Carl German, Extension Crops Marketing Specialist; clgerman@udel.edu
Pre-Report Analysis (7-8-10)
Markets Explode to Upside Ahead of USDA Report
The Dow Jones Industrial Average closed 274.66 points higher Wednesday at 10,018.28. The overnight session saw the Dow Jones futures trade 17 points lower, indicating the market could see light selling interest early Thursday. The overnight crude oil market was $.75 higher at $74.82. Brent crude was $.72 higher at $74.23. The U.S. dollar index is 0.118 higher at 83.940.
Heading into Friday’s USDA July Supply and Demand report the looming question remains: How much will U.S. corn ending stocks be cut for both the ‘09/‘10 and ‘10/‘11 marketing years? Further, if last week’s Quarterly Stocks report is accurate, then U.S. soybean stocks could drop to 100 million bushels for the ‘09/‘10 marketing year. The net impact of lowering ending stocks for U.S. soybeans will be offset to some degree by expectations for large world ending stocks of soybeans. The wheat market continues to be buoyed by weakness in the dollar. However, trade expectations are for all U.S. wheat stocks to exceed 1 billion bushels in tomorrow’s report.
Corn
Commercial buying continues to provide support, though Wednesday’s trade was dominated by noncommercial buying tied to the almost 300-point rally in the DJIA. Also impacting the corn market, to a lesser extent at this point in time, is the Weekly Crop Conditions report that had the overall rating for the nation’s corn crop declining by a couple of points for the third week in a row, now placed at 71 percent good to excellent as compared to 73 percent a week ago and tied with the year ago rating. If one dig’s a little deeper and considers only the five largest corn producing states: Iowa, Illinois, Indiana, Nebraska, and Minnesota this week’s ratings are noted to be below the national average for Iowa (65), Illinois (68), and Indiana (62), the three largest corn producing states, while Nebraska (83) and Minnesota (89) ratings are above the national average.
Pre-report estimates had weekly corn export sales at 33.5 to 57.1 million bushels. The weekly report showed total export sales of 28.3 million bushels, with old-crop sales of 25.6 million bushels, well above the 5.8 million bushels needed this week to stay on pace with USDA’s demand projection of 1.95 billion bushels. Total shipments of 37.5 million bushels were below the 47.9 million bushels needed this week. This report should be considered neutral to bearish.
Soybeans
Soybean contracts posted impressive 30-cent-plus gains Wednesday due in large part to spillover buying from the DJIA and other commodities. The weekly crop conditions report showed a decline of one percentage point for the U.S. soybean crop, now placed at 66 percent good to excellent. Some follow-through action may be seen Thursday, though the market could also begin to die down in front of Friday’s USDA reports. Pre-report estimates are indicating these numbers to be neutral to bullish, with the most bearish world production numbers already built into the market. The weekly report showed total export sales of 26.3 million bushels, with old-crop sales of 9.7 million bushels above the 1.3 million bushels needed to stay on pace with USDA’s demand projection of 1.455 billion bushels. Total shipments of 5.1 million bushels were below the 10 million bushels needed this week. This report should be viewed as neutral to bullish.
Wheat
Despite pre-report estimates that have new-crop wheat ending stocks (domestic) coming in over 1 billion bushels in Friday’s USDA Supply and Demand and Crop Production reports, the wheat market has been able to continue its strong rally. Support has come from the sharp sell-off in the U.S. dollar index, in addition to noncommercial short-covering that has been noted in the Chicago market.
Market Strategy
Last week’s Quarterly Stocks and Planted Acreage reports gave commodity traders their first indication that U.S. corn and soybean stocks may not grow this year and/or might not be as large as estimated in the June report. Tomorrow’s report will shed some light on the subject, although one needs to bear in mind that the June 30 planted acreage report was not survey based for corn and soybeans and will not become certifiable until the latter part of August. Currently, Dec ‘10 corn futures are trading at $3.95; Nov ‘10 soybean futures at $9.40; and July SRW wheat futures are trading at $5.15 per bushel.
July Supply and Demand USDA Report Highlights (7-9-10)
There will be less corn and more wheat on hand in the U.S. at the end of both the current and new crop years, according to USDA’s July supply and demand report released early this morning. U.S. corn ending stocks for both 2009-10 and 2010-11 were lower than what was estimated in June, but were above the average pre-report estimates. Soybean ending stocks were also reduced from the June estimate while wheat ending stocks were increased. In its monthly crop production report, the department raised its estimate of this year’s wheat crop by 149 million bushels, a little bigger increase than many analysts had forecast, so it may be bearish for the wheat market.
U.S. SUPPLY AND DEMAND CHANGES
USDA took old crop (‘09/‘10) corn stocks down to 1.478 billion bushels, reflecting a 175 million bushel increase in feed and residual use and a 50 million bushel cut in corn for ethanol. This change was expected, following the June 30 Quarterly Stocks report, which was below trade expectations and implied larger-than-expected consumption.
For new crop (‘10/‘11) corn, USDA left yield unchanged at 163.5 bushels per acre and cut planted and harvested acreage to match the June 30 acreage report (planted acreage, 87.9 million acres, harvested 81 million acres), resulting in a production estimate of 13.245 billion bushels. Incorporating the decrease in old-crop ending stocks and a 50 million bushel cut in ‘10/‘11 marketing year exports, ending stock estimates for the ‘10/‘11 marketing year are now projected at 1.373 billion bushels. The projected average farm price was increased by 15 cents per bushel on both ends of the price range, now estimated at $3.45 to $.4.05 per bushel.
For soybeans, USDA pegged old crop ending stocks at 175 million bushels, down 10 million bushel from last month, reflecting a 5-million-bushel increase in both crush and exports. Prior to the report, some analysts were suggesting old crop soybean stocks could eventually decline to 100 million bushels.
New crop soybean acreage was adjusted to match the June 30 acreage report (78.9 million acres planted, 78.0 million acres harvested) and yields were left unchanged from June’s 42.9 bushels per acre, with production now projected at 3.345 billion bushels, up 35 million bushels from June’s report. New crop ending stocks remain at 360 million bushels, as the increase in production was offset by the decrease in beginning stocks and a 5 million bushel increase in crush and a 20 million bushel increase in exports. USDA’s projected season average farm price was raised a dime on both ends of the price range, now estimated at $8.10 to $9.60 per bushel.
Old crop wheat ending stocks were forecast at 973 million bushels, up from 930 million bushels in June, as exports were lowered 20 million bushels, and there were also cuts in seed and feed and residual use. New crop wheat ending stocks were forecast to total 1.093 billion bushels, the result of the increase in production, carry-in stocks, lower feed and residual use. Exports were projected to be 100 million bushels higher. USDA’s projected season average farm price was raised 20 cents per bushel on both ends of the price range, now estimated at $4.20 to $5.00 per bushel.
This year’s all wheat crop will total 2.216 billion bushels, up from the June forecast of 2.067 b bu. U.S. all-wheat yield is forecast at 46.9 bushels per acre, up 0.3 bushels from last month and up 2.7 bushels from last year, and the third highest yield on record. The harvested area for all wheat was reported to be 32.1 million acres in the June 30th Acreage report.
WORLD Supply and Demand
Old crop world corn stocks are forecast at 139.59 million metric tons, down from 143.41 MMT in June. For new crop, world corn stocks were lowered 6.24 MMT, from 147.32 MMT forecast in June, with nearly half the decline driven by reductions in carry-in and production in the U.S. World ending stocks are viewed as bullish for corn with a decrease seen in both ‘09-‘10 and ‘10-‘11 marketing years.
Old crop world soybean stocks are forecast at 65.35 million metric tons, down from 65.47 MMT in June. For new crop, world soybean stocks were raised 0.77 MMT, from 66.99 MMT forecast in June. Soybean ending stocks are bearish with both old crop and new crop (‘09-‘10 and ‘10-‘11 marketing years) resulting in ending stocks-to-use ratios of greater than 27 percent.
Old crop world wheat stocks are forecast at 193.02 million metric tons, up from 192.90 MMT in June. For new crop, world wheat stocks were lowered 6.88 MMT, from 193.93 MMT forecast in June, as world production was projected 7.5 million tons lower. World wheat ending stocks should be viewed as bearish with ‘10-‘11 ending stocks-to-use at 28 percent.
U.S. ENDING STOCKS (Million Bushels) 2009-2010
| July | Avg | High | Low | June | 2008-09 | |
| Corn | 1,478 | 1,404 | 1,600 | 1,214 | 1,603 | 1,673 |
| Soybeans | 175 | 171 | 195 | 138 | 185 | 138 |
| Grain sorghum | 28 | 29 | 36 | 25 | 33 | 55 |
| Wheat | 973 | 968 | 973 | 940 | 930 | 657 |
U.S. ENDING STOCKS (Million Bushels) 2010-11
| July | Avg | High | Low | June | |
| Corn | 1,373 | 1,337 | 1,734 | 833 | 1,573 |
| Soybeans | 360 | 354 | 387 | 250 | 360 |
| Grain sorghum | 33 | 32 | 39 | 25 | 38 |
| Wheat | 1,093 | 1,033 | 1,104 | 852 | 991 |
WHEAT PRODUCTION (Million Bushels) 2010-2011
| July | Avg | High | Low | June | 2009-10 | |
| All Wheat | 2,216 | 2,164 | 2,209 | 2,106 | 2,067 | 2,216 |
| All Winter Wheat | 1,505 | 1,494 | 1,525 | 1,472 | 1,482 | 1,523 |
| HRW | 1,011 | 996 | 1,020 | 973 | 979 | 919 |
| SRW | 268 | 279 | 284 | 270 | 284 | 404 |
| White | 226 | 220 | 224 | 210 | 219 | 200 |
| Spring | 607 | 576 | 614 | 514 | — | 584 |
| Durum | 104 | 102 | 115 | 91 | — | 109 |
WORLD ENDING STOCKS (Million metric tons)
| 2010-2011 | 2009-2010 | |||
| July | June | July | June | |
| Wheat | 187.05 | 193.93 | 193.02 | 192.90 |
| Corn | 141.08 | 147.32 | 139.59 | 143.41 |
| Soybeans | 67.76 | 66.99 | 65.35 | 65.47 |
WORLD PRODUCTION (Million Metric Tons)
| 2010-2011 | 2009-2010 | |||
| July | June | July | June | |
| Brazil soybeans | 65.0 | 65.0 | 69.0 | 69.0 |
| Argentine soybeans | 50.0 | 50.0 | 54.5 | 54.0 |
| Brazil corn | 51.0 | 51.0 | 53.0 | 53.0 |
| Argentina corn | 21.0 | 21.0 | 22.5 | 22.5 |
| Australia wheat | 22.0 | 22.0 | 22.5 | 22.5 |
| Canada wheat | 20.5 | 24.5 | 26.5 | 26.5 |
For Supply and Demand Estimates (WASDE): http://usda.mannlib.cornell.edu/
For Crop Production: http://usda.mannlib.cornell.edu/