At least USDA’s World Board is telling us what they’re thinking! Normally it’s a guessing game when we try to figure out confusing USDA reports — especially the Supply & Demand Reports from the World Board.Reason: USDA’s National Ag Statistics Service supplyside data "telegraphs" S&D changes. When it doesn’t...
that’s when the guessing normally starts.
Situation update —
USDA’s March 31 report of March 1 U.S. corn stocks came in about 170 million bu. to 180 million bu. below trade expectations. That sent a message of stronger-than-expected first-half 2010-11 corn use and the likelihood of an April corn carryover estimate below the March peg of 675 million bushels. Instead, USDA delivered an April carryover estimate unchanged from March at 675 million bushels. USDA made no change to the supply side of the balance sheet for corn, but did move some bushels around on the usage side —
Important messages in commentary —
Well... it’s official. USDA’s World Board has learned some lessons from Federal budgeteers — they are borrowing from the future to make the present appear brighter. Think we’re kidding? From the S&D summary:
• "U.S. corn feed and residual use is lowered 50 million bushels as increased prospects for 2011 SRW wheat production and higher year-to-year corn plantings in the South reduce expected corn feed and residual disappearance during the second half of the 2010-11 corn marketing year."
• "Winter wheat conditions are especially favorable in Arkansas and North Carolina where wheat feeding is an alternative for poultry and hog producers."
• "Prospects for early new-crop [2011-planted] corn usage ahead of September 1 are also increased with the largest intended southern corn plantings since 2007 and high expected summer corn prices."
Translation: USDA is "borrowing" from the coming 2011 SRW wheat and 2011 corn crops to "hold down" 2010- 11 corn feed use to "hold up" 2010-11 corn carryover.
Yep... sounds ‘dangerous’ to us, too —
Just look at the National Drought Monitor for the reason. There is "a lot" of corn planted in the South... and "a lot" of that corn is irrigated. But there was also a lot of corn planted in the South simply because of the $6.01 price guarantee on Revenue Assurance (RA) products. (In other words... some of that corn was planted for an insurance payment, not for harvest.)
The ‘ultimate’ message seems clear —
USDA isn’t likely to estimate corn carryover any lower than 675 million bu. — they’ve established "pipeline stocks" for corn. (Another way to look at it: They won’t likely estimate a corn stocks:use ratio less than 5%.) Now it’s up to the market to figure out how to keep stocks:use no lower than 5% at the end of the 2010-11 marketing year. To do that, use still has to slow down. Normally that means higher prices. In the S&D Report, however, USDA narrowed its national average on-farm cash price projection by a dime (up a nickel on the bottom; down a nickel on the top from March) to $5.20 to $5.60. If USDA has "built in" slower use... why didn’t it also increase the projected price to send a clear message that it expects higher prices?
Admittedly, "guessing and speculation" kicks back in at this point. But looking at the mix of on- and off farm stocks in the March 31 Grain Stocks Report suggests it will be difficult to move the national average on-farm cash price much from the current range. Reason: On-farm corn stocks as of March 1 were 3.38 billion bu. — just 27% of the 2010 corn crop. (On-farm stocks were also down 26% from March 1, 2010.) Not only that... "a chunk" of corn stored on-farm has already been priced for summer-2011 delivery.
Corn conclusions —
The April S&D Report reflects an anticipated slowdown of 2010-crop corn use, but not overall corn (feedgrain) use. (Borrowing from future crops.) In reality, the supply of 2010-crop corn will be as tight as it can get (pipeline stocks) on Sept. 1, 2011.