USDA Estimates are Lower Than Trade Expected
Thursday, August 25th, 2011
The market bulls found their way to the china closet when the latest U.S. Department of Agriculture's crop production and world supply and demand reports were issued.
"The market bulls were hoping for a lower yield and got much more than they expected - 153 bushel per acre," said John Sanow, DTN analyst.
The 153-bushel per acre U.S. corn yield average was 5.7 bushels lower than projected in last month's report.
Analysts were projected yields to average 155 to 158 bushels per acre.
Area harvested for grain is forecast at 84.4 million acres, down less than 1 percent from June, but up 4 percent from 2010.
If realized, this would be the second highest harvested acreage since 1944 behind only the 2007 record of 85.4 million.
"There were 500,000 acres less harvested acres for corn. None came for the Dakotas, Montana and Minnesota, assuming that came from the Missouri River flooding and some that we saw along the Mississippi river as well," Sanow said in an interview on the DTN website.
The USDA also reduced demand for new crop by 340 billion bushels, along with 556 million bushels less in corn production. New crop ending stocks fell to about 156 million bushels.
"But ending stocks-to-use dropped to 5.4 percent and inches closer to that magical 5 percent from 1995-96 which is the tightest level on record," he said. "For soybeans, production was lowered much more than expected, and that brought ending stocks-to-use back below 5 percent."
Soybean production was estimated at 3.056 billion bushels, down 169 million due to lower harvested area and yields. The USDA reduced its soybean yield forecast to 41.4 bushels per acre, down 2 from last month and 2.1 below the 2010 yields.
"On the world side, of course that's more important for soybeans, and we saw that decline to 23.2 percent, the ending carryout did decrease more than expected on stronger demand numbers. That 23.2 percent is still a relatively comfortable level," Sanow said.
"Corn remained at 13.2 percent (stocks-to-use ratio globally) despite this large drop in the United States. But that is a tight level, very close to the tightest on record of 12.7 percent.
"Wheat is wheat. Largest numbers on both sides, domestic and worldwide, and wheat will very much be a follower today. It just confirms what we've seen from the bearish spreads throughout the past months."
While the market was trying to digest the USDA reports, farm groups said the projects also show that growers have answered the call to ramp up production in spite of weather problems.
Corn production increased 4 percent overall in the U.S. setting the stage for what could be the third largest production total on record for the nation.
"This report confirms again that U.S. farmers continue to work hard to produce the most abundant, affordable crop possible," said National Corn Growers Association President Bart Schott. "While many of us have faced extreme drought or severe flooding, we have persevered and, through the use of improved technologies and practices, we will nearly reach the crop record set under more favorable conditions.
"It is important that the 98.5 percent of the population totally removed from agriculture understand that farmers, due to the triumphs of modern agriculture, can and will meet all demands for food, feed, fuel and fiber."
Economists with the American Farm Bureau Federation continue to stress that tight supplies mean the U.S. needs every bushel of corn that farmers can produce this year.
"Analysts were expecting to see a drop in both average yield and production compared to the July report, but the yield and production numbers actually came out lower than what market watchers were anticipating," said Todd Davis, AFBF crops economist.
"This tells us we still have a very tight supply situation in corn this year. We will need a good harvest this fall to meet market demands and add to our very tight stocks."
Davis said tight corn supplies still are a concern, which is why corn farmers are hoping for a big harvest this year.
"USDA is pegging 2011-2012 ending corn stocks at 714 million bushels, which represents just 20 days of supply. We are on the razor's edge when it comes to reserves," Davis said.
Meanwhile, tight supplies are also becoming a concern for soybean farmers. USDA estimated soybean ending stocks to be 155 million bushels, compared to 175 million bushels in the July report.
"This represents just 18 days of supply, which is very tight, but you have a little more wiggle room with soybeans than corn because the South American soybean crop can help make up the difference," Davis said. "Brazil and Argentina harvest their soybean crop when the United States plants ours and plants their soybean crop when we harvest ours."
"The tight supply situation for both corn and soybeans is very supportive for higher prices this year. Farmers clearly have the incentive to harvest every possible acre."