Doane Spotlight: USDA reveals need for more 'price rationing'

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One of the great “mysteries” of monitoring the rate of usage in corn and wheat is the amount being used for animal feed. It’s actually a residual number gleaned from quarterly Grain Stocks in All Positions reports from USDA. Exports and mill usage of wheat are monitored weekly and pretty precisely. Ditto for corn exports and usage by processors and ethanol manufacturers.

But as for feed use, all analysts can go by are current feed use forecasts by USDA for the year and historical knowledge of how much of that figure will be used each quarter; knowledge of grain consuming animal units on hand, and the like. The Grain Stocks reports then reveal how close these “educated guesstimates” have been.

On Jan. 11 USDA issued Dec. 1 stocks in all positions and there were some big surprises, particularly for corn and wheat, where apparent disappearance for feed use was substantially greater than anticipated for both.

Corn: Production is now estimated at 10.780 billion bushels, up 55 million bushels from the previous estimate and about 130 million bushels above trade expectations. Despite the higher-than-expected production figure, Dec. 1 corn stocks came in about 200 million bushels below trade expectations. This implies total use for the September-November period at 3.763 billion bushels, down only 2 percent from a year ago vs. a crop nearly 13 percent below a year ago.

It led USDA to raise its feed use estimate by 300 million bushels, more than enough to offset the higher crop estimate and reduced export forecast. It reduced projected ending stocks to just a 20-day supply when a 30-day supply is considered minimum “pipeline requirements.”

USDA’s new global balance sheet for all coarse grains also showed ending stocks tightening despite a bump higher in their global production estimate from December. Bottom line for traders: Corn prices had not yet accomplished the needed “price rationing” to insure we don’t run too low on old crop before new crop is available.

Wheat: USDA did not change 2012 wheat production in the Annual Crop Production report. Production came in at 2.269 billion bushels with a yield of 46.3 bushels per acre, unchanged from the previous estimate. However, the Dec. 1 stocks reported in the quarterly Grain Stocks report indicated that feed use during the last quarter was much larger than expected. That could only mean higher-than-expected wheat feed use, so USDA raised that figure by 35 million bushels to 350 million. Seed use was raised by just 2 million bushels from last year in response to the considerably lower-than-expected winter wheat seedings for 2013, which it also reported on Jan. 11. And contrary to expectations by some, USDA did not cut its export forecast for wheat, still confident the pace of sales will pick up between now and the end of the marketing year on May 30. The net result was a surprising cut in projected ending stocks for 2012-13 and a surprisingly small hike in winter wheat seedings for 2013. Futures soared.

Soybeans: USDA raised the 2012 soybean production estimate by 44 million bu. on Jan. 11 by hiking both harvested acreage and average yield. But the boost was largely absorbed by higher estimates for crush and ending stocks rose only 5 million bushels, to 135 million. That still works out to just a paltry 16-day supply when, like corn, a 30-day supply is considered “minimum pipeline requirements” to handle the transition to new crop next fall. And, like corn, the Dec. 1 stocks in all positions figure for soybeans came in lower than expected, just not to the same degree.

Globally, it was a similar story as well. Even though USDA bumped the global production estimate up on prospects of record production in Brazil, it didn’t rise as much as the trade expected because it also lowered crop prospects for Argentina. Further, USDA reduced beginning stocks and raised usage estimates enough that projected global ending stocks still declined despite the record crop for Brazil. So, soybean futures popped higher as well.


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