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Understanding USDA's Corn Stocks Estimate

January 18, 2012

By Phyllis Picklesimer, University of Illinois

 
The corn market was surprised by the USDA's final 2011 corn production estimate and the estimate of Dec. 1, 2011 corn stocks. The March 2012 futures price declined by 52 cents per bushel in the two sessions following the release of the reports, said Darrel Good, a University of Illinois agricultural economist.
 
At 9.642 billion bushels, Dec. 1 corn stocks were 425 million bushels smaller than those of a year ago and the smallest in five years, but they were about 240 million bushels larger than the average of the reported trade guesses, he said.
 
"Those guesses were in an extremely wide range of 500 million bushels. Three of the 15 analyst guesses reported by Dow Jones were 9.55 billion bushels or larger, so not everyone was surprised by the USDA estimate," Good said.
 
Part of the surprise in the magnitude of Dec. 1 stocks came as a result of the average expectation of a smaller 2011 crop estimate. With the absence of any supporting evidence, it is not clear why, on average, analysts expected a 30-million-bushel reduction in the estimated size of the crop, he added.
 
"The USDA estimate was a very modest 48 million bushels (0.4 percent) larger than the November 2011 forecast. The 78-million-bushel difference between expected and actual production accounts for about one-third of the surprise in the stocks estimate. The remainder of the surprise is the result of incorrect expectations about the level of feed and residual use of corn during the first quarter of the 2011-12 marketing year," Good said.
 
The market anticipated a high level of use to be revealed, perhaps partly to correct what was perceived as an underestimate of feed and residual use in the previous quarter. The surprisingly large estimate of Sept. 1, 2011, stocks implied a very low level of feed and residual use during the final quarter of the 2010-11 marketing year and for the entire marketing year, he said.
 
"Some believed that the low, and incorrect, estimate of feed and residual use last year had resulted in an unrealistically low forecast of use for the current year. It was thought that the Dec. 1 stocks estimate would 'correct' the past errors and show a high level of use during the September-December quarter, resulting in a larger projection of use for the year. That did not happen," he said.
 
Instead, implied use during the quarter was consistent with the USDA forecast of 4.6 billion bushels so the forecast was not changed. Calculated feed and residual use of 1.838 billion bushels during the quarter represents 40 percent of the projected total for the year, he said.
 
"The percentage of total use during the first quarter last year was an unusually large 43.2 percent. In the previous 4 years, use during the first quarter averaged 39.3 percent of the marketing year total, in a range of 38.2 to 40.7 percent," Good said.
 
According to Good, the seasonal pattern and the total implied feed and residual use of corn during the 2010-11 marketing year is still troublesome. Explanations for the low level of use center on the potential for overestimating the amount of corn used to produce ethanol, increased feeding of distiller's grains, and/or an underestimation of the size of the 2010 crop.
 
"None of those explanations, however, addresses the inconsistent seasonal pattern of implied use. In addition, the implied sharp decline in feed and residual use of corn, all grains, and all feeds (including an estimate of distiller's grain) per animal unit during the last half of the marketing year is without explanation," he added.
 
With year-ending stocks of U.S. corn still expected to be a relatively low 6.7 percent of projected use, a lot of price uncertainty remains, he said.
 
"The immediate focus may be on the size of the South American corn crop and the implications for U.S. corn exports. The USDA lowered the projected size of the Argentine crop from 1.14 to 1.02 billion bushels in last week's report. Recent and upcoming precipitation will help stabilize that crop, but the extent of damage may exceed that reflected in the current forecast," he noted.
 
The forecast of the Brazilian crop was unchanged at 2.4 billion bushels. The USDA now expects U.S. corn exports to reach 1.65 billion bushels during the current marketing year, he said.
 
"Nineteen weeks into the year, export inspections have averaged 32.7 million bushels per week (adjusted for Census export estimates through November). Inspections need to average 30.9 million per week from now through August in order for the total to reach the projection," he said.
 
A further reduction in the size of the South American crop, as occurred in the drought of 2008-09, could boost U.S. exports above the current projection, particularly if China continues the current pattern of small weekly purchases, he noted.
 
"Beyond the South American crop, corn prices will be influenced by 2012 U.S production prospects. In general, analysts are anticipating more acres, higher yields, and a much larger crop than in 2011," Good said.
 
According to Good, such a large crop has not yet been priced into the market. Potential crop size will be gradually reflected from spring through harvest, beginning with the USDA's February baseline projections and including the March 30 Prospective Plantings report.
 
"Oh, and don't forget the March Grain Stocks report to be released on the same day," he said.
 

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RELATED TOPICS: Corn, Marketing, Crops, USDA, Analysis, Exports

 
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COMMENTS (9 Comments)

FG - cuba, IL
Iowa55

Superb analysis!!!
11:06 PM Jan 18th
 
Steve the hay farmer
I am a cattle farmer as well as a hay and grain producer. I am looking for alternative feeds just as every other cattle producer is. The crop may not be there but in the same stroke I believe demand has been hurt.We had very good prices and still do for 2011 crops, take advantage of them. I have also priced some ,not alot,of 2012 crops. My dad told me that a farmer never never makes good money for more than two or three years in a row. I remember the eighties when it was never going to go down. In my opinion there are too many outside things to affect the market. Remember that the grain embargo had nothing to do wit supply and demand and just as well the world economy does not matter to supply and demand either. We are entering a new world. I am glad I am not younger than I am.
6:23 PM Jan 18th
 
FG - cuba, IL
Iowa55

Superb analysis!!!
11:06 AM Jan 18th
 
AJH - Royal, IA
Every one wonders where the piles of corn are. One should look into a see how much commercial and on farm storagfe has been built the last few years and maybe the can find the anwser to this question. I don't know how much has been built but you may be surprised by the number.
8:54 AM Jan 18th
 
AJH - Royal, IA
Every one wonders where the piles of corn are. One should look into a see how much commercial and on farm storagfe has been built the last few years and maybe the can find the anwser to this question. I don't know how much has been built but you may be surprised by the number.
8:54 AM Jan 18th
 
Elliott101 - NE
To me it seems really silly that the market would try to interpret anything from a stocks report that probably has a great deal of error. The USDA officially admidts to a sample error for corn of at least 3%-- particularly when most of the stocks are still on the farms. There could also be reporting error, data collection errors, modeling error, etc. that can increase the variability in stock reports and bias the results. If two presidential candidates had several polls taken prior to an election and the lead bounced back and forth in a 4% range, the accurate statement would be that it is a dead heat. If the corn stocks comes in below orabove expectations by less than 4%, traders want to call it a demand change, or changes in supply. In reality, the USDA stock numbers are probably not that good to make interpretations of that kind besides general confirmation of what we think we know-- like in this case that corn supply is much smaller this year than last year.
8:52 AM Jan 18th
 
Elliott101 - NE
To me it seems really silly that the market would try to interpret anything from a stocks report that probably has a great deal of error. The USDA officially admidts to a sample error for corn of at least 3%-- particularly when most of the stocks are still on the farms. There could also be reporting error, data collection errors, modeling error, etc. that can increase the variability in stock reports and bias the results. If two presidential candidates had several polls taken prior to an election and the lead bounced back and forth in a 4% range, the accurate statement would be that it is a dead heat. If the corn stocks comes in below orabove expectations by less than 4%, traders want to call it a demand change, or changes in supply. In reality, the USDA stock numbers are probably not that good to make interpretations of that kind besides general confirmation of what we think we know-- like in this case that corn supply is much smaller this year than last year.
8:52 AM Jan 18th
 
Faust100F
Sorry, but you are nothing but a house organ for the USDA. I cannot believe we pay dole employees to study corrupted information and add credibility to it by trying to justify the numbers. It is clear you need to get out more often, the grain IS NOT THERE. Maybe we should add a forth team member to the USDA comic book, larry, moe curly, and Phyllis. No person working for a government funded institution should be commenting on government information. You are biased, and your information is based up on "best guesses" by corrupt governmental officials. My proof of the grain not being there, is that there are no piles of corn in Iowa being stored outside this year, and there is no corn piled in the streets of Woden, Iowa. I would think that as an educator, you would seek reliable, factual information from which to draw conclusions, instead of relying upon "heresay" from other morons in our government. John F. Foust J.D., CPA, Grain Farmer
7:50 AM Jan 18th
 
Iowa55
I am of the opinion that they did the best they could do with in the guidelines they have to work in. This will turn out to NOT be their finest work.The problem with it as I see it is their little acknowledgment that SA will probably be lowered some more. They reduced Argentina's crop by 100 million bu and will need to reduce it some more if the picts I have seen are representative of a large portion of their most productive ground.

With a cheap food policy I think they just kicked the can down the road with the hope it will turn out OK.
They are "banking" on a large spring planting here to depress prices. There may very well be a June surprise waiting in the wings.

I have been contacted by an ethanol plant 40 miles away twice since harvest, I have never sold them grain.
Has me wondering why????? Do you suppose the bu's aren't out there?

One of the local custom grain haulers down here in SC Iowa says most of his long time customers all have empty bins. Short crop and relatively high prices coupled with a more agressive before they had it in the bin selling program has equalled less grain for now and later on in the season.

WE ARE STILL NINE MONTHS AWAY FROM A SERIOUS START TO THE NEXT HARVEST.

If more acres are planted it is the acres on the margin very few will be the class 1 productive areas. JMHO
6:07 AM Jan 18th
 



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