There is no denying the bulk of USDA’s report Tuesday was in the category of tweaks, not market movers. And the market reflected that, ending with corn down about a penny, wheat up 2-5 cents and soybeans – one of the crops the economists changed not at all, reacting the most, losing about 8 cents. This is common for the March supply/demand report. It is far more common to see bigger market moves related to the end-of-month forward-looking Planting Intentions report and Grain Stocks report, which will give us new data from which to derive quarterly old-crop usage.
It may be somewhat more surprising that USDA added about 215 million pounds of beef to the domestic supply through a boost in production and imports and a reduction in exports. The same adjustments added 190 million more pounds to the pork supply. The hog market did drop today, but modestly, while live cattle managed to gain modestly. Feeder cattle were up substantially more.
Many traders were surprised by the cut in corn ethanol use, which was caused by survey data from the new Grain Crushings and Co-Products Production report. USDA has been criticized for some time for using a 2.77 conversion factor (gal./bu.) for corn ethanol when the industry standard is widely felt to be 2.8. The economists were eager to update their procedure but felt that was impossible without evidence confirming it was needed. The report also sheds additional light on the production of feed co-products and corn oil for industrial (biodiesel) uses. Revisions to the first quarter 2014/15 usage for ethanol will be included in the March 12 Feed Outlook. We’ll revisit the topic then. Meanwhile, the bottom line is, the world now knows ethanol is using less corn – it’s not that we are using less corn.
The other “sleeper” in the report was South African corn use. It was widely expected that country’s production this year might be reduced—and it was, by 2 million tons. A reduction of 1.6 million tons was seen in global corn production for 2014/15 as an increase in Argentina’s crop partially offset the losses in South Africa and Belarus. However, in an unusual move, USDA upwardly revised South African corn consumption all the way back to 2005/06 through 2009/10. The greater use resulted in adjustments that in the end caused a 2.2 million ton drop in beginning stocks for the 2014/15 marketing year. It also caused changes in the stocks/use ratio for the affected years, a measure often used to assess how loose or tight stocks are. There will need to be some reassessments of the ratio and related price changes in a lot of advisory service offices in the near future!