Demand shrinks USDA grain stocks estimates

Demand shrinks USDA grain stocks estimates

Increased ethanol, export and crush demand tighten USDA's projected supplies of U.S. corn and soybeans.

SOYBEAN stocks are still extremely tight despite a return to trend-line yield, and corn stocks are likely to finish the 2013-14 marketing year slightly smaller than traders had anticipated.

In its December "World Agricultural Supply & Demand Estimates" (WASDE) report, the U.S. Department of Agriculture increased demand for corn and soybeans in a number of categories, including corn used for ethanol, the domestic soybean crush and exports of both corn and soybeans. Those changes, along with some other minor adjustments to the two crops' balance sheets, led to a 95 million bu. reduction in projected corn ending stocks and a 20 million bu. reduction in soybean stocks.

According to Jerry Gidel at Rice Dairy, the current WASDE implies a corn stocks-to-use ratio of 13.7%, more or less doubling the ratio from the 2012-13 crop. At 1.792 million bu., the estimated carryout is a product of an additional 3.2 billion bu. of corn produced this year (Table 1).

USDA increased its estimate of corn used for ethanol by 50 million bu., based on strong usage during the first three months of the current marketing year. Refiners are concerned about possible changes to the renewable fuel standard's ethanol mandate, but the trade realizes that demand for renewable fuels will likely remain near 13 billion gal. of fuel regardless of the mandate.

Even so, with cheaper corn prices this year, ethanol producers are processing ethanol at their strongest pace in nearly two years.

USDA did not change its forecast of feed and residual usage or its food and seed usage estimates, but it did add 50 million bu. to the export forecast based on strong performance thus far and improved competitiveness of U.S. corn this season due to lower prices.

Cheaper corn has made imports into the U.S. more attractive as well. USDA increased its estimate for corn imports by 5 million bu., based on increased global production.

"With a record crop now estimated for Canada, additional quantities of Canadian corn are expected to find their way into the U.S. market," the report explains. Canada and the U.S. together account for an additional 1.8 million metric ton increase in global exports.

Canada and the Ukraine each posted 1.0 mmt increases in production this season, and total global corn production is now up 101.4 mmt from last year. At the same time, global 2013-14 coarse grain consumption was raised 4.3 mmt, with corn feeding raised for Canada, the European Union and the Ukraine.

In terms of the soybean balance sheet, USDA raised its estimate of imports, bumping up the total supply of beans by 10 million bu. However, increased usage more than offset the increased volume of soybeans available, with export demand increased by 25 million bu. and the domestic crush up an additional 5 million bu. (Table 2).

The sum of those changes was a 20 million bu. reduction in soybean ending stocks and a projected stocks-to-use ratio of just 4.6%, barely larger than last year's extremely tight pipeline. Traders had anticipated the increased export figure, so the smaller stocks number was not a surprise.

What the stocks figure implies, however, is that there is little margin for error in the U.S. next season, nor in the South American production cycle that is currently in full swing. Brazil is expecting a potential record crop, and USDA estimated global soybean production at a record 284.9 mmt, up 1.4 million due to increases for Argentina and Canada.

Argentina's production is projected to be 54.5 mmt, up 1.0 million due to a larger projected area planted. Brazil's crop is estimated to be 88.0 mmt.

Gidel noted that corn planting in Argentina has been sluggish due to heavy rains, with planting now 25-30% behind normal. That could take some bushels out of play, of course, as could any adverse weather in Brazil.

 

Market recap

By and large, the market took the WASDE report as an opportunity for profit-taking, with no real earth-shattering changes to the balance sheet for either corn or soybeans.

Corn prices on last Thursday's settlement were up slightly from the previous week, but concerns over the sustainability of current soybean exports led to a sharp drop in prices, down 20 cents from midweek post-report highs.

The average of analysts' pre-report estimates was fairly close to USDA's actual projections, although corn and soybean stocks were slightly smaller than expected for both domestic and global supplies.

One of the major issues developing in the market this month is China's rejection of four U.S. corn cargoes due to unapproved genetically modified corn, with another three rejections possible, according to a report from Reuters late Thursday. In total, more than 180,000 mt of corn has been turned away, straining the complex trading relationship between two of the most powerful economies.

China's National Grain & Oils Information Center said last week it expects a record corn crop this year, up 5.9% to 217.7 mmt, potentially surpassing projected consumption of 197.0 mmt.

However, traders have been far more concerned with soybean exports as of late, with a near-record pace of commitments seen as potentially unsustainable given the tight U.S. soybean supply.

Here, again, China is a key concern, with traders fearing that the massive buyer of U.S. beans will cancel orders in an effort to temper prices.

According to U.S. Census Bureau data released last week, the U.S. exported a record $28 billion in soybean products during the 2012-13 marketing year, an increase of 19% from the previous year. The industry shipped 1.7 billion bu. of soybeans abroad, including more than 1.3 billion bu. of whole beans and 454 million bu. as soybean meal.

China was the top customer for whole soybeans, buying 772 million bu. and far exceeding the next-largest customer, Mexico, at 98 million bu.

Total commitments through Dec. 12 account for 1.422 billion bu., compared with 1.092 billion at the same point last year. Accumulated shipments so far account for 698 million bu., compared with 645 million by the same date last year, according to USDA data.

 

1. U.S. corn supply/demand

 

-2012-13-

-2013-14-

 

USDA

USDA

USDA

USDA

 

Nov. est.

Dec. est.

Nov. est.

Dec. est.

Planting area, mil. acres

97.16

97.16

95.34

95.34

Harvested area, mil. acres

87.38

87.38

87.23

87.23

Yield, bu./acre

123.4

123.4

160.4

160.4

 

-Million bu.-

Initial stocks

989

989

824

824

Production

10,780

10,780

13,989

13,989

Imports

162

162

25

30

Total supply

11,932

11,932

14,837

14,842

Feed/residual

4,333

4,333

5,200

5,200

Food/seed

1,396

1,396

1,450

1,450

Ethanol

4,648

4,648

4,900

4,950

Total domestic

10,377

10,377

11,550

11,600

Exports

731

731

1,400

1,450

Total usage

11,108

11,108

12,950

13,050

Ending stocks

824

824

1,887

1,792

Stocks:use ratio, %

7.4

7.4

14.6

13.7

 

2. U.S. soybean supply/demand

 

-2012-13-

-2013-14-

 

USDA

USDA

USDA

USDA

 

Nov. est.

Dec. est.

Nov. est.

Dec. est.

Planted area, mil. acres

77.20

77.20

76.49

76.49

Harvested area, mil. acres

76.16

76.16

75.69

75.69

Yield, bu./acre

39.8

39.8

43.0

43.0

 

-Million bu.-

Initial stocks

169

169

141

141

Production

3,034

3,034

3,258

3,258

Imports

36

36

15

25

Total supply

3,239

3,239

3,413

3,423

Crush

1,689

1,689

1,685

1,690

Seed

89

89

87

87

Residual

1

1

22

22

Total domestic

1,779

1,779

1,793

1,799

Exports

1,320

1,320

1,450

1,475

Total usage

3,098

3,098

3,243

3,274

Ending stocks

141

141

170

150

Stocks:use ratio, %

4.5

4.5

5.2

4.6

Sources for Tables: USDA, Rice Dairy.

 

Volume:85 Issue:51

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