USDA At 'Pipeline' Level For Corn Carryover

April 10, 2012 04:02 AM

What Traders are Talking About:

* Corn carryover at 'pipeline' levels. Surprisingly, USDA left its 2011-12 corn carryover projection at 801 million bu. this morning -- the third month at that level -- despite March 1 corn stocks coming in lower than expected in the March 30 Quarterly Grain Stocks Report. That clearly signals that's as low as USDA is going to go with its old-crop carryover forecast. Interestingly, USDA forecast 2010-11 corn carroyver at a low-water mark of 675 million bu. last year during February, March and April before ending stocks ultimately rose to 1.128 billion bu. on Sept. 1. From a price perspective, front-month corn futures hit a low of $6.08 in March 2011 before rallying to the all-time high of $7.99 3/4 in June of last year, which helped slow use and pushed carryover higher. This year, front-month corn futures posted a March low of $6.03. If history repeats itself, it would suggest corn futures will make a run at the all-time high sometime in early summer to help slow use and allow USDA to raise its carryover estimate from the current level.

The long and short of it: The pattern is too similar to believe corn carryover won't follow a similar path this year even if the current usage pace doesn't indicate that's likely. The key is spring/summer price action and the impact that has on corn use. Recent history points to higher corn prices that will slow use and push corn carryover higher by the end of the 2011-12 marketing year.

* Brazil gov't slashes soybean forecast. Conab, the statistical agency of the Brazilian government, slashed its Brazilian soybean forecast to 65.6 MMT from 68.7 MMT last month due to impacts from drought. Conab raised its Brazilian corn estimate to 65.1 MMT from 61.7 MMT in March and now sees safrinha (second season) production of 29 MMT. This morning, USDA cut its Brazilian soybean projection to 66 MMT and left its Brazilian corn crop forecast at 62 MMT.

The long and short of it: Brazil's government is now at the lower end of most private forecasts with its soybean estimate. But Conab's corn crop estimate seems overly optimistic. To get corn production to that level, late-season weather must be near ideal.

* Corn planting remains record quick. Not surprisingly, the pace of corn planting remains record-fast, with 7% of the U.S. crop seeded as of April 8, according to USDA data. That's well ahead of the five-year average for this date of 2% seeded. In the Corn Belt, Illinois has 17% planted, Indiana 6%; Iowa 1%; Kansas 6%; Minnesota 1%; Missouri 23%; Nebraska 1%; Ohio 2%; and South Dakota 2% planted. Just outside of the Corn Belt, Kentucky has 32% planted; Tennessee 46%; and Michigan 3% planted. Wisconsin and North Dakota report no planting yet. The really rapid increase in corn plantings is expected this week as the insurance "go date" falls from April 6-11 across the Corn Belt.

The long and short of it: There is some correlation between planting date and yield potential for corn, giving producers incentive to get the crop in the ground as early as possible. But many producers who are planting corn early in the southern Corn Belt are looking to capture the premium September corn has over December futures.

* China posts surprising trade surplus in March. Chinese exports surprisingly outpaced imports last month, leaving the country with a $5.35 billion trade surplus after a $31.48 billion trade deficit in February. Chinese imports rose 5.3% from year-ago last month, but exports increased by 8.9% from March 2011. Meanwhile, official customs data showed China imported 4.83 MMT of soybeans last month -- a 26% rise from February and 38% greater than March 2011. For the first three months of the 2012 calendar year, Chinese soy imports totaled 13.33 MMT -- up 21.6% from the same period last year.

The long and short of it: China's surprising trade surplus in March due to slower-than-anticipated imports is raising concerns about the country's economic growth and sparking some conjecture of a potential hard landing.


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