Surprises in USDA report lift corn prices

Surprises in USDA report lift corn prices

Corn and wheat numbers take spotlight in USDA grain report.

AS winter weather conditions improved last week, the release of the U.S. Department of Agriculture's "World Agricultural Supply & Demand Estimates" (WASDE) report Jan. 10 brought some surprises to the trade, with lower-than-expected estimates of 2013 crop production and ending stocks.

Corn numbers provided the largest surprise to the trade, with smaller corn yield and supply numbers. The 2013-14 ending stocks number, which traders had expected to come in at 1.861 billion bu., came in lower at 1.631 billion bu. (Table 1), sending prices upward following the report.

Analysts expected the 2013 corn yield to be as much as 163.3 bu. per acre, but the USDA numbers actually came in at 158.8 bu. per acre (Table 2). The revised 2013 figure still was a 30% jump over 2012 drought-reduced yields. The WASDE report also shows a 500,000-acre increase in harvested corn area.

"The USDA reports showing a smaller-than-expected 2013 production estimate and smaller-than-expected Dec. 1 stocks (Table 3) allowed the corn market to regain the price declines that occurred in the two weeks leading up to the report," said Darrel Good, University of Illinois agricultural economist. "Further price increases will require additional supportive information."

Good said the numbers implied that first-quarter feed and residual use was record large, near 2.4 billion bu. USDA increased the estimated feed and residual usage by 100 million bu. to 5.3 billion, but Good is skeptical of that increase, calling it "unrealistically high."

He said given the prospects that wheat feeding this summer will be minimized by a high wheat-to-corn price ratio, feed and residual use of corn might be projected in the upper half of the range.

While it is expected that corn use will increase due to lower prices, cattle numbers are still low following the 2012 drought. That, coupled with the outbreak of porcine epidemic diarrhea virus in the hog industry, has affected and will continue to affect feed use numbers.

Taking these demand-side factors into consideration, the trade was puzzled by the increase in USDA's feed and residual usage estimates. The assumption now is that the increase is, more than likely, on the residual side.

"Even with minimal wheat feeding this summer, that projection implies a large residual component of the feed and residual projection since distillers grain consumption this year will likely be larger than that of last year and the number of grain-consuming animal units will be fewer than that of last year," Good explained. "There seems to be some risk that the WASDE projection is too high, even though it is well below the use implied by first-quarter disappearance."

According to the WASDE report, corn used to produce ethanol increased 50 million bu. due to strong weekly ethanol production.

While USDA surprised the market with its balance sheet update, it left the 2013-14 season-average farm price unchanged at the midpoint, although the range narrowed slightly to $4.10-4.70/bu.

The Environmental Protection Agency's final rule-making for the 2014 renewable fuel mandates could affect usage estimates in the future as well as the actual numbers for 2014 corn acres planted.

Soybean numbers were uneventful, coming in with a yield of 43.3 bu. per acre, spot on with the trade's average pre-report estimates. USDA did increase harvested area by 200,000 acres, which, in turn, brought the 2013 crop estimate to 3.289 billion bu.

Accordingly, the 2013-14 soybean ending stocks were held steady at 150 million bu., 2 million bu. larger than the trade estimated.

The 2013-14 U.S. season-average farm price forecast for soybeans was narrowed by 25 cents on both ends of the range to $11.75-13.25/bu.

Weather in South America continues to be an important factor in how the markets will play out. While some rains alleviated the hot, dry conditions in Argentina, very little rain is in the forecast for the rest of January.

Weather conditions in Brazil have been fairly decent, and in the Jan. 10 report, USDA did increase its estimates of Brazilian soybean production by 1 million metric tons, to 89 mmt. It left Argentine production unchanged at 54.5 mmt.

Besides corn, the other surprise in the WASDE report was wheat ending stocks (Table 3). The report made no changes to U.S. wheat supplies for 2013-14, but lower usage raised the projected ending stocks 33 million bu. to 608 million bu. The increase was attributed to weaker feed usage in the first half of the marketing year.

Wheat prices fell immediately following the report but have steadily increased since the release. U.S. wheat has recently become more competitive in global markets. Egypt, for example, took advantage of lower prices and purchased 2 million bu. following the release of the Jan. 10 report.

USDA's January data release included the agency's estimates of wheat plantings (Table 4), revealing that winter wheat seedings were lower than anticipated at 41.9 million acres; the trade was expecting 43.5 million acres. Due to harsh winter weather and the unknown state of crop progress, the smaller numbers could provide price support for the new crop.

Additionally, the smaller winter wheat seedings number means more acres will be available for corn and soybeans this spring. The 2013-14 season-average farm price for wheat is now projected to be 10 cents lower at the midpoint, with the range narrowed to $6.60-7.00/bu.

 

Market recap

Markets reacted to the Jan. 10 WASDE report as would be expected, with all corn, soybean and wheat prices remaining fairly firm last week.

With corn at some of the lowest prices in years, the WASDE report provided some stability for the commodity. Immediately following the report, corn closed strong at 20 cents higher. As last week progressed, corn prices softened somewhat but remained higher at last Thursday's close.

China continues to reject U.S. cargoes of dried distillers grains plus solubles that contain traces of an unapproved genetically modified trait, but new shipments have been rerouted to countries like South Korea.

With uneventful news in the soybean sector and a continued tight supply, soybean prices remained fairly steady, spiking last Tuesday but then falling lower toward the end of the week.

The news of lower ending stocks and lower seedings sent wheat prices down 16 cents, but prices gradually increased and remained steady while trying to hold the line against a break to more new contract lows.

The end of January is expected to bring another round of frigid temperatures for the U.S., threatening winter wheat production. The coldest temperatures are expected in the eastern Midwest, but exposed Nebraska and South Dakota crops could be affected as well.

 

1. U.S. 2013-14 ending stocks, billion bu.

 

USDA

Avg.

Trade

USDA

 

Jan. est.

est.

range

Dec. est.

Corn

1.631

1.861

1.654-2.054

1.792

Soybeans

0.150

0.149

0.118-0.180

0.150

Wheat

0.608

0.557

0.460-0.586

0.575

 

2. U.S. 2013-14 crop production and harvested acreage

 

USDA

Avg.

Trade

USDA

Corn

Jan. est.

est.

range

Dec. est.

Production, bil. bu.

13.925

14.066

13.897-14.255

13.989

Yield, bu./acre

158.8

161.2

159.8-163.3

160.4

Harvested area, mil. acres

87.668

87.174

86.927-87.612

87.232

Soybeans

Production, bil. bu.

3.289

3.279

3.240-3.330

3.258

Yield, bu./acre

43.3

43.3

42.7-44.0

43.0

Harvested area, mil. acres

75.869

75.749

75.500-76.376

75.688

 

3. Dec. 1 quarterly stocks, billion bu.

 

USDA

Avg.

Trade

USDA

 

Jan. est.

est.

range

Dec. est.

Corn

10.426

10.790

10.025-11.250

8.033

Soybeans

2.148

2.161

2.027-2.266

1.966

Wheat

1.463

1.374

1.268-1.573

1.671

 

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

 

USDA

Avg.

Trade

USDA

 

Jan. est.

est.

range

Dec. est.

Total wheat

41.892

43.501

42.500-44.593

43.090

Hard red

30.1

30.426

29.400-31.900

29.571

Soft red

8.44

9.539

8.250-10.400

10.019

White

3.39

3.533

3.370-3.746

3.500

 

Volume:86 Issue:03

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