Surprises in Report

February 6, 2012 11:07 AM

Bears prevail in corn and soybean numbers

USDA’s crop report released in January held bearish surprises for corn, soybeans and wheat, but analysts caution that world grain stocks are far from burdensome for corn or soybeans.

Looking at the corn numbers first, USDA pegged 2011 production at 12.358 billion bushels, up 48 million bushels from December and 78 million bushels higher than the trade estimate, due to increases in harvested average and yield.

"The numbers look quite negative against trade expectations," says Terry Roggensack of the Hightower Report. "The big surprise was the increase in yield."

USDA increased the 2011 average yield from 146.7 bu. per acre in November to 147.2 bu. per acre.

The 2011–12 ending stocks for corn of 846 million bushels were also well above the trade expectation of 753 million bushels but 2 million bushels below November’s estimate.

Despite the bearishness of the report, analysts expect roller-coaster prices to continue. "I think we’ll see extremely volatile grain prices over the next couple of years," Roggensack says.
Most analysts anticipate a loss of 12 million to 16 million metric tons of corn this year in South America. However, USDA raised U.S. corn exports by only 50 million bushels.

Analysts expect U.S. corn growers to plant 3 million more acres this spring. Coupled with an average yield, U.S. corn production could increase by 50 million tons. "With normal weather in the U.S., tightness in the world situation would be alleviated," Roggensack says.

There’s upside potential as well. First, drought has expanded into the northern and eastern Corn Belt. Second, if China runs into bad weather, world corn prices could once again soar.

Soybeans Bearish, Too. USDA raised soybean production to 3.056 billion bushels from Novem-ber’s 3.046 billion bushels, which is 14 million bushels more than the trade estimate. Ending U.S. soybean stocks of 275 million bushels were also up from December’s estimate of 230 million bushels. The trade estimate called for a 2 million bushel drop in stocks to 227 million bushels.

Mitigating the bearishness are weather problems in Brazil and Argentina and a slight reduction
in global soybean stocks, from 248 million metric tons in November to 245 million metric tons, says Jack Scoville of the Price Futures Group. USDA also lowered world and domestic demand for soybeans.

"Soybeans will have to head lower," Scoville says. "But the market focus will return to South America."

Recent rains provided some relief in dry crop-growing regions of South America, but substantial
damage has already occurred to the corn crop. "If corn is not going to make it, some acreage could go to soybeans," Scoville adds.

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