January USDA Reports Analysis
By Mike Krueger
On January 11, the USDA released perhaps its most important series of reports of the current marketing year. These reports included the “final row crop production estimates” (including sunflower), winter wheat planted acres, December 1st quarterly stocks estimates and revised supply and demand numbers.
The most important numbers were the December 1st quarterly stocks estimates. That’s because the stocks on hand as of December 1 included 2012 crop production. That meant it didn’t really matter as much how big or small the 2012 crops were; it was how much was left on December 1st that mattered the most.
The bullish surprise on January 11 was that the corn stocks on hand on December 1st were as much as 200 million bushels below the average estimate or trade guess. That small stocks or supply number (more than 1.6 billion bushels smaller than December 1, 2011) essentially forced the USDA and the market to concede that feed consumption has continued to be much larger than anticipated. That resulted in a decline in corn ending supplies and a sharp rise in corn prices in the days following the report.
The real message of the quarterly stocks number was that the market has not rationed demand. It is also worth noting that sorghum supplies are also at bin-bottom levels and that the 2012 hay crop yield was the smallest since the mid-’70s. U.S. and world corn ending supplies in terms of day’s supply will be the smallest ever. Half of the world’s corn ending supplies will be in China — and they will not leave China.
The world has a major feed grains problem until the 2013 Northern Hemisphere feed grains crops are harvested. There is no room for compromised yields again in 2013.
The wheat numbers were also somewhat bullish for two reasons:
• Planted acres of winter wheat were well below expectations
• The very small corn and feed grain supplies mean we must feed more wheat.
The soybean and oilseeds markets in general rallied following the report in conjunction with corn and soybeans. The soybean numbers in the reports were generally considered neutral. The USDA did increase the soybean crush estimate but did not change the export forecast. Soybean ending supplies were actually increased by five million bushels because of an increase in the 2012 yield forecast.
There’s still a lot of debate over what the final ending supply number will be for soybeans. The U.S. soybean crushing rate is very strong and suggests the crush forecast might be too small. The soybean export pace also continues to be at a record large level.
There is no evidence that U.S. or world soybean usage has been slowed or rationed at all. China continues to be a very aggressive buyer of soybeans and soybean oil. The pace of U.S. soybean exports will have to decline sharply at some point. Production in Argentina and Brazil is still expected to reach all-time record levels, but the world needs a big South American soybean crop to satisfy demand. Weather turned warm and dry across all of Argentina and southern Brazil in December and the first half of January. That injected a slight bit of weather premium into the soybean market.
The “final” USDA sunflower production estimate confirmed that sunflower yields in 2012 were excellent despite the warm and dry summer. Like wheat, corn and soybeans, the Northern Plains yields for sunflowers were very good. The yield on all sunflower acres for North Dakota, for example, came in 27% above 2011 and exceeded 1,700 lbs/ac. All U.S. sunflower production came in 37% above the previous year.
Sunflower producers should continue to enjoy the high prices brought about by a small world sunflower crop and extremely tight soybean and canola situation.
The old-crop markets should continue to remain strong right through the spring planting season, based on the limited availability of supplies. They should, at the least, maintain strength through the critical crop insurance price discovery period of the month of February. If so, that will again set the stage for a profitable year in 2013, with or without the cooperation of the weather.
The new-crop outlook will remain at a significant discount to old-crop prices until and unless the market becomes concerned about the ongoing drought profile that still encompasses nearly all of the western half of the U.S. That won’t happen until late spring. Trend-line wheat, corn and oilseed yields in 2013 will mean significantly lower new-crop prices. The unanswerable question is, when will the rains start and the drought disappear? It hasn’t happened yet.
Mike Krueger is owner of The Money Farm, a grain marketing consulting firm. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no liability for its use.
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