USDA: Lower Corn Stocks Due to Higher Ethanol Use
Jun 11, 2010
The USDA updated the U.S. and World 2009/10 balance sheet estimates for major agricultural commodities in the World Agricultural Supply and Demand Estimates (WASDE) report on Thursday. The USDA lowered ending stocks for corn in both 2009 and 2010 due to a very surprising increase in ethanol use. 2010 ending corn stocks are expected to be the smallest since 2007.
We see June’s WASDE as bullish for corn as ending stocks were lower than analysts’ estimates and as a pleasant surprise as corn prices have been facing considerable headwinds lately. The increase in bushels needed for ethanol may be a result of the light lest weights of the old-crop, which means refiners need more bushels to extract the same amount of fuel. Ending stock estimates for soybeans and wheat came in roughly in line with consensus expectations and see June’s report as neutral for prices.
Over the last month, corn prices have declined to $3.36 from $3.64 on May 11 due to an early planting season and a favorable weather outlook for the Corn Belt this summer. The beginning of the corn season has gone relatively well with 94% of the crop emerged and 76% of the crop rated good/excellent. Corn prices rose 6 cents on Thursday, the largest increase in six weeks, due to the unexpected news.
"The drop in corn supplies is a major surprise and introduces a new demand element for the market," said Peter Meyer from JPMorgan Chase. "Shrinking U.S. inventories means there is little room for any production problems."
U.S. corn ending stocks for 2009/110 were lowered by 135 million bushels to 1.603 billion bushels. The decrease in ending stocks was primarily due a 150 million bushels increase in ethanol use. Ending stocks for 2010/11 were projected at 1.573 billion bushels, down from 1.818 billion bushels in May, again due with ethanol use increased a 100 million bushels to 4.700 billion bushels. Production estimates for 2010 were left unchanged.
"It doesn't imply there is a tight situation projected (in corn stocks) as long as we've got the production," said Jack Scoville, analyst at The Price Futures Group. "It does mean that we are getting to the point where we're going to have to make sure we have the production. At minimum it should stabilize things."
The USDA increased its 2010/11 farm price for corn by 10 cents to $3.30 to $3.90 per bushel.
World ending stocks for corn in 2010/11 were decreased by 4.5% or 6.89 million tons due to the decrease in U.S. ending stocks and higher imports.
U.S. wheat ending stocks for 2010/11 were decreased slightly by 6 million bushels to 991 million bushels. The small decline in ending stocks was due to adjustments in demand for old-crop stocks partially offset by higher production and lower feed and exports. Wheat’s 2010/11 marketing year estimated price was narrowed by the USDA to $4.00 to $4.80.
World wheat supplies for 2010/11 were lowered by 4.1 million tons due to slightly higher exports and lower production.
Changes to U.S. soybean estimates were relatively quite as ending stocks for the 2010/11 crop was lowered by 5 million bushels due to an increase in crush in the old-crop estimates. The farm price for the 2010/11 soybean crop was unchanged at $8.00 to $9.50 per bushel.
World soybean market continues its bearish outlook as ending stocks for 2010/11 increased by roughly 67 million tons to another new record high, which puts ending stocks to use at 27.2%. The large size of the Brazilian and Argentine soybean production, combined with the prospect of a record large U.S. harvest in 2010, leave the world well supplied with soybeans and we continue to maintain a bearish outlook for the remainder of 2010.
We will now turn our attention to the production numbers for the 2010 corn crop, which we see as very optimistic. We expect the USDA to begin to update production estimates in July or August, If the market begins to see a sign that these estimates are not sustainable, corn prices could see a rally as the ending stock to use ratio could reach uncomfortably low levels. We are also keeping an eye on China as they are currently facing dry weather and we expect to hear more about imports.
Click on the link for the full WASDE report: http://www.usda.gov/oce/commodity/wasde
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