Large grain stocks figures shock trade

Large grain stocks figures shock trade

Soybeans steal show again as USDA reports larger stocks and acreage numbers than anticipated.

THE U.S. Department of Agriculture's June "Grain Stocks" report numbers, released on June 30, revealed much larger June 1 stocks of both corn and soybeans, shocking the trade.

Additionally, the "Acreage" report revealed a much larger 2014 soybean acreage number than the trade had anticipated.

June 1 corn stocks were estimated at 3.854 billion bu., approximately 132 million bu. more than the average trade projection (Table 1).

Darrel Good, an agricultural economist at the University of Illinois, said the larger-than-expected estimate implies that feed and residual use of corn during the third quarter of the 2013-14 marketing year was about 40 million bu. less than during the same period last year.

"The disappointing level of use suggests that the USDA projection of feed and residual use of 5.3 billion bu. for the year may be too high," Good noted.

However, he said that projection would be updated in the July 11 "World Agricultural Supply & Demand Estimates" report, which could change the story.

The recent slowdown in the pace of corn export shipments also points to a slightly smaller total for the year than the 1.9 billion bu. currently projected by USDA, Good noted.

"Those declines may be partially offset by more corn than projected (being) used for ethanol production," he added. "However, the bottom line is that old-crop corn supplies are fully adequate to meet expected consumption needs through the summer, particularly with a large and early-maturing corn crop coming on."

Soybean stocks as of June 1 were estimated at 405.2 million bu., 27 million bu. more than the average trade guess.

Good mentioned that some of the surprise may have been due to larger-than-expected soybean imports during May. He said the Census Bureau will release the estimate of May imports on July 3, but the USDA figure implies that the 2013 U.S. crop may have been underestimated. However, he said, this will not be known until the release of the Sept. 1 stocks estimate.

"Like corn, the stocks estimate means that old-crop stocks of soybeans are fully adequate to meet expected consumption needs through the summer months, particularly with prospects for a very large soybean harvest this fall," he added.

The June "Acreage" report revealed that corn producers planted 91.641 million acres of corn this year, 3.7 million fewer acres than were planted last year but very close to the intentions stated in the March report (Table 2). Acres of corn harvested for grain are projected to be 83.839 million, 3.8 million fewer acres than harvested last year.

"Early-season weather and crop conditions, however, point to a very high U.S. average corn yield, perhaps exceeding the record yield of 164.7 bu. of 2009," Good said. "A yield of 165 bu. would result in a crop of 13.833 billion bu., slightly less than last year's record crop of 13.925 billion bu."

With a decent weather forecast expected through July, Good suggested that the average corn yield could be even larger than 165 bu.

"Regardless, it now appears that the 2014 crop will be large enough to lead to a substantial increase in corn stocks by the end of the 2014-15 marketing year," he said. "Conditions now point to an average price near $4.00(/bu.) during the crop year ahead."

According to the "Acreage" report, soybean producers had planted or intend to plant 84.839 million acres of soybeans this year. This is 8.306 million acres more than were planted last year and an increase of 3.347 million over what was reported in USDA's March "Planting Intentions" report. Acreage exceeded March intentions in several states, with the largest difference (500,000 acres) occurring in both Illinois and Iowa.

"We knew the number was certainly going up compared to 2013; it was just a surprise by how much," said Scott Irwin, professor of agriculture economics at the University of Illinois, also calling the soybean acreage number "the real bombshell" of the report. The average trade estimate was significantly lower, at 82.154 million acres.

The harvested area of soybeans is projected to be 84.058 million acres, almost 8.2 million more than harvested last year. Current crop and weather conditions have created expectations for a record national average soybean yield of close to 45 bu. per acre, which would result in a crop of 3.78 billion bu. — nearly 500 million bu. larger than the 2013 crop.

"There is some chance that planted and harvested acreage will fall short of the June estimates due to extremely wet conditions in northern growing areas," Good noted. "USDA's reports of prevented plantings will eventually give some indication of that possibility."

Even with a possible decrease in soybean acres, a record soybean harvest is expected to rebuild stocks.

"Stocks could well exceed 400 million bu. on Sept. 1, 2015. Such a surplus points to a substantial year-over-year decline in the average price of soybeans, from over $13(/bu.) this year to perhaps $10.50 next year," Good explained.

 

Crop progress

USDA's June 29 "Crop Progress" report continued the trend of providing positive news regarding corn and soybean growth as corn silking and soybean blooming were reported in key growing regions.

Corn silking was reported to be at 5%, 2% ahead of 2013 but 4% behind the five-year average. Corn condition was improving despite more torrential rains in the Midwest. The amount of corn considered in good condition decreased from 56% to 55% during the period, but corn in excellent condition increased from 18% to 20%.

Many soybean plants were still emerging, while others had begun the blooming stage. The amount of soybeans emerged increased from 90% to 94%, which was exactly even with the five-year average. USDA revealed that 10% of soybeans were in the blooming stage, an increase of 7% over 2013 and equal to the five-year average.

Soybeans considered in good condition decreased from 58% to 57%, but beans in the excellent category increased from 14% to 15%.

 

Market recap

The USDA reports provided plenty of surprising news for the markets last week as bearish data sent prices sharply downward.

"The market is reacting to a bearish trifecta of reports that came from USDA," said Arlan Suderman, senior market analyst for Water Street Solutions.

Despite the market trading sharply lower following the reports, Suderman said it was able to somewhat stabilize last Tuesday afternoon.

With news of larger old-crop stocks and a significantly higher 2014 soybean acreage number, the soybean market lost significant ground following the reports. On the Friday before the report release, July soybeans settled at $14.32/bu., but by last Monday afternoon, prices had plunged as low as $13.7275/bu. and closed at $14.00/bu. The markets steadied last Tuesday and Wednesday, but July contracts still remained at or around $14.00/bu.

Corn prices were dragged lower by the plunging soybean prices, but the larger-than-expected June 1 stocks also added pressure to the market.

On June 27, nearby corn prices closed at $4.43/bu., but by last Monday's close, they had dropped more than 20 cents to settle at $4.2425/bu. Through the rest of the week, corn prices continued to struggle, trading midday on Wednesday at around $4.185/bu.

Suderman suggested that it wouldn't take much to change the current trend.

"Corn acres are tight enough that if we had adverse weather moving in, things could really light up pretty quickly in the corn market," Suderman said.

While there was no evidence of that, the July 4 holiday weekend has historically provided surprises on the weather front, according to Suderman, and that could affect the markets.

While USDA's reports temporarily shifted the market's focus away from weather, Farm Futures senior editor Bob Burgdorfer said he expected that weather would again come into play as midwestern crops wait for a needed break from the parade of rain showers.

Suderman said the trade thinks "rain makes grain," but he warned that the wet conditions and cooler temperatures forecasted for the first week of July would provide favorable conditions for white mold disease to grow on soybeans.

 

 

1. U.S. quarterly stocks on June 1, billion bu.

 

USDA

Avg.

Trade

USDA

USDA June

 

June est.

est.

range

March est.

2013 final

Corn

3.854

3.722

3.046-3.950

7.006

2.766

Soybeans

0.405

0.378

0.334-0.440

0.992

0.435

Wheat

0.590

0.598

0.560-0.633

1.056

0.718

 

2. U.S. 2014 corn, soybean and wheat plantings, million acres

 

USDA

Avg.

Trade

USDA

USDA June

 

June est.

est.

range

March est.

2013 final

Corn

91.60

91.725

91.000-92.200

91.691

95.365

Soybeans

84.80

82.154

80.500-84.000

81.493

76.533

Wheat

56.50

55.818

54.800-57.000

55.815

56.156

Sources for Tables: Reuters, USDA.

 

Volume:86 Issue:27

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