The USDA updated the U.S. and world balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report today. The USDA stunned the market today by decreasing U.S. corn yields, although reduced U.S. corn demand helped settle the bullish tone.
Slightly bearish news from the USDA as corn production declined by 123 million bushels due to the national average yield forecast at 1.4 bushels per acre below last month’s estimate. Yields are at 146.7 bushels per acre, the lowest since 2003/04, due to extreme heat and humidity during pollination. Despite the reduced production estimate, this year's crop is still on pace to be the third largest on record because of elevated planted acres.
Due to the smaller crop and decrease in broiler production, feed and residual use was lowered by 100 million bushels. Ending corn stocks for 2011/12 were reduced by 23 million bushels due to a decrease in production and exports remaining unchanged. The USDA forecasted the season-average farm price remained unchanged at $6.20 to $7.20 per bushel.
We were expecting a reduction in exports this month due to greater competition from the seaborne market, but believe that China's import of 900,000 tons in October of U.S. corn could have offset a potential decrease in U.S. exports.
Global supplies for 2011/12 are projected lower due to the reduced U.S. corn production. Global corn production is lowered for a number of countries and the biggest reduction coming from Mexico with a decrease of 3.5 million metric tons. Mexico's decrease in corn production is a result of a late start to the summer rainy season and an early September freeze in parts of the southern plateau corn belt. Increased corn production in China and EU-27 have partly offset reductions in Mexico. China's estimated corn production was increased by 2.5 mmt due to increases in area planted and yield. Production in the EU-27 has been raised by 1.9 mmt generally reflecting increased output from France, Romania, and Austria.
The USDA decreased U.S. soybean production by 14 million bushels to 3.046 billion bushels based on decreased yields. Yield estimates declined by 0.2 bushels per acre to 41.3 bushels per acre.
Domestic exports decreased by 50 million bushels to 1.325 billion bushels due to a slow export sales pace through October. The slow sales pace has resulted in an increase in ending stocks by 35 million bushels to 195 million bushels. The U.S. season-average price range for 2011/12 is projected at $11.60 to $13.60 per bushel, a $0.55 decrease on both ends of the range.
Global oilseed production was increased by 1.3 mmt to 454.8 mmt. A quarter of this increase is due to global soybean production with increases in Brazil, Paraguay, and Mexico. Brazil's increase was due to improved yields related to rapid planting progress and strong early season moisture throughout the country.
U.S wheat supplies were lowered by 9 million bushels due to updated production estimates from the September 30th Small Grains Report. Significant acreage remained unharvested in early September, lowering production estimates for hard red spring wheat and durum. Domestic use is unchanged for all wheat. Wheat ending stocks were in line with production, a decrease of 9 million bushels. The season-average price is projected at $7.05 to $7.75 per bushel compared with $7.10 to $7.90 last month.
Global supplies are projected at an increase of 2.6 mmt. This is due to higher production in Kazakhstan and EU-27.
Russian wheat exports have dominated the global market due to undercutting other sellers with low prices. Although Russia has not banned exports as they did last year, they are planning on limiting exports due to nervousness of the U.S. government crop report. If Russia limits their exports, expect increased U.S. wheat exports along with prices.
The harvest is coming to a close in the U.S. and as of November 7th, 87% of the corn crop has been harvested. Disappointing yields in 2011 due to difficult weather in the growing season have now put the stocks-to-use ratio at 6.7%, which is the lowest since 1995/96.
The grain markets will be closely watching Chinese imports over the next few months and prices will hang on their every move. China’s rapidly deteriorating inventories may increase 2011 imports to levels above 5 million metric tons.
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