Tight U.S. corn and soybean stocks will buoy prices as the market shifts its focus from demand for existing supplies to spring planting conditions for the new crops.
Old-crop stocks of corn and soybeans are falling to about as low as they can get and still have a pipeline. USDA's April supply and demand estimates peg ending stocks this year at 675 million bushels of corn and 140 million bushels of soybeans, both unchanged from the department's March projections.
Those stocks would provide enough soybeans to fill demand for 15 days and corn for 18 days.
“You wonder if the market is questioning some of those numbers, thinking corn stocks are tighter than USDA says,” said Chuck Danehower, University of Tennessee economist, as corn futures climbed after USDA issued its projections on April 8. Traders had expected the estimate of corn ending stocks to reach about 590 million bushels, because USDA had reported March 1 stocks about 175 million bushels lower than expected.
To keep this year's ending corn stocks estimate steady from last month, USDA analysts shifted 50 million bushels of demand from feed to ethanol. The department also said some 2010-11 feed demand will be filled with wheat in the Southeast and early corn in the South.
Ben Parks, risk management consultant at FCStone, LLC, Kansas City, said the corn stocks estimate confused the market. “I don't think this morning's report changed anything,” said Parks. “The market still has to slow demand and has to worry about acreage and growing conditions this summer.”
What price will ration corn?
In the next two or three weeks, the corn market may focus on rationing supplies before weather gets more attention, said Parks.
What price will ration demand is a tough question. May corn futures up to $7.40 in spring didn't ration demand, and livestock prices have gained since then, noted Parks. “It will take something more than that.”
Tim Hannagan, analyst at PGFBest, Chicago, said the market still lacks rationing pressure.
“We're in a very rare time in history when price returns on produced products are keeping pace with cash production cost increases,” said Hannagan in an April 8 report. Grain prices have climbed in the past year, but ethanol producers, cattle feeders, and pork producers are still making profits.
“There is a price at which demand abates, but that's not been seen yet,” said Hannagan.
Danehower agreed. “In the corn market, it's hard to say that price rationing has occurred. Exports have been strong. Ethanol usage continues strong. Every time we have a price break, we have buyers step in.”
Soybean rationing and competition
Although he hasn't seen rationing in corn, Danehower says it may have developed in the soybean market. Export sales have eased lower in recent weeks as the South American crop progressed.
USDA's soybean supply-demand figures trimmed this season's exports by 10 million bushels to 1.58 billion and crush by 5 million to 1.65 billion. Those bushels went into estimated residual use, leaving the stocks estimate unchanged from last month at 140 million bushels.
Those adjustments were about what the trade expected, noted one analyst. Another noted that in the week ended March 31 export sales had not reached the weekly average needed to meet USDA's projection of 1.59 billion bushels before the April supply-demand report reduced that to 1.58 billion bushels.
U.S. export sales have been slowing as Brazil has sold its new crop, noted Hannagan. “Their dominance will continue through May,” he said.
Spring planting concerns
Late winter and early spring weather in the Dakotas and Minnesota offer bulls prospects of corn planting problems.
“The ground is wet and they have some flooding going on,” noted Danehower. He thinks the corn market is looking at potential planting delays in some major corn-producing areas, notably the Dakotas and Minnesota. Even if the acreage gets planted, he said, delayed planting may eat into yields.
The Red River, which flows north between North Dakota and Minnesota, is expected to crest in Fargo this weekend. “People are saying they can have the crop in the ground a month later, but cool, wet weather is forecast for the northern plains,” said Helen Pound, Penson Futures, Minneapolis. She questioned whether planting will progress that quickly.