WASDE expected to tighten ending stocks

WASDE expected to tighten ending stocks

South American weather and crop forecasts keep U.S. markets in limbo.

LAST week, the trade awaited the U.S. Department of Agriculture's Feb. 10 "World Agricultural Supply & Demand Estimates" (WASDE) report, which will provide updates of U.S. ending stocks along with any changes in world production numbers.

While no significant changes were expected, the trade estimated that the WASDE report would bring smaller numbers for U.S. 2013-14 corn, soybean and wheat ending stocks (Table 1). The average trade estimate for U.S. corn was 1.619 billion bu., down from USDA's January estimate of 1.631 billion bu. The trade was expecting 143 million bu. of soybean ending stocks, down from January's 150 million bu.

As far as 2013-14 world ending stocks, the trade expected WASDE to decrease corn stocks from 160.23 million to 159.60 million metric tons (Table 2). The trade did, however, estimate that soybean stocks would increase from 72.33 mmt to 72.67 mmt. Wheat stocks were expected to decrease from 185.40 mmt to 184.97 mmt.

Rice Dairy chief feed grains analyst Jerry Gidel said with only the Southern Hemisphere in the midst of its growing season, crops in Brazil and Argentina would be a main focus of the report's crop adjustments.

"This year's erratic Argentina weather, with a delayed planting season because of excessive moisture, has given way to a couple of bouts of excessive heat and dryness across the main growing region of central Argentina," Gidel explained. As a result, he said trade estimates for Argentina's crops had been lowered.

The average trade estimate for Argentine corn production was 23.82 mmt, down from January's 25.00 mmt. Soybean production estimates of 54.13 mmt were also down from January's 54.50 mmt estimate (Table 3).

Brazil's corn production numbers, at 69.99 mmt, were nearly unchanged from January's 70.0 mmt. The trade estimated that Brazilian soybean production would increase from 89.00 mmt to 89.76 mmt in the February WASDE report (Table 4).

The U.S. Grains Council (USGC) said the unstable economic and political situations in South America and the Ukraine have slowed corn marketing in those regions, and the U.S. currently has the most favorable pricing for global feed grains. The result is that U.S. corn export sales are moving at a fast clip.

Presently, more than 85% of USDA's 2013-14 annual corn export sales forecast for the U.S. has already occurred, in comparison to a rate that is normally closer to 65%. Because of this, USGC predicted that USDA would likely increase its estimate for U.S. corn exports in the February WASDE report.

South American weather observers were forecasting a warmer and drier pattern in central Brazil and improved growing conditions in Argentina. However, USGC said the Argentine crop is maturing, and Brazil's second corn crop is going into the soil. Drier conditions in Brazil could be momentarily favorable for planting, according to USGC, but soils in central Brazil did not have excellent water retention.

Additionally, Brazil's second corn crop acreage is already anticipated to be down by more than 10%. USGC suggested that global feed grain prices could start to work higher if weather conditions in Brazil do not transition back to more favorable patterns as the season progresses for the second corn crop.

USGC expected that an increase in corn futures prices would likely entice some U.S. farmers to sell corn, primarily to pay taxes and settle lease rates. However, it said U.S. farmers are not expected to substantially empty their bins for an additional 15 cents/bu. Instead, USGC said farmers are more likely to wait until the end of March so they can see U.S. acreage intentions and weather forecasts.

According to USGC, foreign buyers seemed to recognize that the downside to U.S. feed grain prices was limited, which resulted in very strong U.S. corn and sorghum exports. U.S. sorghum exports are currently running about three times larger than last year.

 

Ethanol

USDA is forecasting that corn used in the production of ethanol and byproducts will increase from 4.648 billion bu. in 2012-13 to 5 billion bu. in the current 2013-14 crop year (which runs from September to August), approximately an 8% year-over-year increase.

According to USGC, USDA's predictive ability seemed to be accurate when looking at current ethanol production figures, which showed about a 10% increase during the September to January period. Relatively strong consumptive demand for this increased production was indicated by current U.S. ethanol stocks of 16.9 million barrels, 17.6% below last year's level of 20.5 million barrels.

The weekly average ethanol production rate of 900,000 barrels per day was 16.9% greater than the level of 770,000 barrels from the same week a year ago, but that was not overly concerning when considering the production rate two years ago. In the 2011-12 season, the ethanol industry used an identical 5 billion bu. of corn, and total ethanol production during the same week two years ago was 4.1% larger (939,000 barrels per day) than the corresponding week this year.

 

Market recap

Good money flow from equities to commodities helped strengthen markets last week. Last Tuesday, this flow — combined with strong export demand — helped the March contract for nearby corn push above the 100-day moving average for the first time since June 2013.

Prices continued to hold above average through last Wednesday, which Arlan Suderman, senior market analyst for Water Street Solutions, said was very significant to traders. March nearby prices last Monday settled at $4.3575/bu., and by last Thursday's market close, they had reached $4.43/bu.

According to Suderman, soybeans are being supported by extremely tight soybean meal supplies. Argentina has basically stopped exporting as Argentine farmers are only selling last year's crop to cover local needs. U.S. exporters have shipped 40% of the year's annual target just in the last 16 weeks.

Exporters are battling domestic users for the supplies, and rail-shipped soybean meal is nearly impossible to get during February. These factors have meant double-digit gains for soybean meal. Prices have reached new contract highs, which have pulled soybean prices higher as well.

Last Monday, nearby soybean prices settled at $12.9275/bu., but nearby prices rallied on Thursday to $13.345/bu. before settling at $13.2575.

Rich Nelson, chief strategist for Allendale Inc., said a seven- to eight-day forecast for dry weather in Brazil was more than likely the cause but added that he expects a large soybean crop from Brazil and predicted that the February WASDE numbers would reflect this.

Suderman said he believes corn and wheat prices have hit their near-term lows but said false bottoms have happened in wheat before.

Last week, news that the 2014-15 Kansas wheat crop conditions had been rated 35% good to excellent in January, down from 58% a month ago, and that Oklahoma's crop conditions had been rated 36% good to excellent, down from 63% a month ago, sent wheat prices upward as traders realized that prices may not go lower than they had in recent months.

"This is a time of year when it is relatively safe for the funds to keep the trend going down to make money, because it is difficult to generate headlines that prove them wrong," Suderman explained. "Crop condition ratings out of Oklahoma and Kansas may have been that isolated example of headlines that can come out this time of year to prove them wrong, and now, they are all trying to cover their short positions." 

 

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

 

Avg.

Trade

USDA

 

est.

range

Jan. est.

Corn

1.619

1.574-1.748

1.631

Soybeans

0.143

0.125-0.164

0.150

Wheat

0.603

0.574-0.653

0.608

 

2. World 2013-14 ending stocks, mmt

 

Avg.

Trade

USDA

 

est.

range

Jan. est.

Corn

159.6

156.27-163.20

160.23

Soybeans

72.67

71.00-75.35

72.33

Wheat

184.97

182.80-187.00

185.50

 

3. Argentina 2013-14 ending stocks, mmt

 

Avg.

Trade

USDA

 

est.

range

Jan. est.

Corn

23.82

19.80-25.00

25.00

Soybeans

54.13

52.70-57.00

54.50

 

4. Brazil 2013-14 ending stocks, mmt

 

Avg.

Trade

USDA

 

est.

range

Jan. est.

Corn

69.99

66.10-74.00

70.00

Soybeans

89.76

88.30-91.00

89.00

Sources for Tables: Reuters, USDA.

 

Volume:86 Issue:06

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