USDA tightened the supply and demand balance sheet on corn from last month’s estimates despite weaker corn exports.
"While stiff competition has limited U.S. corn exports, higher domestic disappearance leaves the balance sheet historically tight and is expected to support continued strong and volatile prices well into summer, particularly in the domestic cash markets," says USDA in its monthly World Agricultural Supply and Demand Estimates (WASDE). Both the WASDE report and the quarterly Grain Stocks report were bullish for the corn market.
"This corn market will continue to struggle to buy corn from farmers," says Mike Krueger, with the Money Farm, in Fargo, N.D. Krueger was a commentator on an MGEX press call following USDA’s reports, which also included Annual Crop Production. He estimates that March corn futures will trade between $7.50 and $7.75, but notes that some analysts are looking for prices as high as $8 per bushel.
For March corn prices to hit the $8 mark, Krueger says, "We’d need to see significant problems in South American soybeans that elevate the whole complex."
Looking at USDA’s annual production numbers, the department raised production for the 2012-13 corn crop from last month’s 10.725 billion bushels to 10.78 billion bushels, higher than the average trade guess of 10.626 billion but within the range of 10.1 billion to 10.8 billion bushels. The final production number for corn is substantially smaller than last year’s crop of 12.36 billion bushels. USDA also raised its final yield estimate for corn from 122.4 bushels per acre last month to 123.4 bushels this month.
The big surprise in corn numbers, however, came from the quarterly Grain Stocks report due to continued strong feed demand. USDA lowered its corn carryout from 647 million bushels in December to 602 million bushels, which was substantially lower than the average trade estimate of 667 million bushels, but within the historically wide range of estimates of 489 million to 764 million bushels.
USDA raised feed use for corn by 300 million bushels to 4.45 billion bushels but then offset that by cutting exports by 200 million bushels. "I think that’s legitimate," says Krueger. The discussion over the past month or so has focused on whether demand for corn has been falling or whether it has remained strong due to a larger pig herd and lower than expected culling from the dairy sector.
"There are those who believe we will continues to see strong feed numbers for corn," says Krueger.
USDA also raised its final estimate for the 2012-13 soybean crop, from 2.971 billion bushels in December to 3.015 billion bushels, which was higher than the average trade estimate of 2.9 billion bushels but within the range of 2.922 to 3.104 billion bushels. USDA raised the soybean yield from 39.3 bushels per acre in December to 39.6 bushels.
Soybeans stocks were left unchanged at 135 million bushels, in line with the average trade estimate of 135 million bushels. USDA also left soybean exports unchanged at 1.345 billion bushels.
"Many people think soybean exports are too small and that USDA will have to increase that," says Krueger. "I think the export pace will continue to be strong."
Logistical issues at Brazilian ports will prevent South American beans from flooding the market, says Krueger, and that could support old-crop soybean prices in the $14 to $14.50 range. With weather problems in South America, soybeans could log fairly significant gains, but new-crop prices will have a harder time following old-crop higher until May and June when and if soil moisture becomes a major issue.
For the past 30 to 45 days, funds have been exiting commodity markets. "If funds believe there is a reason to jump back into the age commodity markets, that could take these markets higher than people expect," says Krueger.
Looking at the world numbers, USDA raised its estimate for Argentina’s corn production from 27.5 million tons to 28 million tons. USDA also raised corn production in Brazil from 70 million tons to 71 million tons.
As for soybeans, Argentina’s production was lowered from December’s 55 million tons to 54 million tons. USDA raised Brazil soybean output by 1.5 million tons to 82.5 million tons.
See all of the data, coverage and analysis of the WASDE, Crop Production, Grain Stocks and Winter Wheat Seedings reports.