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Hedging Corn and Soybeans

RSS By: Howard Tyllas, AgWeb.com

Howard Tyllas is currently a member of the Chicago Board of Trade and registered with the Commodity Futures Trading Commission as a floor broker and as a Commodity Trading Advisor.

WASDE 4/8/2011

Apr 08, 2011
 
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WASDE 4/8/11
 
 
OILSEEDS: U.S. soybean exports for 2010/11 are projected down 10 million bushels from last month. The slower-than-expected shipment pace through March combined with increased export competition resulting from larger crops for Brazil and Paraguay leave U.S. exports projected at 1.58 billion bushels. Although there are no changes in the U.S. soybean meal supply and demand projections, the soybean crush is reduced 5 million bushels to 1.65 billion 2011 reported in the March 31 Prospective Plantings report. Residual use is raised based on indications from the March 31 Grain Stocks report. U.S. soybean ending stocks remain unchanged at 140 million bushels.
 
The U.S. season-average soybean price range is projected at $11.25 to $11.75 per bushel, up 15 cents on the bottom and down 35 cents on the top of the range. Soybean meal prices are forecast at $340 to $360 per short ton, down 10 dollars on the top of the range. The soybean oil price is projected at 53 to 55 cents per pound, up 1.5 cents on the bottom and down 0.5 cents on the top of the range.
 
Global oilseed production for 2010/11 is projected at 447 million tons, up 2.8 million tons from last month. Higher soybean, sunflowerseed, and rapeseed production more than offsets lower cottonseed production. Global soybean production is increased 2.6 million tons to 261 million. Soybean production for Brazil is projected at a record 72.0 million tons, up 2 million from last month as ample moisture and favorable late-season weather in the southern states improved yield prospects. Soybean production for Paraguay is projected at 8.1 million tons, up 0.6 million, also based on higher yields. Global rapeseed production is raised 0.2 million tons to 58.6 million due to increased output in Russia. Global sunflowerseed production is projected higher as increased production in Argentina and Turkey more than offset reductions for India and Russia. Other changes include reduced cottonseed production for Pakistan and Turkey, and higher cottonseed production for Brazil. Malaysia palm oil production is reduced 0.5 million tons to 17.5 million due to lower-than-expected yields.
 
Global oilseed supplies and ending stocks for 2010/11 are projected higher this month while crush is reduced. Lower soybean crush, led by Argentina and China, is only partly offset by increased rapeseed crush, with the largest gains in Mexico, Pakistan, and United Arab Emirates. Global oilseed stocks are raised 2.5 million tons, with the largest gains for soybeans in Brazil and Argentina.
 
COARSE GRAINS: U.S. corn ending stocks are unchanged this month as a projected increase in corn use for ethanol is offset by a reduction in expected feed and residual use. Corn used to produce ethanol is raised 50 million bushels as strong blender incentives and positive ethanol producer margins continue to encourage expansion in ethanol production and use. Rising gasoline prices have pulled ethanol prices higher helping to offset increases in corn feedstock costs for ethanol producers.
 
U.S. corn feed and residual use is lowered 50 million bushels as increased prospects for 2011 SRW wheat production and higher year-to-year corn plantings in the South reduce expected corn feed and residual disappearance during the second half of the 2010/11 corn marketing year. SRW wheat plantings are up sharply year-to-year with the March 31 Prospective Plantings report further increasing acreage in the SRW wheat states. A weighted average of early April crop conditions in the SRW states shows the highest percent of the crop in good-to-excellent condition in 5 years. Winter wheat conditions are especially favorable in Arkansas and North Carolina where wheat feeding is an alternative for poultry and hog producers. Cash and futures prices for SRW wheat have recently dropped below those for corn on a pound-for-pound basis creating opportunities for wheat to replace higher priced corn in feeding rations. Prospects for early new-crop corn usage ahead of September 1 are also increased with the largest intended southern corn plantings since 2007 and high expected summer corn prices.
 
Other 2010/11 U.S. feed grain changes this month include higher feed and residual use and higher food, seed, and industrial use for sorghum which boost expected domestic usage 15 million bushels. Sorghum exports, however, are projected 10 million bushels lower. Oats imports are raised slightly and feed and residual use is projected lowered leaving ending stocks up 18 million bushels. Price ranges for all the feed grains are narrowed 5 cents per bushel on each end. The season-average corn price is projected at $5.20 to $5.60 per bushel.
 
Global coarse grain supplies for 2010/11 are projected 6.3 million tons higher this month with a 1.8-million-ton increase in beginning stocks and a 4.5-million-ton increase in production. Higher corn and barley beginning stocks in Iran account for most of the increase in carryin. Nearly half of the increase in coarse grain production reflects upward revisions to sorghum production in a number of Sub-Saharan African countries. Increases in millet production for countries in this same region add 1.4 million tons to global coarse grain output.
 
Global corn production is raised 1.2 million tons with the biggest increases for Brazil, Uganda, and Paraguay. Production for Brazil is raised 2 million tons with higher reported area and yields for their primary summer crop and an increase in reported plantings for their winter crop. A 0.5-million-ton increase for Uganda corn is part of a number of revisions for African countries this month. Production for Paraguay is raised 0.4 million tons as favorable growing season weather boosted yields. Production is lowered 1.3 million tons for Indonesia and 0.5 million tons each for Egypt and South Africa.
 
Global 2010/11 corn trade is up slightly this month with imports raised 0.9 million tons for Indonesia and 0.5 million tons for China. The increase in expected China imports reflects the short-term decline in world corn prices in mid-March that created a buying opportunity for Chinese importers. No official confirmation of such purchases has yet been made. Corn imports are lowered 0.4 million tons for Canada based on the slow pace of U.S. shipments to date. Corn exports are raised 1.5 million tons for Brazil and 0.3 million tons for Paraguay with increased production and supplies in both countries. Exports are lowered 0.5 million tons each for South Africa and Thailand. Global corn consumption is increased 3.1 million tons with increases in feeding for China, Brazil, and Thailand, and increased food, seed, and industrial use for China and for several African countries where corn is a food staple. Projected global corn ending stocks are lowered 0.7 million tons.
 
WHEAT: U.S. wheat ending stocks for 2010/11 are projected slightly lower this month reflecting a small increase in seed use. Higher planted area as reported in the March 31 Prospective Plantings raises projected seed use 4 million bushels. Small by-class changes are made for imports with Soft Red Winter (SRW) wheat raised 5 million bushels and Hard Red Spring and durum wheat together lowered an offsetting amount. The marketing-year average price received by producers is projected 10 cents lower on each end of the range at $5.50 to $5.70 per bushel. Farm prices continue to be reported well below prevailing cash market bids indicating that farmers priced a substantial portion of this year’s crop well ahead of delivery.
 
Global 2010/11 wheat supplies are nearly unchanged as higher beginning stocks are mostly offset by lower world production. Production is lowered 1.3 million tons for Egypt as the latest reports indicate a sharp year-to-year drop in yields as unusual, early season heat affected pollination and reduced grain size. Production is raised 1.1 million tons for Iran on higher area.
 
Global wheat trade is projected higher with imports raised for Turkey, Indonesia, Morocco, Yemen, Egypt, and Peru. Lower expected imports for Syria and Afghanistan are partly offsetting. Global exports are raised 1.1 million tons with 1.0-million-ton increases for both Australia and EU-27, and a 0.6-million-ton increase for Brazil. Exports are lowered 0.5 million tons each for Canada and Ukraine, 0.4 million tons for Pakistan, and 0.3 million tons for Mexico.
 
 Global 2010/11 wheat consumption is lowered 0.8 million tons reflecting small reductions in food, seed, and industrial use in a number of countries. Changes in wheat feeding are mostly offsetting with China raised 1.0 million tons and Pakistan and Egypt lowered 0.6 million and 0.4 million tons, respectively. Global ending stocks are projected 0.9 million tons higher.
 
RICE: No changes are made on the supply side of the U.S. 2010/11 rice supply and use balance sheets. On the use side, all rice domestic use and residual is estimated at 127.0 million cwt, still a record, but down 2.0 million from last month, but 4.4 million above 2009/10. All of the reduction is in long-grain rice now estimated at a near-record 99.0 million cwt.
Combined medium- and short-grain domestic use is unchanged at 28.0 million cwt. The changes in the 2010/11 domestic use and residual estimates are based largely on the March 1 Rice Stocks report released by the National Agricultural Statistics Service (NASS) on March 31. NASS reported all rice stocks on a rough-equivalent basis at nearly 130.0 million cwt, up 17 percent from a year earlier, and above trade expectations.
The all rice 2010/11 export projection is unchanged at 116.0 million cwt; however, the rough-rice export projection is lowered 3.0 million to 39.0 million because of slower-than-expected sales and shipments to markets primarily in Central America. Conversely, the combined milled and brown rice export projection is raised 3.0 million cwt to 77.0 million (on rough-rice basis) due mostly to recent, large food-aid announcements. The 2010/11 long-grain export projection is raised 1.0 million cwt to 79.0 million, while the combined medium- and short-grain export projection is lowered the same amount to 37.0 million. The increase in the long-grain export projection is due mostly to an increase in the non-commercial portion of exports (virtually all long-grain rice) and the reduction in the combined medium- and short-grain export forecast is due to lower-than-expected exports to Taiwan. All rice ending stocks are projected at 54.8 million cwt, 2.0 million above last month, 18.1 million above the previous year, and the largest stocks since 1985/86. Long-grain and combined medium- and short-grain rice stocks are each raised 1.0 million cwt to 43.9 million and 9.4 million, respectively.
The combined medium- and short-grain 2010/11 price range is projected at $16.75 to $17.25 per cwt, up 50 cents on each end of the range from a month ago. The NASS February full-month combined medium- and short-grain rice price is up 60 cents from the February preliminary price. In addition, an unexpectedly large jump in the preliminary March farm price reported by NASS in Agricultural Prices at $20.30 per cwt is up 15 percent from the February full-month price. These two factors are largely responsible for the upward revision. The long-grain price range is projected at $11.05 to $11.55 per cwt, unchanged from last month. The rice by-class prices indicate an all rice season-average farm price for 2010/11 at $12.35 to $12.85 per cwt, up 10 cents per cwt on both ends of the range from a month ago.
 
 
Global 2010/11 rice production, imports, and ending stocks are lowered from last month, while consumption is raised slightly. World rice production is reduced 0.8 million tons to 450.7 million based mostly on decreases for Indonesia, Iran, Laos, North Korea, and Sri Lanka, which is partially offset by increases for Brazil and Colombia. Global imports for 2010/11 are lowered 0.8 million tons to 29.2 million due mostly to reductions for Malaysia, Madagascar, the Philippines, and Thailand, which is partially offset by increases for some Sub-Saharan Africa markets. Additionally, global exports are lowered from last month owing to expected declines in shipments from mostly South American markets including Argentina, Peru, and Uruguay. Global consumption is increased slightly based mostly on increases to a number of Sub-Saharan Africa markets. Global ending stocks are projected at 97.1 million tons, down 1.7 million from last month, but an increase of 3.3 million from 2009/10, and the largest stocks since 2002/03. The largest reductions in ending stocks occurred in Indonesia, the Philippines, and Thailand, which are partially offset by an increase for Brazil.
 
LIVESTOCK, POULTRY, AND DAIRY: The forecast for 2011 red meat and poultry production is virtually unchanged from last month as small increases in beef and pork production are largely offset by a slightly reduced forecast of broiler and turkey production. Beef production is forecast higher as higher cow and bull slaughter more than offsets slightly lower steer and heifer slaughter. Pork is forecast higher on slightly larger slaughter and higher-than-expected first quarter weights. Broiler and turkey production forecasts are reduced on moderating weight gains. The egg production forecast is reduced slightly as higher feed costs squeeze returns.
The forecast for beef exports for 2011 is raised from last month as the relatively weak dollar and economic growth in a number of countries support export growth. Conversely, the weakness in the U.S. dollar and economic growth in other major importing countries will limit U.S. beef imports. Thus, the forecast for beef imports is reduced from last month. The pork export forecast is unchanged from last month but imports are forecast slightly lower. Broiler exports are forecast lower on weaker expected demand.
Prices for livestock and poultry are raised from last month. Meat supplies remain tight and improving domestic demand and strength in red meat exports are supporting prices for livestock and poultry. Egg prices are forecast higher on the anticipated smaller production increase.
The milk production forecast for 2011 is reduced slightly from last month. Relatively high milk prices are being offset by high feed costs and only slight growth is expected in the herd for the remainder of the year. Fat-basis imports are lowered from last month but skim-solids imports are forecast higher. Both skim and fat-basis exports are raised largely on the strength of first-quarter butter, cheese, and nonfat dry milk (NDM) sales.
Butter and cheese prices are forecast lower this month, reflecting recent price declines but NDM and whey price forecasts are raised. The Class III price forecast is lowered as the weaker cheese price more than offsets higher whey prices. The Class IV price forecast is raised as higher NDM prices more than offset the lower forecast butter price. The all milk price is forecast to average $18.15 to $18.65 per cwt for 2011.
COTTON: This month’s U.S. cotton forecasts for 2010/11 show lower production, higher domestic mill use, and lower ending stocks. The production estimate is reduced 215,000 bales from last month based on USDA’s final Cotton Ginnings report released March 25, 2011. Domestic mill use is raised 100,000 bales, reflecting recent activity. The export estimate is unchanged. Ending stocks are reduced 300,000 bales to a record low 1.6 million, the equivalent of 8 percent of total use. The forecast range for the marketing-year average price received by producers of 81 to 84 cents per pound is raised 1 cent on each end of the range.
 
 
The world cotton forecasts for 2010/11 include lower production and higher consumption, resulting in a 2-percent reduction in ending stocks. World production is reduced about 400,000 bales, based on decreases for the United States, the African Franc Zone, Turkey, and Pakistan, partially offset by an increase for Brazil. World consumption is raised, reflecting increases for Pakistan, the United States, and others, partially offset by a decrease for Brazil. Revisions to world trade include lower exports by Brazil and the African Franc Zone and lower imports by China and Pakistan. Forecast ending stocks of 41.6 million bales are 36 percent of world consumption, which is the smallest stocks-to-consumption ratio since 1993/94.
 
 
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