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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 Report 5/10/12

May 10, 2012

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WASDE Report for 5/10/12

OILSEEDS:  U.S. oilseed production for 2012/13 is projected at 97.0 million tons, up 6 percent from 2011/12. Higher soybean production accounts for most of the increase, but sunflowerseed, canola, peanut, and cottonseed production also are all projected above last year. Soybean production is projected at 3.205 billion bushels, up from the 2011 crop as higher yields more than offset lower harvested area. Harvested area is projected at 73.0 million acres based on a 5-year average harvested-to-planted ratio and planted area of 73.9 million acres. Soybean yields are projected at 43.9 bushels per acre, up 2.4 bushels from 2011. With beginning stocks projected at 210 million bushels, 2012/13 soybean supplies are projected at 3.43 billion bushels, up 4 percent from 2011/12.

U.S. soybean crush for 2012/13 is projected at 1.655 billion bushels, almost unchanged from 2011/12 as a lower extraction rate offsets reduced total soybean meal use. Total soybean meal use is projected down 1 percent as reduced exports are only partly offset by gains in domestic use. Increased soybean meal exports from Paraguay and Argentina are expected to exceed the limited gains in global import demand, resulting in reduced U.S. export prospects. With increased 2012/13 U.S. soybean supplies and sharply lower South American soybean supplies on hand this fall, U.S. soybean exports are projected at 1.505 billion bushels, up 190 million from 2011/12. Ending stocks for 2012/13 are projected at 145 million bushels, down 65 million from 2011/12, leaving the stocks-to-use ratio at a historically low 4.4 percent. The U.S. season-average soybean price for 2012/13 is projected at $12.00 to $14.00 per bushel compared with $12.35 per bushel in 2011/12. Soybean meal prices are forecast at $335 to $365 per short ton, compared with $360. Soybean oil prices are projected at 52.5 to 56.5 cents per pound compared with 53.5 cents for 2011/12.

Global oilseed production for 2012/13 is projected at a record 471.5 million tons, up 8 percent from 2011/12 mainly due to increased soybean production. Global soybean production is projected at 271.4 million tons, up almost 15 percent. The Argentina soybean crop is projected at 55 million tons, up 12.5 million from 2011/12 as yields rebound and relatively high prices lead to record harvested area. The Brazil soybean crop is projected at a record 78 million tons, up 13 million, also due to record harvested area and improved yields. Paraguay soybean production is projected at 7.8 million tons, up 3.8 million from 2011/12 as yields rebound strongly from drought-reduced levels. China soybean production is projected at 13.1 million tons, down 0.4 million from 2011/12 as producers continue to shift area to more profitable crops. Global production of high-oil content seeds (sunflowerseed and rapeseed) is projected almost unchanged from 2011/12 as increased area is mostly offset by lower yields. Oilseed supplies for 2012/13 are up 3 percent from 2011/12 despite a 23 percent reduction in beginning stocks resulting from drought-reduced South American crops. With crush projected to increase 2.9 percent, 2012/13 global oilseed ending stocks are projected at 65.6 million tons, up 2.9 million from 2011/12, but still 15.8 million below 2010/11.

Global protein meal consumption is projected to increase 2.8 percent in 2012/13. Protein meal consumption is projected to increase 5 percent in China, accounting for about half of global protein consumption gains. Global soybean exports are projected at 97.3 million tons, up 9 percent from 2011/12. China soybean imports are projected at 61 million tons, up 5 million from 2011/12. Global vegetable oil consumption is projected to increase 3.2 percent in 2012/13, led by increases for China and India.


WHEAT: The 2012/13 outlook for U.S. wheat is for larger supplies and use, but lower prices. All wheat production is projected at 2,245 million bushels, up 12 percent from last year's weather-reduced crop and the highest since 2008/09. The all wheat yield, projected at 45.7 bushels per acre, is up 2.0 bushels from last year, but 0.6 bushels below the 2010/11 level. The survey-based forecast for 2012/13 winter wheat production is up 13 percent with a forecast record yield of 47.6 bushels per acre as a recovery in yields in the southern and central Plains boost Hard Red Winter (HRW) wheat production sharply from the previous year. Partly offsetting is lower forecast production for Soft Red Winter wheat and White Wheat compared with last year. Spring wheat production for 2012/13 is expected to rebound with a recovery in durum area and higher projected yields for other spring wheat, which are expected to offset the decline in other spring area. U.S. wheat supplies for 2012/13 are projected at 3,133 million bushels, up 5 percent from 2011/12.

Total U.S. wheat use for 2012/13 is projected up 8 percent year-to-year on higher expected domestic use and exports. Food use is projected at 945 million bushels, up 15 million from 2011/12 as flour extraction rates are expected to decline modestly from historical highs in recent years and consumption grows with population. Feed and residual use is projected at 230 million bushels, up 50 million from the 2011/12 projection as favorable wheat prices relative to corn and larger HRW supplies boost summer quarter wheat feed and residual disappearance. U.S. exports for 2012/13 are projected at 1,150 million bushels, up 125 million from this month's 25-million-bushel higher projection for 2011/12. Larger supplies, more competitive prices, and an early expected start to this year's harvest open the door to higher demand for U.S. wheat during the coming months. U.S. ending stocks are projected to continue their decline from the recent high in 2009/10. At a projected 735 million bushels, 2012/13 ending stocks are expected down 33 million from 2011/12 and 241 million below 2009/10. The season-average farm price for all wheat is projected at $5.50 to $6.70 per bushel, down sharply from the record $7.25 per bushel projected for 2011/12.

Global wheat supplies for 2012/13 are projected 2 percent lower on the year as a 23.8-million-ton reduction in foreign production offsets the increase in U.S. output. At the projected 677.6 million tons, global production is down 17.1 million from 2011/12. Lower 2012/13 production for FSU-12, EU-27, Australia, Morocco, Argentina, Turkey, and Pakistan accounts for most of the reduction. Record production for India and China and larger crops in Canada, Afghanistan, Algeria, and Iran limit the decline.

Global wheat trade for 2012/13 is expected to be lower than in 2011/12 with world imports projected down 6.1 million tons to 135.3 million. Some of the largest reductions are for EU-27, South Korea, Mexico, Japan, the Philippines, and Saudi Arabia where wheat feeding is also reduced. Exports are reduced for FSU-12, Argentina, EU-27, Australia, and Brazil, but raised for Canada. Global wheat feeding is lowered 13.9 million tons from 2011/12 with lower expected supplies of feed-quality wheat and record projected coarse grain supplies. Global wheat consumption is projected down 7.9 million tons or 1 percent from 2011/12 as small increases in food use in most countries partly offset the decline in global wheat feeding. Global ending stocks for 2012/13 are projected at 188.1 million tons, down 8.9 million on the year. Stocks are expected to remain sharply higher than the recent low of 125.6 million tons in 2007/08.

COARSE GRAINS:  U.S. feed grain supplies for 2012/13 are projected at a record 416.3 million tons, up 16 percent from 2011/12 with higher area and production for corn, sorghum, barley, and oats. Corn production for 2012/13 is projected at a record 14.8 billion bushels, up 2.4 billion from 2011/12. A projected 5.1-million-acre increase in harvested area and higher expected yields, compared with 2011/12, sharply boost production prospects. The 2012/13 corn yield is projected at a record 166.0 bushels per acre, 2.0 bushels above the 1990-2010 trend reflecting the rapid pace of planting and emergence. Despite the lowest expected carryin in 16 years, corn supplies for 2012/13 are projected at a record 15.7 billion bushels, up 2.2 billion from 2011/12.

Total U.S. corn use for 2012/13 is projected up 9 percent from 2011/12 on higher feed and residual disappearance, increased use for sweeteners and starch, and larger exports. Feed and residual use for 2012/13 is projected up 900 million bushels reflecting a sharp rebound in residual disappearance with the record crop and an increase in feeding with lower corn prices and higher expected pork and poultry production. Projected corn use for ethanol is unchanged on the year as weak gasoline consumption limits domestic blending opportunities. Corn exports for 2012/13 are projected 200 million bushels higher than in 2011/12 on abundant domestic supplies, lower prices, and higher expected China demand. Record foreign corn supplies, however, are expected to limit the increase in U.S. shipments. U.S. corn ending stocks for 2012/13 are projected at 1.9 billion bushels, up 1.0 billion bushels from the current year projection. The season-average farm price is projected at $4.20 to $5.00 per bushel, down sharply from the 2011/12 record projected at $5.95 to $6.25 per bushel.

Projected corn ending stocks for 2011/12 are raised 50 million bushels to 851 million with lower expected June-August feed and residual disappearance. The large year-to-year increase in winter wheat production and attractive prices for wheat relative to corn are expected to raise summer wheat feeding. Record mid-April corn plantings and early May crop emergence boost prospects for early 2012-crop corn usage before the September 1 beginning of the 2012/13 marketing year. As in recent years, this late-summer new-crop usage is expected to displace old-crop usage and boost carryout.

Global coarse grain supplies for 2012/13 are projected at a record 1,389.2 million tons, up 6 percent from 2011/12. Global corn production for 2012/13 is projected at a record 945.8 million tons, up 75.3 million from 2011/12, and the 6th straight year that world corn output has set a new record. Foreign corn production is also projected to be a record at 570.1 million tons, up 13.6 million with the largest increases for Argentina, Mexico, Canada, South Africa, China, and Ukraine. Global corn trade is projected higher for 2012/13 with imports raised 6 percent mostly supporting higher corn feeding in China, Vietnam, South Korea, Japan, EU-27, and the Middle East. Global corn food, seed, and industrial use is also raised with increases in corn processing expected for China, Argentina, EU-27, and Brazil. Global corn consumption is projected at a record 921.0 million tons, up 53.7 million from 2011/12 with more than half of the increase in foreign markets. World corn ending stocks for 2012/13 are projected at 152.3 million tons, up 24.8 million from 2011/12, and the highest since 2000/01.


SUGAR:  Projected U.S. sugar supply for fiscal year 2012/13 is down 2.4 percent from 2011/12, as lower imports more than offset higher production and beginning stocks. Higher beet sugar production reflects higher area and trend yields, while cane sugar production is nearly unchanged from a year earlier. Imports under the tariff rate quota (TRQ) reflect the minimum of U.S. commitments to import raw and refined sugar and projected shortfall. The Secretary will establish the TRQ at a later date. Imports from Mexico are up mainly due to higher production in Mexico. Total use is up 1 percent.

For 2011/12, U.S. sugar supplies are increased 978,000 short tons, raw value, from last month. Beet sugar production is increased to reflect higher-than-normal early harvest of sugarbeets, while the increase in Florida cane sugar matches processor projections. Higher imports reflect the announced increase in the U.S. TRQ and higher imports from Mexico. Mexico's sugar exports are increased following reductions in domestic use and ending stocks.

LIVESTOCK, POULTRY, AND DAIRY:  Total U.S. meat production in 2013 is projected to be above 2012 as higher pork and poultry production more than offsets continued declines in beef production. Lower forecast feed costs and relatively strong, albeit declining hog, broiler, and turkey prices are expected to provide incentives for continued pork and poultry expansion. Pork production is expected to increase at about the same rate as 2012 as producers increase farrowings modestly, but the number of pigs per litter continues to grow. Broiler and turkey production for 2013 are also forecast higher as producers benefit from lower feed costs; however, increasing production will weigh on broiler and turkey prices, moderating the rate of expansion. Beef production will decline in 2013 due to tighter supplies of fed cattle and lower cow slaughter. Egg production is expected to decline in 2013 as producer returns in 2012 are affected by sharply lower egg prices.

The total meat production forecast for 2012 is raised from last month as production of beef, pork, broiler, and turkey is forecast higher. Beef production is raised on heavier carcass weights and larger expected cow slaughter. Pork production is raised fractionally on slightly heavier carcass weights. Broiler and turkey production forecasts for 2012 are raised on first-quarter production data; production forecasts for subsequent quarters are unchanged. Egg production is forecast higher, largely due to higher first-quarter production.

Tight U.S. beef supplies and high cattle prices are expected to constrain beef exports in 2013. Pork exports are expected to gain in 2013 as supplies increase and hog prices decline. Broiler exports are forecast lower in the face of improving domestic demand. Beef imports are expected to be higher in 2012 as U.S. cow slaughter declines in response to reduced cow inventories and increased retention. Pork imports are forecast unchanged from 2012.

The beef export forecast for 2012 is reduced from last month on expected weaker first-quarter exports. Forecasts for subsequent quarters are unchanged. The pork export forecast is raised marginally as stronger expected first-quarter exports more than offset a slightly weaker forecast for the second half of the year. Broiler exports are raised on higher expected first-quarter shipments.

For 2013, cattle prices are forecast above 2012 due to tight supplies of fed cattle. Hog, broiler, and turkey prices are forecast to decline from 2012 as production increases for all three meats. Egg prices are forecast higher on lower production.

The cattle price forecast for 2012 is reduced from last month based on recent declines in cattle prices. The hog price forecast is reduced on weaker pork demand. Broiler prices are reduced, but turkey and egg prices are forecast higher.

Milk production for 2013 is forecast to increase slightly. High feed prices and weakening milk prices during 2012 are expected to pressure producer returns, leading to declines in 2013 cow numbers. However, improvements in returns during 2013 will moderate the rate of decline. Milk per cow is expected to continue to grow, supporting increased milk production. Commercial exports are forecast to increase as the global economy improves and milk production increases. Imports will be slightly lower as domestic supplies increase. With improving demand and only modest increases in production, cheese, butter, and nonfat dry milk (NDM) prices are forecast higher. Whey prices will average near 2012 levels. Both Class III and Class IV prices are forecast higher, and the all milk price is forecast at $17.25 to $18.25 per cwt for 2013.

Forecast milk production in 2012 is raised from last month, primarily reflecting a slower decline in cow numbers and slightly faster growth in milk per cow. Cheese, butter, and NDM prices are reduced from last month on weaker-than-expected demand but whey demand has been stronger than expected and the price forecast has been raised. Class price forecasts are reduced. The milk price is forecast to average $16.90 to $17.40 per cwt.

COTTON:  The U.S. cotton projections for 2012/13 include higher supply, demand, and ending stocks compared with 2011/12. Projected production is raised 9 percent based on Prospective Plantings and average yields. Above-average abandonment is projected at 20 percent due to continued drought on the Texas High Plains. Domestic mill use is projected at 3.5 million bales, 100,000 bales above 2011/12. Exports are projected at 12.0 million bales, 5 percent above last season due to the larger available supplies. Ending stocks are raised to 4.9 million bales. The projected stocks-to-use ratio of 32 percent is well above the last three seasons, but only slightly above the 10-year average of 30 percent. The forecast range for the marketing-year average price received by producers is 65 to 85 cents per pound, compared with 91.0 cents estimated for 2011/12.

The initial 2012/13 world cotton projections show record world ending stocks for the second consecutive season, resulting from an expected 6.7-million bale surplus of production over consumption. World production is projected 5 percent lower than last season at 116.7 million bales, with reductions predicted for nearly all major cotton-producing countries except the United States. World consumption is expected to rise 3.3 percent due to modest growth in both world GDP and cotton's share of world fiber demand, as lower cotton prices relative to polyester improve cotton's competitive position. World trade is expected to fall 10 percent, as sharply lower imports by China are partially offset by increases for other countries where cotton demand is projected to rise.

China's national reserve stocks are currently estimated at nearly 20.0 million bales. The government of China has announced a 2012/13 support price above both the 2011/12 support price and the anticipated world price; therefore, the reserve is likely to acquire a significant proportion of the 2012 crop. China's government has not indicated how it will manage the expected deficit in production relative to consumption. The China 2012/13 import projection of 14.0 million bales is based on USDA's assumption that China will limit the growth of national reserve stocks by releasing a portion of the reserve. China's total ending stocks are expected to grow 14 percent to 28 million bales, representing 38 percent of total world stocks.

RICE:  Tighter U.S. 2012/13 all rice ending stocks, forecast down 21 percent from 2011/12 are expected to result in higher rice prices. U.S. 2012/13 all rice supplies are forecast at 239.0 million cwt, down 6 percent from 2011/12. Beginning stocks and production in 2012/13 are both forecast lower from a year ago, while imports are forecast 7 percent larger. Beginning stocks, at 34.0 million cwt, are down 30 percent from 2011/12. U.S. rice production in 2012/13 is projected at 183.0 million cwt, down 1 percent from 2011/12. Planted area in 2012 is forecast at 2.56 million acres, down 5 percent from the previous year and the smallest area since 1987/88. Harvested area is estimated at 2.53 million acres. Average all rice yield is projected at a record 7,225 pounds per acre, up 2 percent from the previous year's crop. The projected yield is estimated based on a linear trend by rice class, 1990/91-2011/12.

U.S. 2012/13 total all rice use is projected at a 212.0 million cwt, 4 percent below the previous year. U.S. domestic and residual use is projected at 123.0 million cwt, the same as 2011/12. The use of rice in beer brewing has trended down in recent years and contributed to a near stagnant per capita consumption of rice. Exports are projected at 89.0 million cwt, 8 percent below revised 2011/12 exports. Despite an expected increase in global trade, competition for key markets will be keen as competitor supplies rise, particularly in Asia. U.S. all rice ending stocks in 2012/13 are projected at 27.0 million cwt, 21 percent below the previous year with a stocks-to-use ratio of 12.7 percent-the lowest since 2007/08. The average milling yield used for 2012/13 is 70.25 percent based on the 2007/08-2011/12 average rates.

The U.S. 2012/13 long-grain rice season-average farm price is projected at $14.50 to $15.50 per cwt, compared to a revised $13.20 to $13.60 for the previous year. The combined medium- and short-grain price is projected at $17.25 to $18.25 per cwt, compared to $15.50 to $15.90 for a year earlier. The 2012/13 all rice price is projected at $15.30 to $16.30 per cwt, compared to a revised $13.90 to $14.30 per cwt for 2011/12. U.S. prices are expected to strengthen on a forecast tighter domestic supply situation for both long-grain and combined medium- and short-grain rice, despite an expected record global rice crop, particularly among the major Asia exporters.

Global 2012/13 total supply and use are each projected to reach record levels at 570.6 and 465.7 million tons, respectively, resulting in a 0.7- million increase in world ending stocks. Global 2012/13 rice production is projected at a record 466.4 million tons, up 3.1 million from 2011/12. Record rice crops are projected in Asia. In contrast, rice crops in Western Hemisphere exporters are forecast lower than the previous year as producers switch to more profitable crops. In contrast, Brazil's rice production is forecast to expand in 2012/13 from the previous year's weather-reduced crop. Global 2012/13 consumption is projected at a record 465.7 million tons, up nearly 2 percent from the previous year. Global exports in 2012/13 are projected at a marketing-year record of 35.1 million tons, up 1.1 million from 2011/12. Large imports are projected for Nigeria, Iran, the EU-27, and Indonesia. Global ending stocks are expected to increase 0.7 million tons to 104.9 million.

Note: The rice supply and use series for Cambodia and Laos have been revised back to 2005/06 and 1999/2000, respectively, to more accurately reflect reported per capita consumption, trade, and to incorporate ending stocks estimates. Cambodia and Laos rice production estimates for 2011/12 are 4.3 million and 1.4 million tons, respectively, down 1.1 and 0.5 million from the April WASDE report, and deviate from official Cambodia and Laos published estimates.

Note: The rice supply and use series for Cambodia and Laos have been revised back to 2005/06 and 1999/2000, respectively, to more accurately reflect reported per capita consumption, trade, and to incorporate ending stocks estimates. Cambodia and Laos rice production estimates for 2011/12 are 4.3 million and 1.4 million tons, respectively, down 1.1 and 0.5 million from the April WASDE report, and deviate from official Cambodia and Laos published estimates.

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