CME: Tighter–Than–Expected Corn Ending Stocks

US - Grain markets were higher yesterday in response to the USDA WASDE report showing tighter-than-expected corn ending stocks for the upcoming marketing year, write Steve Meyer and Len Steiner.
calendar icon 14 July 2011
clock icon 4 minute read

Trade was expecting the USDA balance table to show corn carryout for 2011/12 at 1.013 billion bushels. The latest USDA calculation, however, pegged ending stocks at just 870 million bushels. Stocks to use ratio was 6.4 per cent, compared to 6.6 per cent for the current year and 13.1 per cent in 2009/10. Corn stocks for upcoming marketing year expected to be similar to 2010/11 even as farmers are expected to harvest 3.5 million more corn acres this fall. US corn production expected to be 13.470 billion bushels, up 8.2 per cent from the previous year. Trade will likely continue to debate the prospects for corn output into harvest. Corn rating conditions remain near long term averages but there is plenty of uncertainty about the condition of the crop in southern states as well as yield prospects from states that were late in getting the crop in the ground. We also do not know what impact the re-survey in four states will have on current forecasts for planted and harvested acres, although the thinking is that it will tend to have a much bigger impact on wheat than corn and soybeans.

For the next two months markets will likely focus on the supply side of the equation, refining calculations of corn supplies this fall. The July USDA balance table, however, also make significant changes to expected corn demand for next year. Feed use was boosted by 50 million bushels but still remains about 90 million bushels lower than in 2009-10. USDA also increased expected ethanol use for 2011-12 by 100 million bushels despite ongoing speculation that the US Congress is about to eliminate ethanol subsidies. It is USDA practice not to speculate on the outcome of such congressional action and the current estimate likely reflects basic fundamentals about the relationship of ethanol use vs. gasoline/crude values and strong demand in world markets. Very high sugar prices and high crude values continue to limit the ability of Brazil to export ethanol to other markets, pushing US ethanol export higher (more on this topic later this week).

Corn exports for 2011-12 were also increased by 100 million bushels to 1.9 billion bu. There has been plenty of speculation in the market recently that China has emerged as a significant buyer of US corn and it plans to boost its purchases this fall. The latest USDA estimate also highlighted the very tight world coarse grain situation (includes corn, sorghum, barley, oats, rye, etc.). World coarse grain ending stocks in 2011-12 currently pegged at 149.23 mil MT, compared to 157.3 mil MT a year ago and 195.1 in 2009/10. Global coarse grain use in 2011/12 expected to hit 1.158 bil.. MT, some 30 mil MT more than a year ago and 50 mil MT more than two years ago. China coarse grain shortfall in 2011/12 (production minus use) expected to be 6.38 mil MT.

Bottom line: Weather market for corn and grains in the short term while longer term demand drivers to come more into focus, especially ethanol and corn exports to Asia.

Further Reading

- You can view the WASDE report by clicking here.
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