THE U.S. Department of Agriculture's April 9 "World Agricultural Supply & Demand Estimates" report projected corn stocks of 1.331 billion bu. at the end of the current marketing year, continuing a trend of lower ending stocks estimates for five consecutive months.
The projections are now 556 million bu. smaller than the November 2013 projection, according to Darrel Good, agricultural economist at the University of Illinois.
Compared to consumption projections made in November, Good said current projections are 100 million bu. larger for corn used for ethanol production, 350 million bu. larger for exports and 100 million bu. larger for feed and residual use. Minor changes were made to the estimates for beginning stocks, for imports and for other domestic consumption.
"With about 4.5 months left in the marketing year, there is opportunity for the consumption projections to change again," Good said.
In the case of ethanol use of corn, USDA projects consumption during the current marketing year to be 5.0 billion bu., which is 352 million bu., or 7.6%, larger than the previous year and equal to consumption in the 2011-12 marketing year.
Based on monthly U.S. Energy Information Administration estimates of ethanol production for September 2013 through January 2014 and weekly estimates for February and March, ethanol production in the first seven months of the marketing year was 11.7% larger than production during the same period last year.
Good explained that this comparison is a little misleading since year-over-year production was down sharply in the first half of the 2012-13 marketing year and near the previous year's level in the last half.
Still, to reach the USDA projection of corn used for ethanol production this year, he said ethanol production during the last five months of the corn marketing year needs to be only 2% larger than production in the same period last year.
With a slight increase in domestic ethanol consumption, an improvement in domestic rail logistics and a continued positive trade balance, it appears that ethanol production — and, therefore, corn consumption — could exceed the current projection.
Corn exports during the current marketing year are projected to be 1.75 billion bu. USDA reported cumulative export inspections through the first 31.7 weeks of the year at 991 million bu. Official Census Bureau estimates of exports through the first six months of the year exceeded export inspection estimates by 28 million bu.
If that margin has persisted, exports during the remaining 20.4 weeks of the year will need to total 731 million bu. in order to reach the USDA projection for the year. That's an average of 35.8 million bu. per week.
Good reported that exports have averaged 32.1 million bu. per week so far this year, and inspections averaged 46.2 million bu. per week for the seven weeks ended April 10. As of April 3, USDA reported that 707 million bu. of corn had been sold for export but not yet shipped. Those sales represent almost 97% of the exports needed to reach the USDA projection.
"While some sales may be canceled or rolled to next year, it appears that there is room for exports to exceed even the most recent USDA projection," Good suggested.
"As usual, the most uncertainty about corn consumption centers on the feed and residual use category," Good added. "Uncertainty is fostered by a number of factors. First, there is no ongoing measurement of corn used in the feed and residual category. Implied use is revealed quarterly based on USDA's quarterly 'Grain Stocks' report."
Second, Good said feed use of corn is influenced by the rate of feeding other feed ingredients, and the use of many of those ingredients is not measured.
"Third, there is not a strong correlation between the number of grain-consuming animal units estimated by USDA and the magnitude of feed and residual use, which implies a varying level of residual use from year to year," Good explained.
In general, Good said residual use appears to be positively correlated to crop size. For the current year, USDA projects feed and residual use of corn at a six-year high of 5.3 billion bu., 22.3% larger than last year.
"Some have questioned how use can actually increase by (more than) 20% year over year," he said. "However, estimated use last year was at a 24-year low and likely reflected an abnormally small residual use associated with the very small crop of 2012."
The large 2013 crop would point to much greater residual use this year, according to Good. Additionally, he pointed out that considerably less wheat will likely be fed this summer than was fed last summer.
"The June 1 corn stocks estimate to be released on June 30 will reveal the level of consumption during the third quarter of the year. For now, the USDA projection of 5.3 billion bu. appears attainable," Good said in regard to the corn feed and residual use figure.
"Based on current and expected consumption rates, it appears that corn consumption during the current marketing year could exceed the most recent USDA projection. Even if higher rates are confirmed over the next four months, the magnitude of year ending stocks will remain a mystery until the Sept. 1 'Grain Stocks' report is released on Sept. 30," he said.
The magnitude of those stocks, he explained, will take on a little more importance due to the projected decline in corn acreage this year and what appears to be a slow start to the planting season.
Crop progress report
Last week, USDA's National Agricultural Statistics Service released the first 2014 "Crop Progress" report showing corn acreage. With the Midwest continuing to experience cool, wet and, in some cases, snowy conditions, USDA reported that only 3% was planted in the top 18 states, which represented 91% of corn acreage in 2013 (Figure).
Texas has planted 57%, while North Carolina was at 20% and Kansas was at 11%. All other states showed no progress or a single-digit increase, but last year at this time, only 2% of corn had been planted. Both 2013 and 2014 corn planting rates are behind the five-year average of 6%.
Bryce Knorr, senior editor at Farm Futures, said the numbers should increase because the forecasts are calling for warm, dry weather in much of the Midwest in the near future. Soybean planting had not commenced, but Knorr said he expected it to soon.
"Market talk is expecting a good surge in U.S. plantings this coming week, with corn planting possibly as high as 33% of the crop by April 27," said Jerry Gidel, market analyst at Rice Dairy. "However, Midwest soil temperatures may be a hindrance to this objective."
Gidel said he expects corn planting to rise by three points to reach 6% nationwide by April 27, but he noted that the U.S. corn seeding level could be at 21-24% by then, unless the Midwest has a wide-open seven days of warm weather.
USDA also reported that winter wheat conditions declined, with 68% at fair, good or excellent, which is slightly lower than the prior week's 71%.
Soybean markets were trying to slow demand last week, but last Tuesday's USDA crush report — which showed crush levels at 153.84 million bu. over last month — provided a reality check for the trade as it was expecting 146.1 million bu.
According to Arlan Suderman, senior market analyst for Water Street Solutions, the U.S. needs to import 80 million bu. of soybeans to keep up with USDA's target crush pace by the end of the year. Current crush numbers exceed the pace needed by 63 million bu.
"The U.S. has never seen anything like that," Suderman explained. "Processors are complaining that farmers don't have much more to sell."
Because of this, May soybean contracts climbed above $15/bu., the highest price since July 2013, according to Suderman.
May soybean prices closed at $14.7625/bu. last Monday but rallied 25 cents to close at $15.0125/bu. on Tuesday. Despite indications that profit-taking was going to pull soybean prices lower before the holiday weekend, May futures closed strong last Thursday at $15.14/lb.
With ethanol stocks down and ethanol production up, corn prices should have been higher last week, but prices were actually weaker as the trade focused on spring corn planting. Nearby corn prices last Monday and Tuesday closed at $5.03 and $5.0375/bu., respectively. The corn markets traded lower on Wednesday and Thursday and closed at $4.9475/lb. on Thursday.
Fears of war due to continued violence in the Ukraine and then a freeze threat caused two different rallies in the wheat market last week.
On April 11, the nearby wheat market closed at $6.6025/bu., but by last Monday's close, May contracts were at $6.7875/bu. Tuesday brought an even higher $7.0175, but the markets weren't able to sustain that level and closed lower on Wednesday at $6.9125/bu.