CME: Minor Revisions Expected in WASDE Report

US - Analysts polled ahead of the release of the USDA WASDE report (Jan 12) expect only minor revisions to the supply/demand tables for major grain crops, write Steve Meyer and Len Steiner.
calendar icon 12 January 2015
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Normally USDA does not make significant revisions to the production numbers but there have been exceptions in the past. Analysts expect corn yields to remain unchanged at 173.4 bushels per acre but there is the potential for the figure to be lowered given the slow pace of harvest towards the end of the season.

USDA did not make any changes to the harvested acres number in their December report but some market participants continue to debate whether we could see a downward revision to this number in the January estimates.

The consensus estimate for total corn production in 2014 is 14.342 billion pounds, 417 million pounds (+ three per cent) compared to a year ago. The figure is slightly lower than estimates a couple of months ago but it still represents an all time record production level, surpassing the record output last year.

There was a lot of talk in 2011 and 2012 than maybe, just maybe, the trend in corn yields had changed and that the long term trend in corn output was unsustainable.

Corn yields hit a record level in 2009 at 165 bushels per acre but then declined in each of the next three years, with yields in 2012 dropping to 123 bushels per acre. Following this year’s harvest, it appears that corn yields once again have returned to trend. In hindsight, the drought of 2012 bears plenty of resemblance to similar events in the 1980s and 1990s. Weather patterns have become more extreme and we have no aspirations to become either grain or weather analysts.

The issue that the market is grappling with, and that livestock producers are quite interested in, is the production potential for corn given a return of yields to trend and plantings that are significantly larger than what we saw in the 1980s and 1990s. With the supply side of the matter largely resolved, market participants will continue to focus on demand issues impacting the corn market.

The grain stocks survey will help answer some questions regarding the pace of livestock feeding during the first three months of the marketing year and what that implies for the feed and residual component in the balance table.

In its last report USDA pegged feed and residual for the 2014/15 marketing year at 5.375 billion bushels, 4.7 per cent ahead of year ago levels. Poultry and hog numbers are expected to increase as evidenced by a larger hatching flock and the three per cent jump in the hog breeding numbers.

Producers also are feeding cattle, hogs and broilers to heavier weights, which implies larger feed utilisation rates. A smaller than expected grain stocks number (some analysts think it may be under 11 billion bushels) could prompt USDA to further increase its feed estimate for the year.

They may increase it anyways given the gains in livestock inventories and the current heavy weight trends. Some of the increases in feed use may be offset, to some extent, by possible reductions in ethanol and exports, especially given the sharp drop in crude oil and the surge in the US$. Grain futures have rallied since early fall. It remains to be seen whether this latest USDA report will provide enough information to sustain that rally into spring.

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