USDA takes first go at 2013-14

THIS year may finally produce the bin-busting crops the number crunchers had predicted.

According to the May "World Agricultural Supply & Demand Estimates" report, the U.S. Department of Agriculture is banking on a return to normal growing conditions and production of a record crop of feed grains.

Calling it a "highly tentative" set of estimates, USDA put its first official guess of 2013 corn and soybean production on the books, calling for a harvest of 14.1 billion bu. of corn and a record 3.39 billion bu. of soybeans.

USDA acknowledged that the slow start to planting this season and the "likelihood that progress by mid-May will remain well behind the 10-year average" reduced its production estimates.

Corn

USDA pegged corn production at a whopping 14.14 billion bu. but noted that seemingly extreme (compared to last year) planting delays had already diminished its national average yield estimate to 158.0 bu. per acre, down 5.6 bu. from the weather-adjusted trend presented at USDA's Agricultural Outlook Forum in February.

Even so, the May production estimate for this fall's corn harvest is up 3.4 billion bu. from last year's final production, and corn supplies are projected to hit a record 14.9 billion bu., up 3.0 billion from last year. The market will take notice of this record, to be sure, as tight ending stocks have greatly buoyed corn prices in recent months.

Naturally, with such a massive supply of corn, prices will fall. USDA has season-average farm prices pegged at $4.30-5.10/bu. for the 2013-14 marketing year, down sharply from the record $6.70-7.10/bu. set in the 2012-13 season.

As prices fall, demand from end users will pick up steam. USDA predicted that total corn use will grow 16% on stronger feed and residual disappearance, along with additional demand for ethanol and a partial recovery in the export market.

Feed use, in particular, looks strong at more moderate prices. USDA slated feed and residual use to be 925 million bu. larger on the back of a bin-busting crop.

Similarly, ethanol use is expected to pick up 250 million bu. as profitability ekes its way back into the refining segment, and exports are projected to be 550 million bu. larger than 2012-13.

USDA, in fact, lowered its export projection for the current marketing year as corn exports have cratered at current prices.

According to Allendale, the most recent four weeks of sales were 65% behind the five-year average, feeding the need for USDA to tweak its export estimate in the May 10 report.

Globally, corn production is expected to inch up to a record 965.9 million metric tons, with large increases projected in the former Soviet Union, the European Union and China, along with typically large crops in South America. World corn consumption, spurred by lower prices, is projected at a record 936.7 mmt.

Global ending stocks, at 154.6 mmt, would mark a 13-year high (Table 1), something else the market will not miss.

Perhaps the biggest number in the report, in terms of implications, is the projection for 2013-14 U.S. ending stocks. At 2 billion bu., the estimate is only slightly larger than the average of analysts' pre-report guesses (Table 2).

The thought of 2 billion bu. of corn in reserve, however, compared with the measly 759 million bu. projected for old-crop supplies, is a massive psychological difference. New-crop ending stocks would literally be 2.5 times larger than the current supply.

Soybeans

Soybean production is expected to set a record as yields improve nearly 5 bu. per acre over last year's average. At 44.5 bu. per acre, USDA pegged production at 3.39 billion bu. for a total supply of 3.53 billion, up 10% from 2012-13.

In figuring its production estimate, USDA also projected slightly larger acreage due, in no small part, to the assumption that corn planting delays will lead to some acreage switching to soybeans.

USDA did not tinker with the soybean balance sheet much since additional soybean meal exports for 2012-13 were offset by reduced domestic consumption. Exports and ending stocks for old-crop beans were both left unchanged, keeping stocks at an extremely tight 125 million bu.

The new-crop soybean crush is projected to be 1.695 billion bu., up 60 million bu. on increased domestic soybean meal consumption and exports. Meal exports, in fact, are predicted to grow sharply as prices fall and feed demand remains strong around the globe.

Soybean exports are expected to grow 100 million bu. during the next marketing year on increased production and moderating prices, hitting 1.45 billion bu.

Ending stocks for 2013-14 are projected to be 265 million bu. Accordingly, the season-average price is expected to fall from a whopping $14.30/bu. to a range of $9.50-11.50/bu. for the crop going into the ground.

Globally, soybean production is expected to increase 6% this season compared with 2012-13. Argentina is expected to plant record acreage, and Brazil is likewise expected to seed additional acres to soybeans next season (Table 3).

In China, on the other hand, soybean acreage is expected to continue to dwindle as producers find more profits by raising other crops. If USDA's projection comes to fruition, soybean acreage in China will have fallen 28% in four years.

Consumption of protein meals around the world remains strong and is estimated to increase 2.7% in 2013-14. China accounts for 32% of global protein consumption gains and is expected to demand 3.3% more next year.

Wheat

USDA also released its monthly "Crop Production" report, providing a look at U.S. winter wheat prospects. With ongoing concerns about the woeful weather and pitiful crop conditions, it was no surprise that USDA trimmed its production forecast 10% to 1.49 billion bu.

As of May 1, USDA said winter wheat yields were down 1.8 bu. per acre from last year to 45.4 bu. Harvested acreage was 6% smaller at 32.7 million.

Ending stocks, nonetheless, were slightly larger than traders had anticipated, although not out of the range of pre-report estimates by any stretch. Total usage was projected to be 7% smaller due to lower domestic use and exports.

For the most part, lower prices for corn and other feed grains will take a bite out of wheat consumption, with feed and residual disappearance pegged at 70 million bu. smaller. On the other hand, domestic food use is set to increase 13 million bu. on more attractive prices.

Global wheat supplies are estimated to be 3% larger, with a 51.2 mmt increase in foreign production more than offsetting a 19.3 mmt reduction in beginning stocks and a smaller U.S. production forecast. Almost all of the world's major wheat-exporting countries are expected to produce more wheat this year than last season.

Market recap

Markets reacted largely negatively to the reports in the hour following their release last Friday. During that hour, corn prices fell anywhere from 8 cents to 13 cents, working in a roughly 20-cent trading range.

For soybeans, the nearby old-crop contract gained nearly a nickel, but new-crop issues were anywhere from 7 cents to 14 cents lower, working in a range of 20-30 cents.

If anything, initial reaction may have been more muted than anticipated given the recent trend toward wide price swings following major USDA data releases. To some extent, much of what was reported was expected, and very few figures were significantly different from the average pre-report trade estimate.

Old-crop numbers start to take a back seat at this point in the seasonal cycle, with attention turning more toward new-crop projections and production problems. With ending stocks so extremely tight, however, there continues to be very little margin for error this growing season.

USDA is banking on a return to something resembling trend-line yields, but with a very small pipeline to start with and resilient global demand, the need to bring a big crop to market is fairly apparent. Talk of "demand destruction" was rampant last year, and in some cases, end users in the feed and ethanol sector blinked.

The market of recent years has likely thinned the proverbial herd. How many more members of the herd can survive another year like last year, however, remains an open question.

Volume:85 Issue:19