LIVESTOCK PRODUCERS: COVER 25% OF 1ST HALF FEED NEEDS... Corn and soybean meal futures dropped sharply ahead of this morning's USDA reports, creating a "value" buying opportunity for feed needs. Livestock producers were advised prior to the release of USDA's reports to cover 25% of 1st-qtr. corn needs in long March corn futures, 25% of 2nd-qtr. corn needs in long July corn futures, 25% of 1st-qtr. protein needs in long March soybean meal futures and 25% of 2nd-qtr. protein needs in long July soybean meal futures. Our fills were $6.87 in March corn, $6.78 3/4 in July corn, $395.30 in March meal and $388.00 in July meal.
CORN USED AT A FASTER-THAN-EXPECTED PACE... Despite a 55-million-bu. increase in estimated 2012 corn production, 2012-13 corn carryover was cut 45 million bu. from the December estimate in this morning's Supply & Demand Report. Dec. 1, 2012, corn stocks are put at 8.030 billion bushels. Even with the 55-million-bu. increase in total 2012-13 corn supplies, Dec. 1 stocks were 180 million bu. below the average pre-report trade estimate. The only way that can happen is with stronger-than-expected use in the first quarter of the 2012-13 marketing year. USDA says implied first-quarter corn use was 3.74 billion bu., down just 100 million bu. from the same quarter last year. That led to some significant changes in the Supply & Demand tables from last month.
• Corn feed & residual use is estimated at 4.45 billion bu., up 300 million bu. from December.
• Corn exports are now estimated at 950 million bu., down 200 million bu. from last month.
• The 100-million-bu. increase in total corn use was further offset by the rise in total supplies.
• The net result was a 45-million-bu. cut in estimated 2012-13 corn carryover to just 602 million bushels.
We’ve argued for sometime that USDA was using negative residual use as part of the feed & residual usage category to "hold up" corn carryover around 650 million bushels. That negative residual seems to have been erased now with the slight increase in total supplies and shockingly low export potential providing the cover to reflect a "zero" residual and actual corn feedings of about 4.45 billion bushels.
From here, we’ll assume USDA’s corn feed & residual estimate reflects reality. The next question to answer now revolves around exports. The 2012-13 corn market is proving exports are the "easiest" corn usage category to ration as feed & residual use now appears accurate. USDA’s estimate of corn-for-ethanol use of 4.5 billion bu. also seems to reflect reality.
If, however, importers need any of the remaining 602 million bu. of U.S. corn, they’ll likely have to pay up for it. Any sign of an increase in export demand will very likely prove to be supportive for U.S. corn futures. That’s especially true with production problems in Argentina that could limit supplies in the second half of the 2012-13 marketing year. Despite the fact that most see an Argentine corn crop below 25 million metric tons (MMT) this year, USDA actually increased its Argentine corn crop peg by 500,000 metric tons (MT), to what is likely a too-high 28 MMT this morning.
While USDA increased its Argentine corn crop estimate, it cut the bean crop estimate for the country by 1 MMT, to 54 MMT. According to most crop watchers, USDA has the Argentine crops going in the wrong direction. Late corn planting should cut total corn acres in Argentina, potentially increasing bean plantings.
BEAN USE UP 30% FROM SAME QUARTER LAST YEAR... That’s almost too much of an increase to believe -- and it certainly supports what now appear to be some conservative soybean-usage estimates in the S&D Report. USDA increased estimated 2012-13 soybean crush 35 million bu. from December, nearly offsetting the 44-million-bu. increase in total supplies. Residual use was also increased 4 million bu., to result in the 5-million-bu. increase in estimated 2012-13 soybean carryover, which now stands at 135 million bushels.
Implied use in the first-quarter of the 2012-13 marketing year was massive at 1.22 billion bushels. That’s a 30% increase in bean use over the same quarter last year. Much of that increase is due to a rapid-fire pace in soybean exports to start the year, which puts the bean market well ahead of the pace needed to hit USDA’s current bean export estimate of 1.345 billion bushels.
The 35-million-bu. increase in crush puts estimated bean crush this year at 1.605 billion bushels. While that’s an impressive tally, it’s still nearly 100 million bu. below last year’s crush. The increase in crush is not driven by domestic meal and soyoil demand -- USDA increased estimated 2012-13 soybean meal exports by 500,000 tons and pushed the soyoil export estimate up 350 million lbs. from December.
That’s a strong signal USDA expects continued strong demand from China in the weeks leading up to South American soy supplies coming to the market, but a chunk of that demand is switching from raw soybeans to the products. That’s why USDA left its bean export estimate unchanged from December.
ANNUAL CROP PRODUCTION SUMMARY
CORN: 10.780 billion bu.; trade expected 10.626 billion bu.
-- compares to 10.725 billion bu. in Nov.; 12.358 billion bu. in 2011
BEANS: 3.015 billion bu., trade expected 2.999 billion bu.
-- compares to 2.971 billion bu. in Nov.; 3.094 billion bu. in 2011
COTTON: 17.01 million bales; trade expected 17.24 million bales
-- compares to 17.26 million bales in Dec.; 15.57 million bales in 2011
USDA's "final" corn crop estimate of the year is actually up 55 million bu. from November with the national average corn yield at 123.4 bu. per acre, compared to 122.3 bu. per acre estimate in November. Corn harvested acres are estimated down 346,000 from November, which was more than offset by the increase in yield.
The bean crop estimate is up 44 million bu. from the November estimate with the national average bean yield now put at 39.6, up 0.3 bu. from the November estimate. Soybean harvested acres were increased 411,000 from November.
The cotton crop estimate came in 250,000 bales below the December estimate. USDA made some huge changes to the cotton crop by cutting 1.016 million bu. from harvested cotton acres, but adding 73 lbs. to the estimated national average cotton yield from December!
QUARTERLY GRAIN STOCKS
CORN: 8.030 billion bu.; trade expected 8.210 billion bu.
-- compares to 988 million bu. Sept. 1; 9.647 billion bu. Dec. 1, 2011
BEANS: 1.966 billion bu.; trade expected 1.984 billion bu.
-- compares to 169 million bu. Sept. 1; 2.370 billion bu. Dec. 1, 2011
WHEAT: 1.660 million bu.; trade expected 1.674 billion bu.
-- compares to 2.104 billion bu. Sept. 1; 1.663 billion bu. Dec. 1, 2011
Implied corn use in the first quarter of the 2012-13 marketing year was 3.74 billion bu., compared to 3.84 billion bu. a year-ago.
Implied bean use in the first quarter of the 2012-13 marketing year was 1.22 billion bu., up 30% from the same quarter last year.
Implied wheat use in the second quarter of the 2012-13 marketing year was 445 million bu., down 8% from the same quarter last year.
WINTER WHEAT SEEDINGS
ALL WINTER WHEAT: 41.8 mil. acres.; trade expected 42.6 mil. acres
-- compares to 41.3 mil. acres in 2012
HRW: 29.1 mil. acres.; trade expected 30.3 mil. acres
-- compares to 29.9 mil. acres in 2012
SRW: 9.42 mil. acres.; trade expected 8.9 mil. acres
-- compares to 8.1 mil. acres in 2012
WHITE WINTER: 3.27 mil. acres.; trade expected 3.5 mil. acres
-- compares to 3.3 mil. acres in 2012
All winter wheat seedings of 41.82 million are about 780,000 acres below the average pre-report trade estimate. Hard red winter wheat acres of 29.1 million fell 1.2 million acres shy of trade expectations. Soft red winter wheat acres were estimated at 9.42 million, 520,000 acres higher than expected. White winter wheat acres of 3.27 million are just under the trade guess.
2012-13 U.S. CARRYOVER
CORN: 602 million bu.; down from Dec. proj. of 647 million bu.
-- compares to 988 million bu. in 2011-12
BEANS: 135 million bu.; up from Dec. proj. of 130 million bu.
-- compares to 169 million bu. in 2011-12
WHEAT: 716 million bu.; down from Dec. proj. of 754 million bu.
-- compares to 743 million bu. in 2011-12
COTTON: 4.8 million bales; down from Dec. proj. of 5.4 million bales
-- compares to 3.35 million bales in 2011-12
USDA increased estimated corn feed & residual use 300 million bu. from December, to 4.45 billion bushels. That was partially offset by a 200-million-bu. cut to estimated old-crop corn exports (950 million bu.) and the increase in total supplies to limit the cut to carryover to "just" 45 million bushels.
USDA increased estimated old-crop soybean crush 35 million bu. and left estimated exports unchanged from December. That offset most of the increase in production to limit the increase in carryover to just 5 million bu. from December.
USDA increased estimated wheat feed & residual use by 35 million bu. (surprising, given the increase in corn feed & residual use) and left exports unchanged from December. That resulted in the 38-million-bu. cut to estimated wheat carryover.
2012-13 GLOBAL CARRYOVER
CORN: 115.99 MMT; down from Dec. proj. of 117.61 MMT
-- compares to 131.79 MMT in 2011-12
BEANS: 59.46 MMT; down from Dec. proj. of 59.93 MMT
-- compares to 55.10 MMT in 2011-12
WHEAT: 176.64 MMT; down from Dec. proj. of 176.95 MMT
-- compares to 195.78 MMT in 2011-12
COTTON: 81.72 mil. bales; up from Dec. proj. of 79.64 mil. bales
-- compares to 68.85 mil. bales in 2011-12
2012-13 GLOBAL PRODUCTION HIGHLIGHTS
ARGENTINA BEANS: 54.0 MMT; compares to 55.0 MMT in December
-- compares to 40.1 MMT for 2011-12
BRAZIL BEANS: 82.5 MMT; compares to 81.0 MMT in December
-- compares to 66.5 MMT for 2011-12
ARGENTINA WHEAT: 11.0 MMT; compares to 11.5 MMT in December
-- compares to 15.5 MMT for 2011-12
AUSTRALIA WHEAT: 22.0 MMT; compares to 22.0 MMT in December
-- compares to 29.92 MMT for 2011-12
CHINA WHEAT: 120.6 MMT; compares to 120.6 MMT in December
-- compares to 117.4 MMT for 2011-12
CANADA WHEAT: 27.2 MMT; compares to 27.2 MMT in December
-- compares to 25.29 MMT for 2011-12
EU-27 WHEAT: 131.73 MMT; compares to 131.73 MMT in December
-- compares to 137.23 MMT for 2011-12
RUSSIA WHEAT: 37.7 MMT; compares to 38.0 MMT in December
-- compares to 56.24 MMT for 2011-12
FSU-12 WHEAT: 77.49 MMT; compares to 77.79 MMT in December
-- compares to 114.81 MMT for 2011-12
CHINA CORN: 208.0 MMT; compares to 208.0 MMT in December
-- compares to 192.78 MMT for 2011-12
ARGENTINA CORN: 28.0 MMT; compares to 27.5 MMT in December
-- compares to 21.0 MMT for 2011-12
SOUTH AFRICA CORN: 13.5 MMT; compares to 13.5 MMT in December
-- compares to 12.42 MMT for 2011-12
BRAZIL CORN: 71.0 MMT; compares to 70.0 MMT in December
-- compares to 73.0 MMT for 2011-12
CHINA COTTON: 33.5 mil. bales; compares to 31.5 mil. bales in December
-- compares to 33.10 mil. bales for 2011-12
QUALITY OF 2012 CORN QUESTIONED... Aflatoxin was a problem for the 2012 corn crop as it came out of the field -- and it's a bigger problem coming out of the bin for some farmers. But some are questioning the feeding quality of the crop. Hog producers are noticing the impact first and are tweaking rations to account for lower starch. If starch content is a widespread issue, efficiency of ethanol plants will also start to suffer.
Farm Journal Media's Dairy Today Editor Jim Dickrell tells us, "Looking at milk per cow,
production seems to be holding up, but that's according to the November production report -- the last data available. That could still be based on 2011-crop feed supplies. Anecdotally, it seems starch levels are down, but that's being offset by good energy levels in the forage."
Bottom line: We're checking with all sources on this, but low starch corn means more bushels needed to produce the same amount of ethanol, milk or meat. That could be one of the reasons Dec. 1 corn stocks came in lighter than anticipated this morning.
BEEF UP YOUR MARKETING SKILLS: FOCUS ON BASIS... The difference between local cash grain prices and futures prices is called "basis." You know that. But do you know how to use basis to select the right risk management tool at the right time? When you finish Chapter 1 of our new marketing education series, you'll understand how all risk-management decisions start with analysis of the basis market. Click here for more.