CME: USDA Expects Largest Average Corn Yield

US - Steve Meyer and Len Steiner comment on the latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports in their Daily Livestock Report (DLR) for 13 August 2010.
calendar icon 13 August 2010
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USDA’S monthly Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, released this morning, contained forecast yields and crop sizes for corn and soybeans that were all higher than last month’s USDA estimates and higher than the averages of analysts pre-report estimates — and corn, soybean and soybean meal prices all closed higher for the day. That relationship is not what one would expect if the pre-report estimates are providing an accurate picture of the information that is “in the market” before the report.

We are loathe to believe — and are not at all suggesting — that analysts would provide numbers that are not what the indeed expect to happen but in this instance it appears those numbers were not representative of “market” expectations. The pre-report estimates usually do a better job of representing market sentiment — but not this time. The table below contains the estimates published in Wednesday’s DLR with the actual figures added in the shaded column. 2010-crop corn futures closed 8-1/4 to 10-3/4 cents/bushel higher today while 2010- crop soybean futures rose 9-1/2 to 13-1/2 cents/bushel.

USDA is now expecting the largest average national corn yield and largest US corn crop in history at 165 bu./acre and 13.365 billion bushels, respectively. Those eclipse last years’ records of 164.7 bu./acre and 13.110 billion bushels. USDA’s forecast for this year’s soybean yield (44.0 bu./acre) matches last year’s record while forecast soybean production of 3.433 billion bushels would, like the corn crop, break last year’s record, 3.359 billion bushels.

All of those records, however, are of little solace to livestock and poultry growers. The reason is apparent from the chart and the supply and utilisation (S&U) table for corn. While the 2010 corn crop may well be record large, USDA changed its estimates of three corn uses for the current crop year with the net effect of reducing projected 2010 carryout stocks to1.426 billion bushels. That reduction plus increases in Non-ethanol food, seed and industrial (FSI) usage (30 million bushels) and exports (100 million bushels) in the coming crop year pushed projected 2011 carryout stocks to 1.312 billion bushels, their lowest level since 2006. Perhaps more important is this fact: 1.326 billion bushels of corn just ain’t what it used to be!! That level of year-end stocks represents just 9.7 per cent of total 2010-2011 usage and would be the fourth smallest year-end stocks-to-use ratio since 1970 and over 2 per cent smaller than the ratio in 2006, the year that marked the launch of the biofuels era for corn prices. USDA raised both ends of its forecast range for the season- average corn price by 10 cents/bushel. The range is now $3.50 to $4.10/bu.

USDA’s forecasts for record soybean yields and crops were also offset by increases in usage estimates for both this and next crop years. Larger exports and crushings pushed already-tight 2010 year-end stocks to an even tighter 160 million bushels. That is still larger than last year’s level but not by much — 4.8 per cent S/U ratio this year vs. 4.5 per cent last year. About the only factor keeping near-term soybean and soybean meal futures from moving sharply higher on these tight year-end stocks is the better prospect this year of an at-least timely harvest. The impact of last year’s tight supplies was exacerbated by late planting and cool summer temperatures that delayed soybean maturity. This year’s soybean planting pace was not much better than that of 2009 but the growing season has provided more heat units and, in most areas, ample moisture that has 8 per cent more acres blooming and 19 per cent more acres setting pods this year versus last as of August 8. USDA added 40 cents/bu. to both ends of its forecast range for soybeans to put it at $8.50 to $10.00. They also added $10/ton to both ends of the soybean meal range, putting it at $250 to $290/ton — pricey but still much lower than last year’s average of $310/ton.

While not having much DIRECT impact on US producers, world wheat supplies and prices remain a key driver of these grain markets. USDA lowered projected world wheat production by 15.3 million tonnes to 645.3 million. Russia (-8.0), Kazakhstan (-2.5), Ukraine (-3.0)and EU-27 (-4.3) accounted for all of the decrease. The decline in world wheat output drove projected world wheat trade down by 5.7 million tonnes. US wheat exports were increased by 200 million bushels (5.4 million tonnes), up 20 per cent from July.

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