Weather trumps crop numbers
By DARCY DOUGHERTY MAULSBY
While surprises can abound in the U.S. Department of Agriculture’s quarterly grain stocks and acreage update this time of year, there weren’t many surprises in the June 29 update.
“While this is one of the bigger reports we’ll see all year, weather trumps the numbers this time,” said Darin Newsom, a DTN senior analyst. “The unrelenting heat and limited rains that have been widespread as corn begins to pollinate are far more important than what the USDA said in its report.”
Still, there were many numbers worth noting.
According to the acreage report, there are more acres of both corn and soybeans than previously estimated in USDA’s March 2012 Prospective Plantings Report.
Corn planted acres are estimated at 96.4 million, up 4.48 million acres from 2011, while soybean planted acres are estimated at 76.1 million acres, up 1.104 million acres from 2011.
The grain stocks report showed reduced corn stocks compared to last year. Corn stocks were estimated down to about 3.15 billion bushels, compared to pre-report estimates that averaged 3.18 bb.
“This is the smallest supply of corn we’ve had left as this point since 1995-96,” said Newsom, who added that USDA did not reduce demand as much as expected.
Demand for U.S. corn was much stronger in the first quarter than the five-year average and the 15-year average, and demand was even higher in the second quarter.
Basis has been very strong in recent weeks, indicating that third-quarter demand has stayed strong, Newsom added.
Small change, big difference
When Newsom runs the numbers on a projected corn supply and demand table, even small changes can make a big difference for the corn market outlook.
Consider what happens, he said, when the projected 2012 area harvested includes 88.9 million acres, down from the 89.1 million acres in May, with a yield of 166 bushels per acre, for a total production of 14.75 bb.
This leads to a total supply of 15.62 bb, down from 15.656 bb in May.
When combined with a total projected demand of 13.775 bb, ending stocks of corn are projected at 1.845 bb.
This would lead to an ending stocks-to-use ratio of 13.4 percent for 2012-2013. That’s up from 6.7 percent for 2011-2012 and 5 percent in 1995-96.
“This is a much more relaxed supply-demand situation, but so much of it hinges on that projected yield of 166 bushels per acre,” said Newsom. He said the 2012 corn condition index is well below 2011 levels.
“When you look at the five-year average, we are running at 9 to 10 percent below for this point in the growing season. This isn’t expected to change, given that the weather forecast is hot and dry across much of the Corn Belt.”
What would happen if a lower yield of 149.2 bushels per acre is plugged into the projected corn supply and demand table? This would lead to a total production of 13.261 bb and would drop total supplies to 14 bb.
If demand holds steady at 13.775 bb, ending stocks would drop to 246 million bushels, leading to an ending stocks-to-use figure of 1.8 percent.
“Demand could be the key,” said Newsom, who noted that corn demand for ethanol production could drop if corn prices rise. In addition, overall gasoline demand has been down at a time that usually shows normal seasonal growth.
On the soybean side, stocks were up 667 million bushels, according to USDA’s latest update, despite the market projecting tight soybean stocks for the 2012-13 marketing year.
Hitting the trendline yield could be tough this year, however, said Newsom, who noted that it will be very difficult to get a national average yield of 43.9 bushels, especially with soybean crop conditions running well below the five-year average.
At this rate, corn and soybean acres are not enough to rebuild stocks, given the current weather and crop conditions, Newsom added. “Going forward, the markets are all going to come down to weather.”
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