Razor Thin Corn Stocks and Record High Feed Prices
Wednesday, June 15th, 2011
The latest USDA supply/demand estimates are getting a lot of coverage in the press, and for good reason. Normally USDA does not change its estimates of the acres planted in its June report (although it has happened before) as it waits for the results of the June acreage survey. The results of that survey will be published on June 30 in the ‘Acreage’ report.
There has been enough information on planting delays and flood damage that USDA felt compelled to
adjust its supply calculations for the upcoming corn crop. The most recent estimate puts planted corn acres at 90.7 million, 1.5 million acres less than the May estimate but still 2.5 million acres higher than a year ago. It is
also important to note that USDA increased the abandonment rate as evidenced in the number of acres harvested. Last year, the ratio of harvested to planted acres was 92.3% and that ratio was used in the May estimates.
However, damage due to flooding is expected to lower the ratio to 91.7%. Consequently, harvested acres this fall are expected to be about 1.9 million acres less than a year ago. This revision in planted and harvested acres removed 305 million bushels from the expected corn output from the upcoming harvest. In previous years, such a change would be notable.
Given that we are expected to start the year with minimum pipeline supplies, this revision in output is seen as potentially explosive for new corn crop prices. While the current revisions provided a jolt to the market and caused corn futures to hit record highs on Thursday (futures were slightly lower in overnight trading), we will have to wait for the June acreage report to get a better sense as to the size of the crop farmers put into the ground this spring.
USDA did not make any changes as to the expected yields for the upcoming crop. While there is a lot of concern about corn yields from areas that were planted late (ECB), many states in the WCB are seeing very good corn crop conditions. In the latest report, USDA rated 81% of the Iowa corn crop in good/excellent condition. With plenty of risk already built into the market, and plenty of weather events, USDA likely decided to defer on the yield issue until the crop condition picture becomes clearer.
On the demand front, USDA decided to lower feed use by 100 million bushels, reflecting profitability issues in
livestock and poultry industry and expectations for lower meat production in late in 2011 and 2012. Corn exports and ethanol demand were left unchanged. Higher energy prices and tight world corn supplies remain long term bullish for corn prices and will further pressure already razor thin pipeline supplies.
The export issue is particularly critical. Trade likely noted that USDA changed how it calculates China corn use, raising expected China corn consumption 8% from previous estimate. World corn stocks at 111.89 million MT now 13% less than May estimate and 22% lower than in 2009/10.