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USDA’s corn stocks reports linger lower
Associate Editor

WASHINGTON, D.C. — Friday’s USDA corn stocks reports took at least some market watchers by surprise.

At a pre-report briefing the CME Group hosted Thursday afternoon, First Capitol Ag Senior Risk Management Advisor Mike North said market analysts were expecting quarterly stocks down from September 2012 estimates, but still around 8.2 billion bushels. The actual number was 8.03 billion, as of Dec. 1, 2012.

That number made an impression on Mike Krueger, founder and president of The Money Farm in North Dakota, a grain marketing advisory service. In comments similar to North’s assessment, he said the projection is about 200 million below what the traders he knew were expecting. “That was the bullish catalyst this morning,” he said Friday, referring to a jump in the March 2013 futures price upon the report’s release. The high on the Chicago Board of Trade (CBOT) for this contract Friday hit nearly $7.24 per bushel – 25 cents higher than the previous day’s closing price – but closed the day a little less than $7.09.

The USDA also reported corn harvested for 2012 was 10.8 billion bushels, 1 percent above its Nov. 1 forecast and 13 percent below 2011. The agency also increased 2012 corn yield estimates by 1.1 bushels more than its November report.

Krueger said the 10.8 billion was about 100 million bushels more than trade expected. But, at an average of 123.4 bushels per acre nationwide, it is still almost 24 bushels below 2011 production, thanks to last year’s extreme drought, the worst of which hit during pollination.

Soybeans didn’t suffer much, at 3 percent below 2011 production. The USDA estimated a 2012 harvest of 3.01 billion bushels, the seventh largest on record – and at an average 39.6 bushels per acre, yield was down only 2.3 from 2011.

Feed, residual use up

Livestock feed and residual use was a big factor in lowered corn stocks, both analysts said. The USDA reported such use at 300 million bushels higher than in September, based on increased use and projected higher beef, pork and poultry production than previously expected.

The day before the reports’ release, North indicated feed use could be up. He said the U.S. cattle herd has been hit hard by drought, but feeding has been more intense in feedlots, as evidenced by higher slaughter weights. He said dairy culling was not as intense as expected; recently reported hog numbers show a higher-than-expected national herd, as well.

In separate comments, Krueger, too, mentioned higher beef carcass weights, and said poultry stocks seem undiminished. The USDA stated in its World Agricultural Supply and Demand Estimates report it was lowering projected corn exports for the year by 200 million bushels from its last report, but keeping the average farm price between $6.80-$8 because of feed use.

For soybean production, Friday’s report reflected an increase of 44 million bushels over USDA’s November estimate. The March CBOT contract fell from nearly $13.80 at close Thursday to just over $13.73 Friday (though the January 2013 contract went up 7 cents).
Chief Economist Bill Tierney of AgResource Co. said soybeans are seeing “exceptionally strong” exports, with soy meal at a record level. The USDA raised its crush estimate 35 million bushels for the marketing year based on increased domestic feed demand – as with corn. Soy oil production is expected to increase as well, and trade may be eyeing this in light of Congress’ vote to reinstate the $1-per-gallon biodiesel blender’s tax credit.

Tierney said according to Brazilian statistics agency IBGE, estimates for the upcoming soybean harvest are 82 million metric tons (mmts); the USDA is estimating 82.5 mmts, up over last year.
Corn production is also projected higher this year in Brazil and Argentina, but Tierney explained Brazil’s export capacity is limited by its transportation infrastructure. Goods are shipped to port by trucks, as the rail system is not adequate, and he said preference is assigned to highest-value exports at any given time – for that reason, corn exports probably won’t happen until fall.

Despite better crop production, he said Brazil’s export capacity may be down in 2013 as the government is enforcing limits on what may be expected of driver labor (such as hours of service).
Like corn, Friday’s quarterly stocks report showed U.S. soybean stocks were down 17 percent on Dec. 1 from one year prior, at 1.97 billion bushels. Projected soybean ending stocks for the 2012-13 marketing year (in August 2013) stand at 135 million bushels, up 5 million over USDA’s November estimate; ending corn stocks are projected at just 602 million bushels, or 44 million fewer than the November estimate.

So how does this affect spring planting decisions? Jerry Gidel, chief feed grain analyst for Rice Dairy, said the chant last year was “more beans, less corn” in 2013 – and he believes that’s probably what is needed – but that’s not how it may really shake out.
“That seems to have backed off a little bit, primarily because the producer got his check for $7.50 (per corn bushel), that he didn’t have in his pocket” when thinking of switching to more soybeans, Gidel said. Too, he said there may be 2 million acres formerly in Southern cotton freed up this year for other crops.