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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 for 2/9/12

Feb 09, 2012

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WASDE Report for 2/9/12

OILSEEDS: U.S. soybean supply and use projections for 2011/12 are unchanged this month, leaving ending stocks at 275 million bushels. Soybean exports are projected at 1.275 billion bushels, down 226 million from last year. Although soybean export commitments through January trail last year's pace by more than 226 million bushels, lower soybean crop forecasts and reduced export projections for Brazil, Argentina, and Paraguay are expected to be offset by additional U.S. sales and exports during the second half of the marketing year.

The U.S. season-average soybean price range for 2011/12 is narrowed to $11.10 to $12.30 per bushel compared with $10.95 to $12.45 last month. Soybean oil prices are forecast at 50.5 to 54.5 cents per pound, and soybean meal prices are projected at $290 to $320 per short ton, both unchanged from last month.

Global oilseed production for 2011/12 is projected at 452.5 million tons, down 4.9 million tons from last month. Brazil soybean production is forecast at 72 million tons, down 2 million due to lower projected yields. The reduction reflects hot, dry conditions in southern Brazil in December and January. Argentina soybean production is projected at 48 million tons, down 2.5 million. Despite widespread rains in recent weeks, the extended hot, dry period during planting and early crop development limited plantings and reduced yield prospects. Paraguay and Uruguay soybean production estimates are also reduced this month. Other changes include higher rapeseed production for China and Russia, lower rapeseed and sunflowerseed production for Kazakhstan, and higher cottonseed production for Pakistan.

Global oilseed trade for 2011/12 is projected at 110.5 million tons, down 2.6 million mainly reflecting reduced soybean export projections for Brazil, Argentina, and Paraguay. Soybean imports are reduced for China, EU-27, South Korea, Russia, and several Middle East countries. China soybean imports are reduced 1 million tons to 55.5 million reflecting lower-than-expected October-December imports. Global oilseed ending stocks are projected at 71.2 million tons, down 3.6 million from last month. Reduced soybean stocks in Brazil and Argentina account for most of the change.

WHEAT: U.S. wheat ending stocks for 2011/12 are projected lower this month. Exports are raised 25 million bushels supported by the stronger-than-expected pace of sales and shipments, particularly for competitively priced feed-quality wheat. Projected exports of Soft Red Winter and White wheat are each raised 15 million bushels on strong demand from Mexico and South Korea. Exports are also projected higher for Hard Red Winter wheat, up 5 million bushels, based on sales and shipments to date. Projected Hard Red Spring wheat exports are lowered 10 million bushels as strong domestic premiums for spring wheat continue to limit demand. Ending stocks for all wheat are projected 25 million bushels lower at 845 million. Based on prices reported to date and the lower expected carryout, the 2011/12 projected season-average farm price is raised 20 cents on the bottom end of the range to $7.15 to $7.45 per bushel.

Global wheat supplies for 2011/12 are projected 2.1 million tons higher with larger beginning stocks in Kazakhstan and increased production for India, Kazakhstan, and Morocco. Kazakhstan beginning stocks are raised 0.6 million tons with reduced domestic consumption for 2010/11. India production for 2011/12 is increased 0.9 million tons reflecting the latest government revisions, which increased yields for the crop that was harvested last spring. Kazakhstan production is raised 0.2 million tons based on the recent official estimate. Production for Morocco is raised 0.2 million tons also on official revisions to estimated yields in a crop that was harvested several months ago.

Global trade is raised slightly for 2011/12 with world imports increased 0.7 million tons. Small increases in imports are made for Saudi Arabia, Mexico, Chile, and Ethiopia. Export reductions for Ukraine, Canada, and India are more than offset by increases for Russia, the United States, Argentina, and Brazil. Global wheat consumption is reduced 1.0 million tons mostly reflecting a 1.6-million-ton reduction in India food use. Partly offsetting are small increases in food use for Australia, Chile, Ethiopia, and Kazakhstan. Global wheat feeding is nearly unchanged with a 1.0-million-ton reduction for Kazakhstan offset by increases for Ukraine, Saudi Arabia, Canada, and Mexico. Global ending stocks for 2011/12 are raised 3.1 million tons to a record 213.1 million. As projected, 2011/12 global wheat stocks would be 2.4 million tons higher than the previous record in 1999/2000.

COARSE GRAINS: U.S. feed grain ending stocks for 2011/12 are projected lower this month as increases in corn and oats imports are more than offset by higher expected corn exports. Projected corn and oats imports are raised 5 and 10 million bushels, respectively, based on the strong pace of shipments during the most recently reported September-November quarter. U.S. corn exports are projected 50 million bushels higher with reduced supplies in Argentina and recent increases in both sales and shipments. Corn ending stocks are projected 45 million bushels lower at 801 million. The projected range for the season-average farm corn price is narrowed 10 cents on both ends of the range to $5.80 to $6.60 per bushel.

Global coarse grain supplies for 2011/12 are projected 3.1 million tons lower mostly reflecting reduced corn production prospects in Argentina and, to a lesser extent, Paraguay. Argentina corn production is lowered 4.0 million tons to 22 million as field reports confirm that high temperatures and extensive dryness during pollination in late December and early January resulted in irreversible damage to early corn in the central growing region. Late planted corn, which has been on the increase in recent years, will help offset some of the earlier losses, but additional rainfall is needed to stabilize production prospects. Corn production is lowered 0.4 million tons for adjacent Paraguay where hot, dry weather also reduced area and yields. Partly offsetting are small corn production increases for EU-27 and the Philippines. Global barley production is raised with Argentina production up 0.7 million tons on higher reported area and yields for the crop that was harvested during late 2011.

Global coarse grain trade for 2011/12 is raised with higher corn imports for EU-27 and higher barley imports for Saudi Arabia, EU-27, and Jordan. Partly offsetting is a reduction in corn imports for Canada. Higher corn exports for a number of countries offset a 4.5-million-ton reduction for Argentina. Along with the projected increase for the United States, corn exports are raised 2.0 million tons for Ukraine, 0.5 million tons each for Brazil and EU-27, and 0.2 million tons for Russia. Barley exports are lowered 1.0 million tons for Ukraine, but raised 0.7 million tons for Russia, 0.5 million tons for Argentina, and 0.3 million tons each for Canada, EU-27, and Kazakhstan.

Global coarse grain consumption for 2011/12 is raised slightly with higher barley feeding in Ukraine and Jordan and higher corn feeding in Argentina and Ukraine. Corn feeding, however, is lowered for Canada and barley feeding is lowered for Kazakhstan and Saudi Arabia. Saudi Arabia is expected to rebuild stocks as world barley production has rebounded from a 40-year low in 2010/11. Global coarse grain ending stocks for 2011/12 are lowered, with a 2.8-million-ton reduction in corn stocks and a 0.6-million-ton reduction in barley stocks. At the projected 125.4 million tons, global corn ending stocks would be the lowest since 2006/07.

SUGAR: Projected U.S. sugar supply for fiscal year 2011/12 is increased 86,000 tons, raw value, from last month, due to higher production more than offsetting lower imports. Florida cane sugar production is increased 130,000 tons based on processors( production projections reported in Sweetener Market Data. Imports are decreased 44,000 tons, as a 219,000-ton decrease from Mexico more than offsets a 100,000-ton increase in re-export imports and a 75,000-ton increase attributed to corrected import data from U.S. Customs. Total use is decreased 170,000 tons. Domestic food use is lowered 250,000 tons based on a slower-than-expected pace to date. Exports and deliveries for re-export products are increased a combined 80,000 tons in line with the increase in re-export imports.

For Mexico, official data for 2010/11 show lower imports, higher domestic use, and lower ending stocks than estimated last month. For 2011/12, Mexico's projected domestic use is raised and ending stocks are raised commensurately. Also, Mexico(s 2011/12 imports of sugar due to the U.S. sugar re-export program are increased. The net result of these changes is lower 2011/12 sugar exports.

LIVESTOCK, POULTRY, AND DAIRY: The 2012 forecast of total red meat and poultry production is lowered from last month as reduced broiler meat production is expected to more than offset higher forecast beef, pork, and turkey production. Lower expected broiler weights are underpinning the reduced forecast, with hatchery data continuing to point toward fewer birds for slaughter during most of 2012. Beef production is raised from last month. Despite expected tight fed cattle supplies, cow slaughter is expected to remain relatively strong during the first quarter and carcass weights are forecast higher. Pork production is raised as first-quarter slaughter and first-half carcass weights are expected to be higher than forecast last month. Egg production is lowered slightly for 2012. Estimates of 2011 meat and egg production are adjusted to reflect December data.

The beef export forecast for 2012 is reduced slightly but poultry exports are raised. The pork export forecast is unchanged from last month. Import forecasts are unchanged from January. Beef and pork trade estimates for 2011 are unchanged but poultry exports are raised due to stronger-than-expected shipments in November.

Cattle prices for 2012 are raised from last month, reflecting tight supplies of fed cattle. The hog price forecast is unchanged from last month. Broiler prices are raised, reflecting lower production, and turkey prices are raised on current price strength. The egg price range is narrowed.

The milk production forecast for 2012 is raised. Milk cow numbers are raised for much of the year as USDA's Cattle report indicated 1 percent more dairy cows on January 1, 2012. However, producers are holding 1 percent fewer heifers for addition to the dairy herd, which is expected to push cow numbers lower later in the year. Milk per cow forecasts are raised as milk per cow in the last quarter of 2011 was higher than expected and mild weather in much of the country is supporting increased early year yields. Milk production estimates for 2011 are raised, reflecting end-of-year production data. Fat-basis trade estimates for 2011 are increased due to both stronger-than-expected imports of butteroil and exports of cheese during November. The skim-solids export estimate for 2011 is raised largely on relatively strong November exports of whey and skim milk powders. This strength is expected to carry into this year, thus the skim-solids export forecast for 2012 is raised as well.

With higher forecast 2012 production, cheese and butter prices are lowered. The nonfat dry milk (NDM) price is lowered to reflect slightly weaker early year prices. With stronger forecast demand for whey, the whey price forecast is raised. The lower cheese price is expected to more than offset the higher whey price, resulting in a reduced forecast Class III price. Lower butter and NDM prices result in a lower Class IV price. The all milk price for 2012 is lowered to $18.00 to $18.70 per cwt.

COTTON: The 2011/12 U.S. cotton estimates reflect marginally lower domestic mill use compared with last month. With no change in the production estimate, the total cotton supply is unchanged. Domestic mill use is lowered 100,000 bales, reflecting lower than anticipated activity in recent months. The export estimate is unchanged. Ending stocks are raised 100,000 bales to 3.8 million, for a stocks-to-use ratio of 26 percent. The forecast range for the average price received by producers of 87 to 93 cents per pound is narrowed 1 cent on each end.

The 2011/12 world cotton estimates include sharply higher supplies, due to higher beginning stocks and production. Beginning stocks are raised 1.6 million bales, mainly reflecting increased estimates for India's production in 2009/10 and 2010/11 by the India Cotton Advisory Board. World 2011/12 production is raised 505,000 bales due largely to higher estimated production for Pakistan, which is based on ginning arrivals. Forecast world consumption is reduced slightly, including decreases for Thailand, the United States, and others. World trade is raised, due to a 1.0-million-bale increase in the import forecast for China. World ending stocks are now forecast at 60.8 million bales, an increase of nearly 14 million bales from the beginning level. The stocks-to-consumption ratio of just over 55 percent is sharply higher than the past two seasons and about equal to the 2008/09 level.

RICE: No changes are made on the supply side of the U.S. 2011/12 rice supply and use balance sheet. On the use side, the export forecast is lowered 1 million cwt from a month ago to 89 million-all in long-grain. The rough rice export projection is lowered 1 million cwt to 32 million, while forecast combined milled- and brown-rice exports are unchanged at 57 million. The reduction in the export projection is due primarily to the slower-than-expected pace of sales and shipments to date to mostly to Central America because of increased competition, mainly from Brazil, and greater domestic supplies in some countries. The decrease in the export forecast resulted in an increase in ending stocks of 1 million cwt to 39.5 million, down almost 9 million from the previous year. Long-grain and combined medium- and short-grain rice stocks are forecast at 21.6 million and 15.2 million cwt, respectively.

The projected U.S. average milling yield for 2011/12 is reduced to 70.00 percent, down 0.75 percentage points from last month, but still above 68.86 percent for 2010/11. The change is based on data supplied by the Rice Millers' Association of the USA Rice Federation for August through December and on expectations for the remainder of the marketing year.

The 2011/12 long-grain, season-average price range is projected at $13.40 to $14.00 per cwt, down 10 cents per cwt on the low end of the range and down 50 cents per cwt on the high end with the midpoint down 30 cents. The combined medium- and short-grain price range is projected at $15.20 to $15.80 per cwt, down 20 cents per cwt on both ends of the range with the midpoint unchanged. The all rice season-average price range is forecast at $13.90 to $14.50 per cwt, up 10 cents per cwt on the low end of the range, but down 30 cents per cwt on the high end, and down 10 cents at the midpoint. The price projections are based on National Agricultural Statistics Service reported prices through December and expected prices the remainder of the marketing year. Global trading prices have been trending down in recent weeks as competition for markets has been very keen with the addition of India as a large exporter.

Global 2011/12 projections of rice production, consumption, trade and ending stocks are raised from last month. The increase in the global rice production forecast is due mostly to increases for India and the Philippines, which are partially offset by reductions for Brazil, Egypt, Argentina, and the United States. The U.S. rice crop (milled equivalent basis) is lowered slightly resulting entirely from the decrease in the average milling yield. India's rice crop is forecast at a record 102 million tons, up 2 million from last month due to an increase in both harvested area and yield. According to the U.S. agricultural counselor in New Delhi, favorable 2011 monsoon rains coupled with overall good weather conditions in the major rice producing areas supported higher kharif rice acreage and productivity. The Brazil rice crop is lowered 340,000 tons due to the effects of drought in Rio Grande do Sul, an important rice producing State. Global exports are raised by 1.4 million tons, primarily due to an increase for India and Egypt, which are partially offset by reductions for Thailand, Vietnam, and the United States. Forecast India exports are raised 2 million tons to a record 6.5 million tons, while exports for Thailand and Vietnam are lowered 500,000 and 200,000 tons, respectively. Forecast imports are sharply raised for Egypt based on information from the agricultural counselor in Cairo. Global ending stocks are up slightly from last month to 100.1 million tons mainly due to an increase for the Philippines.

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