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Old-Crop Carryover Hammers Corn Market

12:38PM May 10, 2012
USDA young corn

USDA surprised the corn market by adding to this fall's projected carryover, while the trade had expected the ending stocks estimate to go down.

Old-crop feed use will slip because of wheat feeding this summer and early harvest of the new crop, said USDA, and it kept its ethanol demand projection unchanged.
"The biggest surprise to me was the old-crop adjustment," said Chad Hart, economist at Iowa State University. "Ethanol looks like it's ahead of pace and we are not adjusting that up."
USDA reminded traders that U.S. growers are on the way to a record-large corn crop and lower prices.
In its first assessment of 2012-13 domestic and global supply and demand prospects for major crops, USDA projected:
  • For the current year, ending corn stocks will be 851 million bushels, up 50 million from last month. The trade had expected USDA to reduce its projection to about 760 million bushels.
  • The 2012 corn crop likely will soar to 14.79 billion bushels from 12.36 billion last year. Total supplies of 15.66 billion bushels will eclipse the 2011-12 supply by more than 2.1 billion bushels, and stocks will climb to 1.881 billion bushels next fall.
  • Ethanol demand for corn likely will stay about flat at 5 billion bushels in 2012-13.
  • Exports are headed for 1.9 billion bushels, from 1.7 billion this season.
  • Feed and residual use will soar 900 million bushels from this year, to 5.45 billion bushels in 2012-13.
  • Season-average farm corn prices likely will drop from $5.95 to $6.25/bu. this season to $4.20 to $5/bu. in 2012-13.
USDA reduced old-crop feed and residual corn use 50 million bushels to 4.55 billion bushels because it expects lower demand June through August. Winter wheat production made a big gain this year and wheat prices are attractive relative to corn, so summer wheat feeding likely will increase, said USDA.
"Record mid-April corn plantings and early May crop emergence boost prospects for early 2012-crop corn usage before the Sept. 1 beginning of the 2012-13 marketing year," added USDA.

'Scraping the Bin Bottoms'

Jerrod Kitt, research director at Linn Group, Chicago, said he thinks the feeding estimates are pretty accurate. "Now, we're scraping the bin bottoms," he said in comments on a CME Group panel discussion after USDA issued its supply-demand estimates.
In Texas, prices are about 15% lower for wheat than for corn, said Kitt.
"It's not that wheat's cheap; it's what you can find. So you will have very aggressive wheat feeding," said Kitt. "At the end of the day, wheat is corn; corn is wheat. Wheat is kind of going to be held to what corn does in terms of price response after this report." 

Record High 2012 Yield Projected

"USDA put an extra 2 bu. on top of the 164-bu. yield estimate," noted Jerry Gidel, chief feed grain analyst at Rice Dairy, on the CME Group panel. In its February Agricultural Outlook Forum estimates, the department used a trend yield of 164 bu. Last year's national average yield of 147.2 bu. fell below the trend since 1990, and USDA dropped the unusually low yield from calculations for the 2012 crop.
Adding last year's yield into the calculation would result in a 2012 projected yield of about 160 bu. or 161 bu/acre, said Gidel.
Analysts had expected USDA to increase its yield estimate because of early planting this spring. As of May 6, 71% of the crop was in the ground, compared with the five-year average of 47% by the same date. Also, 32% of the crop had emerged, up from the average of 13%. 
"We have a long season ahead of us," added Gidel. Yields may depend partly on how quickly La Nina shifts to El Nino.

Huge Jump in Feed Projection

USDA projected a huge surge in feed and residual demand, from 4.55 billion bushels in 2011-12 to 5.45 billion next season.
"The 5.45 billion is a pretty hefty number, coming up from 4.5 billion," said Gidel. "We definitely need to get the poultry industry on board to get some expansion there."
He expects poultry production will rise by the end of 2012, and said poultry growth needs to run 3% to 5% next year to support the projected feed demand for corn. Beef feedlot expansion will be limited in the next 12 to 14 months, so poultry and pork will have to provide the increase in feed demand.
Kitt said he expects corn buyers to be eager to replenish supplies from a huge 2012 crop.
"If we bring home a big crop, end users may be very interested in restocking their bins," said Kitt.

China Demand Likely to Rise

USDA noted demand from China in its new report: "Corn exports for 2012-13 are projected 200 million bushels higher than in 2011-12 on abundant domestic supplies, lower prices, and higher expected China demand."
Gidel suggested bigger prospects from China: "Chinese corn buying for the coming year could be a huge impact on the corn price," he said. "They could be a huge wild card yet in the corn market on the demand side."

Heading Toward Break-Even

The midpoint of USDA's 2012-13 price projection is $4.60, noted Hart.
"Futures are not at that level yet, but they're headed that way," he said. Futures in fall and winter "offered a fairly healthy return. Now we are getting closer and closer to break-even each and every day."
He said he fears that as they did in 2008, lofty prices may fall dramatically.

"This speaks volumes about having some price floors in on this crop, or establishing some," said Hart.


See all of the data, coverage and analysis of today's World Agricultural Supply and Demand Estimates and Crop Production reports.