Stocks end up bullish for corn

Stocks end up bullish for corn

- USDA reports larger 2012 corn and soybean production. - Quarterly corn, soybean stocks lower than expected. - U.S. ending stocks pro

AS they had for the latter half of 2012, the markets girded for a bearish surprise when the U.S. Department of Agriculture released several crop reports last Friday.

The Jan. 11 reports were indeed a big event in that, for the first time, USDA released its major grain and oilseed reports at noon (EST) rather than the usual 8:30 a.m. that had been the schedule for several years.

Making the event even more noteworthy was the fact that the release involved four major reports of interest: "Crop Production," "World Agricultural Supply & Demand Estimates" (WASDE), quarterly "Grain Stocks" and "Winter Wheat Seedings."

With traders selling off soybeans for four sessions in a row heading into Jan. 11 and corn essentially trading sideways (though with a higher tone) through last Thursday, it was evident that the market was expecting -- or at least prepared for -- a bearish surprise.

It didn't happen.

In fact, USDA gave the market a corn stocks figure that market analyst Arlan Suderman described as "the most bullish number I've seen from USDA thus far."

The quarterly estimate of grain stocks revealed that USDA found 8.030 billion bu. of corn in storage as of Dec. 1, 2012. The market was expecting the agency to find 2.5 million bu. more corn. Soybean stocks, likewise, came in smaller than expected, but analysts had the wheat stocks figure pretty well pegged (Tables 1-4).

Similarly, the WASDE report projected 2012-13 corn ending stocks smaller than traders had expected and smaller than USDA's December estimate of 647 million bu., meaning that an already tight corn market is getting tighter by the day.

Season-ending stocks for soybeans, on the other hand, were slightly larger than the market had expected, although not by much, and they also came in slightly larger than the 130 million bu. USDA had estimated in December.

The market had clearly anticipated a much larger soybean number, with soybean prices shedding 15 cents last Friday prior to the noon report release.

With stocks still tight for both corn and soybeans, demand remains a critical concern.

While export data last week were disappointing, USDA, in fact, increased its estimate of total soybean use by more than 1% from the December estimate and, likewise, bumped up corn use by nearly 1%.

Perhaps the biggest shift in the corn balance sheet was an increase in domestic feed use that more than offset the slightly lower export projections.

For soybeans, the balance sheet for exports held steady, while crush and residual use increased slightly.

Where the markets were tempered, on the other hand, was in the production figures USDA released for the 2012 crop. In addition to reporting more harvested acres for both corn and soybeans than the market expected, USDA also raised production estimates for both crops.

For soybeans, this was the trigger to send the market lower after the reports' release and seemed to confirm the bearish pre-report sentiment despite the smaller quarterly stocks and unabated demand.

Given the additional 44 million bu. in the January soybean production estimate than USDA projected in December, traders assumed that without a major hiccup in South American production, the U.S. would have plenty of soybeans to meet the steady demand.

The potential exists, however, for both markets to turn higher in the coming days.

Before the reports were released, Rice Dairy analyst Jerry Gidel noted that the market had even already factored in the lower overseas demand due to higher prices, and with soybean ending stocks still hovering around 130 million bu., it's clear that the U.S. can't afford to have a poor production season in 2013.

 

1. U.S. crop production and harvested acreage

 

USDA

Avg.

Trade

USDA

Jan. est.

est.

range

Dec. est.

Corn

Production, billion bu.

10.780

10.665

10.325-10.800

10.725

Yield, bu./acre

123.40

122.57

121.33-124.00

122.30

Harvested acres, million

87.375

86.993

84.564-87.700

87.00

Soybeans

Production, billion bu.

3.015

2.988

2.935-3.040

2.971

Yield, bu./acre

39.60

39.55

38.90-40.10

39.30

Harvested acres, million

76.104

75.548

74.600-75.900

75.700

 

2. Dec. 1 quarterly stocks, billion bu.

 

USDA,

Avg.

Trade

USDA,

2012

est.

range

2011

Corn

8.030

8.283

8.045-9.500

9.647

Soybeans

1.966

1.980

1.915-2.056

2.370

Wheat

1.660

1.658

1.175-1.800

1.663

 

3. U.S. 2012-13 ending stocks, million bu.

 

USDA

Avg.

Trade

USDA

Jan. est.

est.

range

Dec. est.

Corn

602

667

489-764

647

Soybeans

135

133

107-150

130

Wheat

716

741

637-792

754

 

4. U.S. winter wheat seedings, million acres

 

USDA

Avg.

Trade

USDA,

Jan. est.

est.

range

2012

Hard red

29.100

30.185

29.000-31.000

29.863

Soft red

9.420

9.039

8.217-10.000

8.120

White

3.270

3.458

3.300-3.920

3.341

Total wheat

41.820

42.687

41.716-44.650

41.324

Source for Tables: U.S. Department of Agriculture.

 

Market recap

Heading into last Friday's reports, the markets had diverged, with corn heading higher for four sessions and soybeans trending lower.

With the realization that corn demand did not wane at the relatively high price levels of late 2012 and that stocks were even tighter than expected, futures trended higher after the reports. By 2 p.m. (EST), prices had gained 10-17 cents on the front three contracts, although the deferred issues were unchanged to slightly lower as traders continue to assume that farmers will plant even more acres of corn in 2013 than they did in 2012.

For soybeans, on the other hand, the market initially sold off up to 20 cents on the report of slightly larger ending stocks and a 2012 production figure topping 3 billion bu. Prices moderated in the nearby contracts toward the close, but the initial trade reaction to the data was slightly bearish.

Wheat prices, meanwhile, moved 12-20 cents higher on the session as USDA reported tighter-than-expected ending stocks and smaller-than-expected winter wheat acreage.

Export news was largely disappointing, though USDA's Foreign Agricultural Service reported sales of more than 100,000 metric tons of corn last Monday and reported soybean sales on three of five days last week.

The markets largely shrugged off those sales, however, preferring to square positions and short the market a bit ahead of Friday's reports.

Brazil's Ministry of Agriculture and government agency CONAB announced Jan. 10 that domestic grain production will likely be 8.6% higher than the previous year, with the soybean crop potentially 24.5% larger at 82.68 million metric tons. In the Jan. 11 WASDE, USDA projected Brazil's crop to be 82.5 mmt.

China, meanwhile, continued to exhibit an almost insatiable demand for soybeans, with official data reported last week showing that the country imported a record 58.38 mmt last year, up 11.2% year over year. In December, China imported 5.89 mmt, the second-largest monthly total on record.

Analysts expect soybean demand from China's livestock and crushing sectors to continue growing in 2013, perhaps to the tune of 61 mmt.

Meanwhile, the markets continued to watch developments on the Mississippi River as storms and water from melting snow abated fears that the U.S. Coast Guard would be forced to halt commercial barge traffic between St. Louis, Mo., and Cairo, Ill., sometime in early January.

Sen. Dick Durbin (D., Ill.) toured the area near Thebes, Ill., early in the week to inspect the progress that has been made on removing the rock pinnacle impediments there and noted that the Army Corps of Engineers was making "good progress" on the project.

Durbin said the Corps offered "a very positive briefing," and he is optimistic about the ability to continue transportation on the river.

The Coast Guard reported late last week that forecasts for additional rainwater were improving and that the river gauge readings near St. Louis and Thebes were both improving, likely averting a major river shutdown.

 

Ingredient watch

For the most part, 2013 came in like a lamb in the ingredient trade. Corn and soybeans essentially treaded water during the first two weeks of the new year, with soybean meal prices hovering near $400 per ton.

Similarly, animal proteins mostly were status quo last week.

Renderers still had more than adequate supplies of products coming from packers, and demand has held relatively steady, albeit lower than necessary to sop up available supplies.

Some poultry plants in the Southeast may be starting to increase their inclusion rates of some animal proteins, which helps the oversupply matter, but that appears to be a regional phenomenon at this point -- one that merchandisers hope will spread to other parts of the country sooner rather than later.

Protein companies continued to examine other export opportunities for U.S. meat and bone meal, with some buyers in Africa and the Pacific Rim showing an interest.

Prices for animal-derived products could trend higher in the coming weeks pending a seasonally slower slaughter pace.

Volume:85 Issue:02

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