The USDA report caught the market a little off guard after raising old crop corn carryout this morning. The average estimate for the 2011-12’ corn carryout was expected to be 749 million bu with a high guess of 801 from the analysts. Instead the USDA raised the carryout to 851 million after lowering "Feed and Residual" demand by 50 million. Old crop corn was the downside leader today with July corn finishing 19 ¾ cents lower at $5.87 ½. December corn dropped 9 ½ cents at a new low settle of $5.07 ¼.
The May Supply and Demand report is the first monthly report where we get to see the USDA’s new crop estimates (2012). The USDA is estimating that the total ending corn carrout for the 2012-13’ marketing year to be 1.881 billion bu while the average analyst was calling for 1.714 billion (9.7% higher than the average guess). Now there are a few that disagree with the USDA’s average corn yield of 166. The USDA accounts for these numbers with the following statement:
Planted acres reported in the March 30, 2012, "Prospective Plantings." For corn, harvested acres projected based on historical abandonment and derived demand for silage. Projected corn yield based on the simple linear trend of the national average yield for 1990-2010 adjusted for 2012 planting progress.
Source: http://www.usda.gov/oce/commodity/wasde/latest.pdf
So basically the USDA accounted for the unseasonable planting pace. Even if they dropped that a bushel to get to trendline yield we are still looking at a massive carryout for next year. The real question to ask is: are we really going to use 1.125 billion bushels more than we did last year at these prices? In our opinion this demand may come in if/after the price drops. This of course is barring any weather concerns that could hinder production this summer.
Soybeans received a "bullish" reaction from today’s report with a drop in old crop carryout to 210 million bu (estimated 220). The bigger surprise was the new crop carryout estimate at 145 million bu (estimated 170). To get this the USDA is using a 43.9 average yield and increasing exports by almost 200 million. We have started off the new crop year with exceptionally high export sales. We can add another 1.360 million MTS of new crop sales to the books after today’s favorable export sales report.
The "bearish" corn and "bullish" soybean report has pushed the corn/soybean ratio to a new high of 2.68 to 1 (see chart). The market has done all it can to encourage more soybean acres but we won’t get a definitive answer to exactly how many until the June acreage report.
November Soybeans to December Corn Price Ratio:
Total wheat production was slightly higher than the average analyst guess. Old crop carryout was slightly lower than the average guess. World carryout was reduced sharply after the USDA estimated a sharp increase in foreign feed usage. The total "domestic feed" demand category went from 137.89 MMTs in April’s report to 147.64 MMTs in May’s report. This brought ending world wheat carryout down to 197.03 MMTs (the estimate was 205.4). Feed wheat has been a hot topic as it has traded at a discount to US corn for much of the year. World corn ending stocks jumped to 127.56 MMTs (average guess 122) after corn feed usage dropped by 3.75 MMTs in large part from the switch to feed wheat around the world. This large increase in feed wheat wasn’t expected due to the sharp difference in carryout from estimates. Wheat stayed supported throughout the session as it "untied" itself to corn.
Going forward I expect new crop corn to continue finding resistance on rallies as long as weather remains favorable. We like remaining with the current EHedger recommendations but we always encourage you to double check your positions in AMMO. I have included a snapshot of today’s report in the table below. To receive a free trial of the EHedger research including hedge recommendations, as well as a free trial of our farm management software AMMO, please sign up using the link below. Have a great Friday!
USDA Estimates:
| USDA U.S. Grain, Cotton Carryout | |||||
| Thursday 2012-13 Estimate | 2012-13 Analyst Estimate | Thursday 2011-12 Estimate | 2011-12 Analyst Estimate | April 2011-12 USDA | |
| Soybeans | 0.145 | 0.170 | 0.210 | 0.221 | 0.250 |
| Corn | 1.881 | 1.704 | 0.851 | 0.758 | 0.801 |
| Wheat | 0.735 | 0.805 | 0.768 | 0.781 | 0.793 |
| Soyoil | 2.225 | n/a | 2.565 | n/a | 2.290 |
| Soymeal | 300,000 | n/a | 300,000 | n/a | 300,000 |
| Cotton | 4.90 | n/a | 3.40 | 3.40 | 3.40 |
| Rice | 27.0 | n/a | 34.0 | n/a | 39.0 |
| USDA World Carryover | |||||
| Thursday 2011-12 Estimate | April 2011-12 Estimate | ||||
| Wheat | 197.0 | 206.3 | |||
| Corn | 127.6 | 122.7 | |||
| Soybeans | 53.2 | 55.5 | |||
| Soymeal | 7.50 | 6.89 | |||
Best Regards,
EHedger
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