushels represents its lowest estimate of stocks for a February report since February 1996 and clearly highlights the historic nature of the current situation. Additionally, the USDA’s balance sheet reflects a stocks/usage ratio estimate of just 5 percent, the lowest since and matching the final stocks/usage ratio in 1995/96.
USDA left the U.S. soybean balance sheet unchanged this month, with no revisions being seen in any category. The market was looking for a minimal reduction in ending stocks to 135 mb, but the USDA left it unchanged at 140 mb.
The USDA raised the Brazilian soybean crop by 1.0 million metric tons today to 68.5 mmt, while the Brazilian government just raised its estimate to 70.1 mmt. USDA lowered the Argentine crop by 1.0 mmt oo 49.5 mmt, while there are an increasing number of private estimates moving below 49 mmt. It appears rising Brazilian crop prospects will largely offset declining crop ideas in Argentina. USDA left the Chinese soybean balance sheet unchanged.
In all, USDA left 2010/11 world soybean ending stocks essentially unchanged this month at 58.2 mmt and are down from last year’s 60.2 mmt.
On a by-class basis, USDA did make some revisions as HRS stocks were raised by 10 million bushels to 211 mb (234 mb last year) as exports were lowered by 20 mb to 355 mb and domestic usage was raised by 10 mb.
White wheat saw ending stocks lowered by 10 mb to 73 mb (80 mb last year) as exports were raised by 10 mb. Offsetting revisions were made in the HRW balance sheet with exports raised 10 mb to 615 mb, while domestic usage was lowered 10 mb, leaving ending stocks at 313 mb versus 385 m last year.
SRW stocks were unchanged at 173 mb compared to 243 mb last year and durum stocks were unchanged at 48 mb versus 35 mb last year. World wheat balance sheet revisions were nearly non-existent this month as the crops of all major exporters were unchanged.
The only demand revisions of note were a 0.5 mmt reduction in EU exports and a 0.5 mmt increase in Canadian exports. USDA lowered Ukrainian wheat exports by 0.5 mmt to 5.5 mmt.
USDA left 2010/11 world wheat ending stocks at 177.8 mmt (178.0 mmt last month) and are down from last year’s 197.6 mmt.
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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