Lower USDA corn, soybean stocks strengthen markets

Lower USDA corn, soybean stocks strengthen markets

Lower corn stocks are largest surprise in USDA March 31 reports.

PRODUCERS surveyed across the U.S. intend to plant an estimated 81.5 million acres of soybeans in 2014 (Table 1), up 6% from last year and an all-time record high, according to the "Prospective Plantings" report released March 31 by the U.S. Department of Agriculture's National Agricultural Statistics Service.

If planting goes well, USDA predicts that soybeans will surpass the previous record of 77.5 million acres planted in 2009.

The surveys also revealed that corn growers intend to plant 91.7 million acres in 2014, down 4% from last year and the lowest acreage planted since 2010.

While the "Prospective Plantings" report, which was based on surveys conducted during the first two weeks of March from a sample of more than 84,000 farm operators across the U.S., held no real surprises, the "Grain Stocks" report revealed unexpected numbers for corn stocks, and that could become a factor for spring planting.

Purdue University professor Dr. Corinne Alexander said the trade estimates for grain stocks were pretty accurate; however, March 1 corn stocks were estimated at 7.006 billion bu., about 100 million less than the average trade guess (Table 2).

Alexander said lower corn stocks were the result of consistent growth in ethanol, export and feed usage. She said $4.00/bu. prices since the 2013 harvest were far too cheap and anticipated that the new numbers reported would provide sales opportunities in the $5.00-5.20/bu. range for corn.

As for planting, Alexander said the return of variable cost calculated on corn has improved to only a $12 difference between corn and soybeans. This, she explained, is a pretty big change from a month ago, when it was between $40 and $50 per acre.

Because of this difference, Alexander suggested that soybean plantings may not increase as much as expected. Since the margin isn't as large, she recommended that individual producers make planting decisions based on things like soil quality.

Purdue professor Dr. Chris Hurt said particularly for areas like central Illinois, central Indiana and Ohio, due to factors like higher-quality land and the narrowing return of variable cost, producers may not deviate too much on corn acreage. He did, however, emphasize that a cool, wet forecast could keep the acreage numbers fairly close to what USDA has estimated.

Dr. Darrel Good, an agricultural economist at the University of Illinois, suggested that the corn stocks estimate implied that feed and residual use of corn in the domestic market during the first half of the current marketing year totaled 3.851 billion bu. The question, he said, is whether that level will result in a change in USDA's projection of use for the year. The implied use accounts for 72.7% of USDA's most recent projection of 5.3 billion bu. for feed and residual use for the year.

Given the recent seasonal pattern of feed and residual use, along with the decline in the number of hogs and cattle on feed, Good said it seems unlikely that USDA will change the projection of feed and residual use for the year in the April "World Agricultural Supply & Demand Estimates" report. However, reduced wheat feeding this summer, along with a late corn harvest this fall, might result in slightly larger use.

March 1 soybean stocks were estimated at 992 million bu., about equal to both the average trade guess and the level of stocks a year earlier.

Good said the stocks estimate implies that feed, seed and residual use of soybeans during the first half of the marketing year totaled 145 million bu. That magnitude of use, he explained, is within the range of use in the previous five years and should not generate any speculation about the accuracy of USDA's 2013 production estimate.

"Overall, the nation's leading feed grain received a double boost with lower old-crop ending stocks and a slightly smaller 2014-15 output now being expected versus previous expectations," said Jerry Gidel, senior feed grains analyst for Rice Dairy.

In terms of state intentions for planting, the largest declines for corn are expected in North Dakota (900,000 fewer acres), Nebraska (down 550,000 acres) and South Dakota (down 400,000 acres). Intentions in Iowa are for a 400,000-acre increase in corn. Compared to last year's plantings, intentions are down 100,000 acres in Illinois and 200,000 acres in Indiana and Ohio.

Planting intentions point to harvested acreage for corn of about 84.4 million acres. A trend yield of 163.2 bu. per acre, then, would result in a crop of 13.775 billion bu. — 150 million bu. smaller than the 2013 crop.

Good said a crop of that size would likely lead to only a small buildup of inventories by the end of the 2014-15 marketing year and suggests that the average corn price next year might be only slightly less than the average of $4.50/bu. projected for the current year.

Producers reported intentions to plant a record 81.493 million acres of soybeans in 2014, which was about 300,000 more than expected, according to Good.

More acres are planned in all major producing states, with North Dakota leading the way with a 1 million-acre increase. Intentions exceed last year's plantings by 700,000 acres in Minnesota and by 600,000 acres in Nebraska. Of the major production states, intentions are less than last year's plantings only in Missouri.

Planting intentions point to a harvested soybean area near 80.7 million acres. A trend yield of 44.5 bu. per acre, then, would point to a crop of 3.59 billion bu. — 300 million bu. larger than the 2013 crop.

Good explained that a soybean crop of that size would likely lead to inventories in excess of 300 million bu. by the end of the 2014-15 marketing year and suggests that the average soybean price next year will be sharply lower than the average of $12.95/bu. projected for the current year.

With many variables in play, weather could become the determining factor for whether farmers plant more corn or more soybeans.

 

Market recap

Following the release of the March 31 USDA reports, the markets saw wide swings in nearby commodity prices, but for the most part, markets reacted positively. The good money flow into the commodity sector helped keep prices higher into last Thursday's close.

News of reduced corn stocks sent nearby corn prices above $5.00/bu. for Monday and Tuesday, but Arlan Suderman, senior market analyst for Water Street Solutions, was doubtful that the market could hold onto those prices.

He said until there is a legitimate threat to new-crop corn, he doesn't expect prices to go higher.

Last Wednesday's nearby corn prices settled at $4.9575/bu. as profit-taking ensued and strong demand wasn't able to sustain the higher prices. Corn prices were higher again on Thursday, however, and closed at $5.00/bu.

Gidel said the March 1 corn stocks number this year was 6 million bu. lower than last year, which prompted a generally neutral reaction by the trade initially.

However, U.S. export inspections released ahead of the quarterly stocks report that showed 18.8 million bu. of soybeans had left the country, and this renewed trade concerns about having enough soybeans available for the last five months of the U.S. crop year.

Gidel suggested that with only 54 million bu. of soybeans left to ship, USDA will likely increase its 2013-14 forecast by 15-30 million bu. in the upcoming April 9 supply/demand report update.

With news of continued tight stocks, soybeans tried to hit $15.00/bu. last Monday and Tuesday but were unable to reach the goal, which caused profit-taking and pulled the markets down sharply on Wednesday to close at $14.6225/bu. Soybeans led the crop markets higher on Thursday to recover much of what they lost in the previous session.

Higher soybean meal export sales encouraged buying, causing nearby prices to end the day higher at $14.7525/bu.

 

1. USDA prospective plantings, million acres

 

USDA est.,

Avg. trade

Trade

USDA

% change

 

March 30

guess

range

Ag Forum

from 2013

Corn

91.7

92.75

90.5-94.0

92.0

-3.9

Soybeans

81.5

81.1

78.5-83.6

79.5

+6.5

All wheat

55.8

56.3

54.8-57.7

55.5

-0.6

 

2. USDA quarterly stocks, billion bu.

 

USDA est.,

Avg. trade

Trade

 

March 30

guess

range

Corn

7.006

7.100

6.900-7.500

Soybeans

0.992

0.989

0.960-1.040

Wheat

1.056

1.040

0.980-1.100

 

Volume:86 Issue:14

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