Surging stocks shock market

Surging stocks shock market

- USDA reports far larger corn stocks than trade expected. - Planting intentions indicate largest corn acreage since 1936. - EU consid

THE U.S. Department of Agriculture's quarterly "Grain Stocks" report is always important to the grain markets, but the March report has garnered a reputation for being a major market-moving event.

Last week's report did not disappoint in that regard, shocking traders by finding much larger supplies of corn, soybeans and wheat than the market had anticipated.

May corn futures, in fact, dropped the 40-cent daily limit almost immediately after the noon release March 28 as USDA reported 5.399 billion bu. of corn on hand as of March 1, a far bigger supply than the 5.013 billion bu. analysts had predicted (Table 1).

For soybeans, prices fell nearly 50 cents on the day as USDA pegged stocks of 999 million bu., which also exceeded the 935 million traders had expected.

Such big swings in price are not unprecedented, of course.

In fact, since 2007, the March stocks report has precipitated an average single-day corn price change of more than 22 cents/bu., with an average price change in the week after the report of nearly 49 cents.

For each of the past two years, the single-day price change in the cash market for corn has been greater than 40 cents.

"The stocks report lived up to its volatile reputation, with all three major U.S. crops seeing larger-than-expected stocks compared to trade expectations," Rice Dairy chief feed grains analyst Jerry Gidel said. "These dramatic changes suggest that USDA's crop (production) levels were underestimated, given the quarterly shifts in disappearance that have occurred."

Nonetheless, stocks are still tight. Corn stocks are 10% smaller than a year ago, with on-farm storage down 16%. Soybean stocks, meanwhile, are 27% smaller than on March 1, 2012, with off-farm stocks down a whopping 34%.

Farm Futures senior editor Bryce Knorr said the report suggests lower-than-expected corn feeding during the second quarter of the marketing year and, perhaps, greater final 2012 crop production than estimated.

Gidel concurred, noting that USDA might have underestimated 2012 soybean yields by as much as 1 bu. per acre, given the change in soybean stocks and disappearance.

 

Planting intentions

Along with the stocks report, USDA released its annual "Planting Intentions" report, which summarizes the department's first survey of farmers' plans for the 2013 crop (Table 2). The report took a back seat to the stocks figures, though, as USDA's estimates were more or less in line with pre-report expectations.

Farmers are expected to plant 97.28 million acres of corn this year, up slightly from last year and 6% larger than 2011 planted area. If that estimate comes to fruition, it would mark the largest crop seeded since 1936, when farmers planted an estimated 102 million acres.

Soybean planted area, meanwhile, is forecasted to be 77.1 million acres, and, while smaller than last year, it's still potentially the fourth-largest planted acreage on record.

Cotton appears to be the big loser in terms of shifting acres, however, with intentions showing a planted area that's 19% smaller than last year.

Wheat seedings are expected to tally 56.4 million acres for all classes, up 1% from last year. Winter wheat plantings are projected to be 2% larger than last year and spring wheat intentions 3% larger; durum planting, however, is projected to be 18% smaller than 2012 planted acreage.

Farmers' intentions to plant near-record corn acreage for a second consecutive year underscore the strong demand for the grain.

"This report shows that the innovative American farmer understands the increasing global demands for food, feed, fuel and fiber and that they see the importance of meeting those needs," National Corn Growers Assn. vice president Martin Barbre said.

Using both the five-year harvest rate of 91% and USDA's weather-adjusted trend yield of 163.5 bu. per acre, the crop could be a bin buster at 14.47 billion bu.

Responding to the resilient price of corn over the past year, new corn acres are expected to emerge outside the traditional Corn Belt states, with increases foreseen in places such as Arkansas, Texas, Georgia and Mississippi.

Of the Corn Belt states, only Minnesota, North Dakota and Ohio are projected to plant more corn in 2013 than in 2012.

Price incentives, however, could still change the acreage balance as planters start rolling later this month.

American Farm Bureau Federation economist Todd Davis said the influence of volatile commodity prices, coupled with still-parched soils from last year's record drought and unpredictable weather conditions, could change what farmers ultimately decide to plant.

 

Market recap

With the markets closed for Good Friday, last Thursday's volatile close was the last word on the market reaction to the week's events before the long weekend.

Old-crop corn futures locked down the 40-cent limit, and although soybeans and wheat didn't hit the limit, both dropped nearly 50 cents on USDA's larger-than-expected stocks figures.

Export news last week was relatively good ahead of the two USDA reports.

China secured more U.S. soybeans, buying 234,000 metric tons for 2013-14 delivery. China's National Grain & Oils Information Center said the country's imports of U.S. soybeans now exceed 2 million mt this year.

While USDA found more soybeans on hand than anticipated, the pace of overseas demand has not slowed as much as seasonally expected due to massive delays in getting soybeans out of Brazil. Old-crop export sales were off 39% from the previous week at 2.4 million bu., but shipments during the week totaled 20.9 million bu. as logistical issues in Brazil turned buyers to U.S. soybeans.

Accordingly, prices for soybeans battled both sides of steady money heading into last Thursday's report-focused session, closing higher two sessions and closing lower two sessions.

For corn, news from the ethanol industry provided some positive momentum. Valero Energy announced March 22 that it resumed production at its Indiana ethanol plant, the last of its facilities idled in 2012 due to poor refining margins.

Ethanol production was slightly slower than the previous week, off an average of 4,000 barrels per day at a pace of 805,000 barrels per day.

Stocks, however, have reached the smallest level in more than 15 months, with the Energy Information Administration pegging ethanol stocks down 5.5% for the week at 17.4 million.

With ethanol production hovering around 800,000 barrels and averaging 9.5% of daily gasoline demand since mid-February, stocks have fallen for eight weeks straight.

Interestingly, Reuters reported last week that the year's first shipment of corn from Argentina is on its way to the U.S. -- a rare move necessitated by stubbornly strong corn prices.

U.S. imports of corn are typically very small and primarily come from Canada, but the report indicates that at least one vessel loaded with South American corn is heading to the U.S.

Earlier this year, reports surfaced of livestock feeders in North Carolina importing lower-priced corn from Brazil.

 

Ingredient watch

Feed prices are likely on the way down, given the larger supplies of corn and soybeans USDA reported March 28. Coupled with large 2013 corn and soybean planting intentions, last week's USDA reports should keep a lid on prices for the near future.

The market for other feed ingredients remained, as one merchandiser explained, "reasonably tight." With prices for many ingredients at seasonally high levels, reformulation is occurring, and prices should moderate over the next few weeks.

Prices for meat and bone meal, in particular, could be poised to fall fairly quickly. Pork sector customers are extremely nervous, one Memphis, Tenn., source told Feedstuffs, and blood meals are moving very slowly.

Pet food-grade poultry meals saw a lot of resistance last week, and slow business from the aquaculture sector provided some additional pressure as customers wait for better pricing opportunities.

Reports from the European Union suggest that the bloc could be considering an end to its ban on processed animal proteins, including meat and bone meal, blood meal and feather meal products.

With the ban on using such ingredients in fish feed lifting in June, the next step would be ending the ban on the products' inclusion in poultry and swine rations.

The ban was enacted in the wake of bovine spongiform encephalopathy outbreaks in the EU more than a decade ago and will likely remain in force for cattle and sheep feeds.

 

1. U.S. grain stocks as of March 1, billion bu.

 

USDA

Avg. trade

Range of

USDA

2012

Crop

March est.

guess

estimates

Dec. 1

final

Corn

5.399

5.013

4.885-5.248

8.030

6.023

Soybeans

0.999

0.935

0.905-0.984

1.966

1.374

Wheat

1.234

1.177

1.055-1.238

1.660

1.199

 

2. U.S. planting intentions for 2013, million acres

 

USDA

Avg. trade

Range of

2012

Crop

March est.

guess

estimates

final

Corn

97.28

97.25

95.70-98.50

97.155

Soybeans

77.126

78.394

77.99-79.70

77.20

All wheat

56.44

56.442

55.60-57.30

55.7

Winter wheat

41.988

41.816

41.20-43.00

41.324

Spring wheat

12.701

12.459

11.91-13.80

12.289

Durum

1.751

2.117

1.950-2.320

2.123

 

Volume:85 Issue:13

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