Stocks Tighten Despite Demand Issues

June 28, 2013 08:36 AM
Stocks Tighten Despite Demand Issues

Grain stocks continue to drop, widening the divide between supplies and prices.

Stocks of old-crop corn, soybeans and wheat continue to dwindle, creating a wide divide between old- and new-crop supplies and prices. Stocks as of June 1 of all three crops were substantially lower than a year ago, according to USDA’s quarterly stocks report, released June 28.

"Supplies are going to be tight, which will help support markets—wheat, corn, and beans—through summer, regardless of what the weather does," says Jack Scoville, vice president with the Price Futures Group, Chicago. Scoville was the commentator on a post-report MGEX press call. "We expected a tight stocks situation," he says. "And we certainly got it."

According to the Grain Stocks report, old-crop corn stocks fell by nearly half from March’s estimate to 2.764 billion bushels, which reflected a larger than expected disappearance, given the average trade estimate of 2.845 billion bushels and nearly 12 percent lower than June 2012’s 3.148 billion bushels.

"Corn stocks were below the range of trade estimates, which will be a reason we’ll see support in nearby markets," says Scoville.

Soybean Stocks Down but So, Too, Is Demand

Soybean stocks were also lower than expected at 435 million bushels, more than 56 percent lower than March’s estimate of 999 million bushels and 35 percent lower than June 2012’s 667 million bushels. The trade had been anticipating stocks to come in at 442 million bushels.

Most of the decline in soybean stocks occurred in off-farm stocks. "On-farm stocks were only down about 4 percent," says Chad Hart, agricultural economist with Iowa State University. "Farmers are holding beans to see if they will rally into summer," says Hart.

Even though, soybean stocks are substantially lower than both March 1 and June 2012, Hart says that soybean demand is down about 20 percent from a year ago due to a large crop in Brazil and lower South American prices.

"Implied disappearance for the March-May quarter was 564 million bushels," says Scoville. "That implies a very, very tight situation."

Wheat stocks were also lower than expected at 718 million bushels, down 42 percent from March’s 1.234 billion and 3 percent lower than June 2012’s 743 million bushels.

While wheat stocks are still ample, Scoville says, the wheat market could potentially tighten given the implied disappearance.

Hart agrees. "Could we have a run-up in wheat? Sure," Hart says. A weather trigger in an export competitor—the European Union or Ukraine—could spark a rally in U.S. wheat prices.


Coverage, Analysis of the June 28 USDA Reports
See all of the data, coverage and analysis of the Grain Stocks and Acreage reports.


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