USDA’s January Corn Numbers Carry Implications for
By Mike Krueger
USDA releases a series of production and supply and demand reports every month. The January reports are always one of the most important to the markets because they contain the final corn and soybean production estimates, the quarterly stocks estimates, revised supply and demand numbers, as well as the first estimate of winter wheat plantings.
The January 2009 reports made significant and bearish changes to the corn supply and demand numbers. They were also somewhat bearish for wheat and oilseeds because there were upward adjustments in their ending supply estimates. The quarterly stocks numbers also came in above most analyst’s expectations.
There was one bullish number in these reports: USDA’s estimate of how many acres of winter wheat U.S. farmers planted was well below trade expectations. In fact, most analysts were looking for a one- to two-million acre cut from 2008, and the number was actually four million acres below 2008.
The numbers in this latest USDA report will have market implications that will last well into the next marketing year. Here’s why:
USDA continues to reduce corn demand. This report again cut feed, export and ethanol demand for corn. USDA also discovered another 400,000 acres of harvested corn. This bearish combination led to a 316-million-bushel increase in ending supplies. USDA has now increased the corn ending supply more than 600 million bushels in the last two monthly reports. The number is now in excess of 1.8 billion bushels.
This has taken corn from a bullish outlook two or three months ago to a bearish outlook today. More importantly, it has reduced the need for corn acres in 2009. Instead of needing stable or increased corn plantings in 2009, this newly found excess supply is the equivalent of another two million acres of corn. This means the “race for acres” among all crops that we’ve been focusing on the past two years will not be as significant or important to spring markets this year.
Many analysts were expecting USDA to reduce the average soybean yield for the 2008 crop, but instead they increased the yield by 0.6 bushel per acre. That resulted in a 20-million-bushel increase in soybean ending supplies, even though they also increased the soybean export forecast. The increase in ending supplies wasn’t significant, but it did create a bearish reaction since people were anticipating a reduction.
The sharp reduction in wheat acres will have a longer-term impact. Old-crop wheat supplies in the U.S. and world are plentiful, but the reduced winter wheat acres automatically has to mean a much smaller 2009 U.S. wheat crop than last year. World wheat acres will also be smaller than last year, and the odds of another record world wheat yield (like in 2008) appear slim. The bearish wheat outlook for the current marketing year could turn in to a bullish outlook for the next marketing year.
These changes in the supply and demand numbers will accentuate other important issues in the markets that could have a big impact on acreage shifts and prices into the next marketing year. The high crop input costs for corn and wheat relative to other crops are pushing potential 2009 returns per acre for these crops to low levels compared to other crops like soybeans and sunflower. This should result in increased oilseed acreage and smaller spring wheat and corn acreage. The prospects for another wet spring could also push more acres to oilseeds. In addition, the old-crop soybean market is bullish — despite the small increase in ending supplies — because export demand for U.S. soybeans continues to be much stronger than expected. China has been a huge buyer, as they are building their reserves.
We are also in the midst of the first weather market of 2009. It has been very dry across a significant area in Argentina, and that is reducing corn and soybean yields. Parts of Brazil will also have yield reductions because of weather.
The upshot of all of these market factors is that while the old-crop corn and wheat outlooks are bearish due to big supplies and weak demand, the new-crop corn and wheat outlooks will turn bullish because of reduced acres and increasing demand in the next marketing year.
The oilseeds markets should perform just the opposite. The big demand and now potential weather troubles in South America should mean strong old-crop prices, but weak new-crop prices. The new-crop weakness will be caused by sharp increases in soybean plantings (and possibly sunflower plantings) as producers plant those crops that are higher priced during the planting season or that show the best returns on paper for the new marketing year.
Sunflower producers need to keep aware of these important shifts in market fundamentals and look for a market rally to price the balance of their 2008 crop and to start to price some of their expected 2009 production.
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