Shedding light on unknowns

Shedding light on unknowns

- Planting nearly completed, but emergence lagging. - USDA will release planting and stocks reports June 28. - Weather remains biggest

TO paraphrase former Defense Secretary Donald Rumsfeld, there are "known knowns" and "known unknowns."

Here are the known knowns about the grain and oilseed markets at this point in the growing season:

* Corn planting is virtually completed, and at least 92% of the crop is emerged;

* Sixty-four percent of the corn crop is rated good to excellent, slightly ahead of last year;

* Soybean planting is at least 85% completed and more than two-thirds emerged, and

* Sixty-five percent of the soybean crop is rated good to excellent, well ahead of last year.

A few other things are known for sure, namely that soybean demand remains red hot, old-crop stocks of corn and soybeans started flowing off the farm in recent weeks as prices improved and the size of both crops this season is still potentially extremely large.

So, what are the known unknowns — in other words, the things we know we don't know? The first and most obvious is that we're not 100% certain as to what acres "switched" from corn to soybeans in the early days of June or were, perhaps, left fallow altogether.

University of Illinois crop science professor Emerson Nafziger said research indicates that corn planted after June 15 will likely produce only 50% of maximum yield, generally because unpredictable weather throughout the summer months can yield both bumper crops and outright disasters.

For soybeans, on the other hand, planting date studies show that beans might be profitably planted somewhat later than corn, but not by much.

"As with corn, we would expect soybeans planted at the end of June or early in July to yield half of what they would if planted early," Nafziger explained. "This is about two weeks later than the normal double-crop planting date in southern Illinois."

Double-crop soybeans have averaged 72% of full-season soybean yields over the past decade at the University of Illinois' Brownstown Agronomy Research Center, giving some indication of yield lag associated with late-planted beans.

The U.S. Department of Agriculture will release its update of planted acres June 28. Analysts generally expect USDA to reduce its estimate of corn acres and to increase its estimate of soybean acres, at least slightly.

Informa Economics, for example, pegged corn acreage last week at 95.262 million acres, compared with USDA's March estimate of 97.3 million. Allendale projected even smaller corn acreage, at 94.364 million.

For soybeans, Informa estimated plantings at 77.756 million acres, compared with USDA's 77.1 million, and Allendale estimated a whopping 79.240 million acres.

Of course, spring wheat planting is also in the mix, but farmers struggled to get that crop in the ground as well. USDA's March estimate of wheat planting intentions was 12.4 million acres; Informa estimated that 11.791 million were actually planted, and Allendale estimated 12.015 million.

Along with the planting report, USDA will also release its quarterly grain stocks report, which will answer another known unknown: How much supply was left in the tank as of June 1?

It has been known for quite some time that the remaining pipeline of corn and soybeans is extremely small, but last quarter's report showed significantly larger stocks than traders had anticipated (Feedstuffs, April 1).

Predicting what USDA will reveal in either report, however, is extremely difficult. While the June 28 reports will set the tone for the market for the rest of the summer, University of Illinois economist Darrel Good said the market should be prepared for potentially big surprises.

"Expectations vary considerably among analysts because estimates of consumption during the quarter vary, and some analysts try to anticipate surprises," Good said. "This is particularly the case for corn because feed and the residual use of corn is not estimated on a continuing basis. Instead, it is revealed by the stocks estimate."

A stocks surprise Friday would indicate that feed and residual use occurred either more rapidly or more slowly than projected.

Good said for corn, March 1 stocks were pegged at 5.399 billion bu.; imports tallied roughly 30 million bu. from March through May, meaning the total available supply was roughly 5.429 billion bu. Export inspections, on the other hand, were likely 181 million bu.; corn used for ethanol was likely 1.175 billion, and domestic food and industrial use was somewhere around 375 million.

So, the question then becomes feed usage — a true known unknown. Current USDA projections are 145 million bu. smaller than last year, at 4.4 billion bu. on an annual basis. If that projection is correct, Good said consumption for the quarter was likely 2.571 billion bu., and June 1 stocks are likely 2.858 billion.

USDA pegged March 1 soybean stocks at 999 million bu. Good projects that, based on available export and crush data, consumption would have been nearly 571 million bu., leaving June 1 stocks at 438 million bu.

 

Market recap

Traders spent a good deal of last week positioning themselves for this week's activity, although the markets did react to USDA's "Crop Progress" report June 18, and the broad range of commodities trimmed positions after Federal Reserve chair Ben Bernanke indicated that the Fed would likely begin tapering off its bond purchases in the coming months.

The National Soybean Processors Assn. reported a May soybean crush of 122.6 million bu., down from last year's 138.3 million. Even so, traders had expected a crush of only 118.1 million bu. during the month, so the report was somewhat friendly to the market.

Soybean oil stocks, meanwhile, came in below the trade's lowest estimate prior to the monthly report. The soybean complex firmed on the news.

Ethanol production is also continuing to run near the highest volumes of the year; last week's report from the Energy Information Administration showed production of 873,000 barrels per day, requiring 13.237 million bu. of corn daily.

Both corn and soybean new-crop contracts hit a high water mark for the week last Wednesday and traded slightly lower for the remainder of the week, although prices firmed somewhat in the early trade Friday.

 

Ingredient watch

Sources told Feedstuffs last week that U.S. ruminant meat and bone meal is expected to be allowed into Indonesia soon. The region had once been a great export market for U.S. renderers, but trade was disrupted more than a year ago over bovine spongiform encephalopathy-related fears.

Prices firmed on the news. With slower pork slaughter rates last week, prices for pork-derived ingredients also trended higher.

 

Biotech wheat case

USDA has tested more than a dozen wheat samples as part of its investigation into an Oregon field where glyphosate-tolerant volunteer wheat was discovered last month. As of June 20, more than 100 tests had turned up negative for the experimental trait Monsanto had developed for the wheat market, prompting even more questions.

The investigation appears to be focused on a storage facility in Colorado, where USDA is working to determine if any of the experimental wheat turned up at the National Center for Genetic Resources Preservation. The center is designed to collect and preserve various agricultural genetic resources.

Officials at the center were unclear if they had ever received the unapproved wheat seed, according to published reports, and USDA said it is working to answer that question, too. Monsanto was scheduled to update reporters on the situation late Friday.

 

Wild weather

One of the biggest known unknowns facing the 2013 corn and soybean crops is Mother Nature. At this point last season, both crops looked pretty good, but a record drought soon followed and took a massive bite out of production.

Some climatologists fear that the U.S. could be entering a multi-year drought, although precipitation has improved prospects for soil moisture during the last quarter (Figure 1). Even so, the National Oceanic & Atmospheric Administration noted that the spring was both cooler and slightly wetter than normal.

For the Corn Belt, temperatures were significantly cooler than normal (Figure 2). Global temperatures for May, on the other hand, were the third highest on record.

Shedding light on unknowns

Volume:85 Issue:25

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